[ABCLAW]

If you're a "high earner" there are a panoply of services that allow you to structure your income, wealth appreciation, or other forms of wealth generation in tax-optimized vehicles.

The tax universes at 200k/yr and 500k/yr-2m/yr income look very different.

[huuman12]

If you’re earning 500k-2m from your own business/investments, this might be true.

If you’re earning that as w2 income (as many of the nyc high earner taxpayers are), then yeah you’re gonna be paying >50% taxes if you live in nyc.

Speaking from my own experience.

[mortehu]

If we're talking wages here, what are the options exactly? Is there anything bigger than 401(k)?

This is ignoring charity, which I believe is available to anyone anyway.

[MrWiffles]

I believe - someone more financially literate (and far richer!) correct me if I'm wrong - that you can convert some of those wages into various different vehicles and get paid in non-wage forms in certain cases. Correlation != causation of course, but if you're making $500k/year chances are pretty good a large chunk of that is non-wage income such as capital gains, corporate bonuses, trust funds, etc. And even if it was all wage-derived, over time you could easily realize major capital gains on it if you're lucky enough to (a) make a huge chunk 'o change, (b) have low-enough cost of living to be able to move it into investments and then (c) have enough life stability to be able to continue this pattern for several years or decades (or better yet, have grandparents and parents who did then passed the wealth down to you). Even after taxes as high as 50%, with enough raw wage income you can definitely pivot your "margin" into vehicles that yield serious ROI over time, and can even leverage the highly disparate cost of living to your advantage: use NYC's housing market to justify a ridiculous salary, then live super cheap out there somehow (insert hand-waving magic reference here), and use the difference to buy housing out in, say, rural Texas or Kansas before the pandemic, rent it out via property company, reap profit month-after-month.

From there you follow the directions on your shampoo bottle:

1. Lather

2. Rinse

3. Repeat

[Spooky23]

401k, HSA, 529s for state taxes. You can give children gifts up to $28k, which is taxed at the kids rate. There are games you can play with home equity loans.

If you own a business there is a thousand ways to do it. One thing I’ve seen is people’s businesses “donate” to private schools and then get “merit” scholarships for their kids. You can accelerate depreciation of up to $500k of assets, etc.

If you’re smart, you’ll sometimes pay less tax in high tax states. Usually the low tax states have higher property and sales tax rates.

[kelnos]

Re: 529s, do remember that tax treatment varies widely state to state. I was bummed to learn that California doesn't offer any deductions for 529 contributions.

(Of course the tax treatment for qualified withdrawals is the same regardless of where you live.)

[ABCLAW]

A number of the comments to your post have some vague sense of what's going on.

The key concept is that as you get more wealthy, you will have access to professionals and tax structures that allow you to defer and recharacterize significant portions of your revenue streams into tax advantaged forms. The exact mechanisms change depending on jurisdiction and asset mix.

Advisory services take money to purchase, but their cost, and the cost of various vehicles used to avoid taxes, do not scale linearly with the amount of wealth to shelter.

The panama and various other financial leak disclosure reporting provide a decently accessible area for lay-persons to investigate. If you'd like to see the effects of scale - there's a lot of literature regarding the multi-national corporation side of tax avoidance in academic journals that's easily found via google scholar or sci-hub.

[QuarterReptile]

I am not an accountant nor someone who benefits from these deductions, but I'm casually interested. From what I've seen, a few: 1. Charity can be meaningfully different from chipping in $200 to something if you can afford to pay for large parts of a program, meaning things can have your name on them, or you can get events that you care about hosted at your church while saving on your taxes. 2. Tax advantaged accounts everywhere. Max out all retirement of course, but also education accounts for your four kids. Then I think there's some interesting tax advantages to whole life insurance, but I don't know which end those come on. 3. Structuring more of your life as a business. For example, I use my affordable car almost exclusively for work but it's not worth the trouble to track it for deductions because I still do best with standard deduction. Once you pass that, may as well track everything. And you should buy a large SUV instead of a minivan for your family so you can use the more favorable depreciation schedule that encourages SUV use over minivan and car use. Deduct your laptop and phone and phone plan because if you're making a lot of money, there's almost no chance you're using those for personal stuff more than for business. Probably some travel and dining fit as deductions too. Clothing, maybe? This is all completely legitimate (well, maybe it's not because of my ignorance on particular applications, but the spirit is consistent with how deductions work.)

You also may have the ability to structure some of your income as business appreciation so as to not pay taxes yet. True, it's still trapped until you pay taxes, but it's still resources you have available to you that haven't yet caused you to suffer tax expenditures. As a rule, you should never volunteer taxes that you can legally defer.

It'll all add up, though probably not to an overwhelming amount. My impression is that a lot of the exaggerations of low tax rates come from very slimy accounting driven by agendas (to say nothing of expressing taxes in a given year as a fraction of total accumulated wealth.)

[DenisM]

> For example, I use my affordable car almost exclusively for work but it's not worth the trouble to track it for deductions because I still do best with standard deduction

That's not how business expenses work. Talk to an accountant, you're leaving money on the table.