from Hacker News

Ask HN: W2 income exceed 1M but taxed at 51% after IPO

by tech_taxpayer on 11/26/20, 7:56 AM with 14 comments

I will have a few years of high W2, mostly RSU equity comps. It's a good problem to have yes. But it still sucks, while I know some will disagree, that more than half of that will be taken away.

As W2 income, there's also very little tax mitigating strategies, now that I talked to an army of tax advisors. More than I'd otherwise need in a lifetime.

The W2 income spike is not steady and all peak next year (due to lockup period deferring this year's income to next year), so I want to preserve / defer as much as possible.

For those who've been through those tech IPOs, what would you recommend?

These are what I know that could work in today's tax code:

1) Go the real-estate professional route to offset non-passive income, and even if I do, putting down several multifamily units next year, it won't be enough depreciation to offset my 1M+ W2 income.

2) There're a few other aggressive tax strategies far less well known that I got exposed to recently, mainly those in Family Office for the wealth. Those will 100x the audit risk for sure.

3) Maybe I should just stop worrying about this, and learn the lesson of never overstaying this 'W2 slave' stage and should shift to business and capital income sooner.

Thoughts?

  • by deanmoriarty on 11/27/20, 4:49 PM

    I really think #3 is the way to go.

    I’ve been in the same camp, making $1M+ from W2 and being taxed like crazy, a few times also with premature AMT due to ISO exercise (though I later took advantage of long term capital gains on disposition, but still an incredible gamble to avoid golden handcuffs).

    I am thinking of actually quitting my current job since it’s all W2 (finance, bonus heavy) and it’s not worth the stress considering what remains after taxes, it’s personally demotivating having to work 80 hours a week and have 50%+ go down the drain. I think getting a less paid 40h/week job with an effective 25-30% tax rate might be better.

    Also, I’d suggest to shove all your take-home in index funds, and enjoy the low taxes on the dividends and capital gains. If you have a $5M portfolio, it will throw significant dividends and capital appreciation, that will likely continue to be taxed very favorably in the future.

  • by garmaine on 11/26/20, 7:59 AM

    Donate half of it to a Schwab donor advised fund. Or better yet, donate shares with unrealized capital gains. Then look for ways to do good in the world with that tax-write off charitable balance.

  • by nkjoep on 11/26/20, 8:07 AM

    as I am not very familiar with the U.S.A. tax system, there may be parts of your message I don't fully understand.

    may I ask you what are you complaining about exactly?

    51% of taxes over a multi millionaire income sounds not too bad to me.