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Have You Ever W2'ed $1,000,000 in a single year?


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26 minutes ago, CHIEF said:

True. He has a CPA that stays on top of it and documents each and every expense. All of his friends that live around him, and that he parties with, he cleans a firebreak around their property for free each year, and does anything they want done extra at a little above cost. Makes it very easy to document them as customers. He sponsors quite a bit to charity golf tournaments, fishing tournaments, etc. A lot of them are customers, or potential customers in O&G. He also bought a couple of semis and started a cattle and hay hauling division for his LLC. But really, construction equipment, and anything else you can fully depreciate the first year seems to work the best for him.

CHIEF

Pun completely intended, but with O&G, make hay while the sun shines, because dark days can be dark indeed.  Diversifying is all you can do sometimes.  

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48 minutes ago, CHIEF said:

True. He has a CPA that stays on top of it and documents each and every expense. All of his friends that live around him, and that he parties with, he cleans a firebreak around their property for free each year, and does anything they want done extra at a little above cost. Makes it very easy to document them as customers. He sponsors quite a bit to charity golf tournaments, fishing tournaments, etc. A lot of them are customers, or potential customers in O&G. He also bought a couple of semis and started a cattle and hay hauling division for his LLC. But really, construction equipment, and anything else you can fully depreciate the first year seems to work the best for him.

CHIEF

He may be fine and have it all documented to a T.  I’ve just seen more than a few high flying up and comers play fast and loose with that stuff and end up with their ass in a sling when they are finally done with the IRS/States/localities.   Which ironically manifests itself when business sucks so it’s a big issue.  
 

There is no doubt there are big tax advantages to owning an LLC and associated deductions.  
 

 

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1 hour ago, CHIEF said:

True. He has a CPA that stays on top of it and documents each and every expense. All of his friends that live around him, and that he parties with, he cleans a firebreak around their property for free each year, and does anything they want done extra at a little above cost. Makes it very easy to document them as customers. He sponsors quite a bit to charity golf tournaments, fishing tournaments, etc. A lot of them are customers, or potential customers in O&G. He also bought a couple of semis and started a cattle and hay hauling division for his LLC. But really, construction equipment, and anything else you can fully depreciate the first year seems to work the best for him.

CHIEF

He should start farming.

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2 hours ago, Incredulity said:

He may be fine and have it all documented to a T.  I’ve just seen more than a few high flying up and comers play fast and loose with that stuff and end up with their ass in a sling when they are finally done with the IRS/States/localities.   Which ironically manifests itself when business sucks so it’s a big issue.  
 

There is no doubt there are big tax advantages to owning an LLC and associated deductions.  
 

 

That's what I do on a much smaller scale, with my Mom. Most of our assets are in two different LLCs that we both contribute to. My F-350, and our shop had to be depreciated, but our tractor, skid steer, forklift, and two trailers we took the full amount off the first year they were purchased. I make sure and take clients to the deer lease a couple of times a year to shoot hogs, and use the Ranger to show properties. I think the lease and the Ranger are pretty easy to explain, but probably would be the only thing that might raise any kind of flag. I make sure to put money back in an interest bearing account in case something were to come up. I think the risk is worth the reward, I've known guys who have operated this way for years, that have taken much riskier tax positions than I have, and have yet to be audited. But, money does need to be put back, if the IRS doesn't see things the same.

CHIEF

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4 hours ago, CHIEF said:

True. He has a CPA that stays on top of it and documents each and every expense. All of his friends that live around him, and that he parties with, he cleans a firebreak around their property for free each year, and does anything they want done extra at a little above cost. Makes it very easy to document them as customers. He sponsors quite a bit to charity golf tournaments, fishing tournaments, etc. A lot of them are customers, or potential customers in O&G. He also bought a couple of semis and started a cattle and hay hauling division for his LLC. But really, construction equipment, and anything else you can fully depreciate the first year seems to work the best for him.

CHIEF

So be easy and free

When you drink on me

I'm a man you don't meet every day.

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On 1/23/2025 at 8:25 PM, CHIEF said:

I have several friends in O&G that make close to 7 fig W-2s. One is the buddy that we hunt with on our new lease. He uses most of his W-2 money in an LLC that he created. He had a guy, on site that was getting a divorce, he had bought all of the equipment to start a land clearing business, but his wife asked for a divorce right after he had made the purchase. It was about $250k worth of equipment, he sold it to our buddy for $100k since he needed the money immediately for divorce funds. That kinda started my buddy down the road of having multiple small businesses that aren't shown to be real profitable, but you get the depreciation, and you only pay long term capital gains when you sell the business at a profit.

I will say, by far, the biggest benefit is writing off $15-20k/month of partying, vacation travel, ski boats, "company" vehicles, and the like off as company or entertainment expenses. He just gets to write shit off that he was going to do anyway.

