As happens every year, I had a meeting with a W-2 couple who were unhappy with the amount of their income tax liability.
The clients’ earnings are sufficient to trigger all of the phase-out’s and are now subject to the wonderful new taxes that have been created just for them. Or at least that is how they are viewing it.
They were asking what options are available to them in the future. With W-2 income there are few options to limit that income and all of them are at the pleasure of the employer to enact. The client can only exercise those that are available to them(i.e. 401K maximization, and HSA maximization) with little else available as far as tax reduction.
For the interest and dividend income, , the client may be able to switch to tax exempt investments if this is a viable option for their investment goals.
Schedule A deductions will typically decline as couples get older. The mortgage interest will decrease as the principal balance is reduced and the property taxes can only legally go so high so fast, not to mention the limitations from an AMT perspective.
From my perspective one of the best ways to reduce W-2 income is to try to get more lines on the 1040 filled out. One way that some clients are accomplishing this reduction is by adding a rental property to their investment portfolio.
A rental property, if done well, can be cash flow positive and show a tax loss.
With W-2 income it is a matter of changing the story. You need to add components that you can have control over that will allow you to potentially reduce the tax liability.
For advice on your personal situation call for an appointment.