CHIEF

 

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Almost nobody puts up $1,000,000 on a W-2.  That's why pretending that billionaire income taxes are too high.  Because they do not pay income on the vast majority of their income.

Most folks that could knock down a $1,000,000 W-2 are business owners, and way too smart to pay taxes like "the little people."  The business owner would simply convert the ordinary income into dividend distributions.  And turn that regular income into cap gain.  Then instead of paying that pesky tax that funds medicare and 12.4% social security, they pay % on cap gains.It's a pretty good deal really.  As your cap gain tax on the $500K in dividends is is 15%.  Much petter than paying the "little people" employment expenses PLUS income tax.  

So the answer to your question is not very many people have 7 figure W-2's.  Folks that are making $1,000,000 a year as an employee, usually have a lot of comp coming to them in stock options.  Which has the same effect as shifting income to a dividend payment rather than W-2. The exception on that million ins W2 income are likely on the East coast in finance, and the west coast in Tech.

But if you are working for somebody else in 95% of the country, and hoping to hit that $1,000,000 W2?  You probably should have taken your $500K salary and started a business that would produce that same $500K. 

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2 hours ago, horn4life said:

Almost nobody puts up $1,000,000 on a W-2.  That's why pretending that billionaire income taxes are too high.  Because they do not pay income on the vast majority of their income.

Most folks that could knock down a $1,000,000 W-2 are business owners, and way too smart to pay taxes like "the little people."  The business owner would simply convert the ordinary income into dividend distributions.  And turn that regular income into cap gain.  Then instead of paying that pesky tax that funds medicare and 12.4% social security, they pay % on cap gains.It's a pretty good deal really.  As your cap gain tax on the $500K in dividends is is 15%.  Much petter than paying the "little people" employment expenses PLUS income tax.  

So the answer to your question is not very many people have 7 figure W-2's.  Folks that are making $1,000,000 a year as an employee, usually have a lot of comp coming to them in stock options.  Which has the same effect as shifting income to a dividend payment rather than W-2. The exception on that million ins W2 income are likely on the East coast in finance, and the west coast in Tech.

But if you are working for somebody else in 95% of the country, and hoping to hit that $1,000,000 W2?  You probably should have taken your $500K salary and started a business that would produce that same $500K. 

Bingo. Several ways to avoid paying the 39.2 on 1 mil 

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2 hours ago, horn4life said:

Almost nobody puts up $1,000,000 on a W-2.  That's why pretending that billionaire income taxes are too high.  Because they do not pay income on the vast majority of their income.

Most folks that could knock down a $1,000,000 W-2 are business owners, and way too smart to pay taxes like "the little people."  The business owner would simply convert the ordinary income into dividend distributions.  And turn that regular income into cap gain.  Then instead of paying that pesky tax that funds medicare and 12.4% social security, they pay % on cap gains.It's a pretty good deal really.  As your cap gain tax on the $500K in dividends is is 15%.  Much petter than paying the "little people" employment expenses PLUS income tax.  

So the answer to your question is not very many people have 7 figure W-2's.  Folks that are making $1,000,000 a year as an employee, usually have a lot of comp coming to them in stock options.  Which has the same effect as shifting income to a dividend payment rather than W-2. The exception on that million ins W2 income are likely on the East coast in finance, and the west coast in Tech.

But if you are working for somebody else in 95% of the country, and hoping to hit that $1,000,000 W2?  You probably should have taken your $500K salary and started a business that would produce that same $500K. 

this effect is overstated. if you're in llc or partnerships, business profits pass through to shareholders for self-employment tax -- which includes SS and Medicare. s-corp owner-employees are required to pay "reasonable compensation" before distributions can be made. and then, to get dividend at the discounted LTCG it has to be qualified dividend.  special dividends and other distributions from a businesses like a real estate syndicate isnt going to count. 

the social security contribution is capped to a modest $170k base, anyway.  and medicare is a few measly percentage points off of income. 

sure there's going to be some tax advantages to running a business. on the other hand, putting in capital and running a business is a risky venture in itself, and you'll need to employ and pay for employees (=tax contribution) if the business is going to generate something productive.  if you can earn $1M annually from a mature, well capitalized company, its not exactly a slam dunk to go off on your own.

 

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5 hours ago, horn4life said:

Folks that are making $1,000,000 a year as an employee, usually have a lot of comp coming to them in stock options.  Which has the same effect as shifting income to a dividend payment rather than W-2.

That is not accurate, most companies are issuing RSUs now and those RSUs count and get taxed just like the rest of wages as W-2 income. 

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To add to the 2 posts above, corporate dividends are effectively subject to double-tax. To get dividend treatment at the individual level, the payor needs to be a corporation which is subject to tax itself.

There are games to be played with respect to tax-free returns of basis but the business-owner described above utilizes an entity taxed as a new partnership to avoid this double-tax (generally).

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