The Tax Code
Was Written
For People
Who Plan.
Updated for 2026 and the One Big Beautiful Bill Act.
Whether you are strictly W2 or running a business full/part time, this guide covers the highest leverage strategies available to high income earner right now. Two tracks. Real numbers. Zero fluff.
ADVISORY
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PROACTIVE TAX STRATEGY
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@taxeswithdemarco
Two Tracks.
One Objective.
At LEDGR Advisory, we work year-round with high income W2 earners. This guide is broken into two tracks so you can go directly to what applies to you.
Track 1 covers strategies for w2 professionals who own a business, operate an LLC or S-Corp, or have any 1099 self-employment income. These represent the highest leverage opportunities in the entire tax code.
Track 2 covers strategies that work for pure W2 employees with no business income. These are still powerful and largely underused by high earners in tech.
"The average high income earne overpays by $20,000 to $60,000 a year. Not because the strategies do not exist. Because nobody told them about the strategies in time." — DeMarco Spears, EA | LEDGR Advisory
You Have a Business
or Side Income.
These strategies are for w2 professionals who operate an LLC, S-Corp, or have any 1099 self-employment income outside of their W2. These represent the highest leverage tax-saving opportunities available in the entire code.
If you operate as a Sole Proprietor or single-member LLC, you pay 15.3% in self-employment taxes on every dollar of profit before income taxes even apply. An S-Corp election allows you to split your income into two streams: a reasonable W2 salary (subject to FICA) and a profit distribution (exempt from FICA).
This is the most fundamental tax strategy for high-earning independent contractors, consultants, and business owners.
- You must pay yourself a "reasonable compensation" via W2 payroll
- Profit distributions are exempt from the 15.3% self-employment tax
- The OBBBA made the 20% Qualified Business Income (QBI) deduction permanent, further reducing your effective tax rate on business profits
- The S-Corp deadline to elect for the current tax year is March 15. Most people miss it because no one tells them
- Stack with a Cash Balance Plan or Solo 401(k) inside the S-Corp to maximize pre-tax retirement contributions
This is one of the first conversations we have with any w2 professional earning outside income. The QBI deduction being made permanent under the OBBBA makes the S-Corp election even more valuable in 2026 than it was before.
The Solo 401(k) employee deferral limit in 2026 is $24,500. That is a starting point, not a ceiling. A Cash Balance Plan is a defined benefit pension that allows annual contributions ranging from $100,000 to $345,000+ depending on your age, all of it pre-tax and fully deductible in the year contributed.
For w2 professionals and sales leaders in their 40s and 50s facing large RSU vesting events or high-income years, there is almost no tool that absorbs taxable income faster.
- 2026 IRS compensation limit is $360,000. The defined benefit annual benefit limit is $345,000
- Contributions are 100% deductible in the year made, creating an immediate large reduction in taxable income
- Grows tax deferred with no annual capital gains or dividend drag
- Older participants qualify for larger contributions. A 55-year-old can contribute significantly more than a 40-year-old
- Stack on top of a Solo 401(k): combined employee deferral is $24,500 plus $8,000 catch-up for ages 50 and up
- Especially powerful in years with large RSU vestings, equity events, or a high-revenue consulting spike
RSU vesting events create income spikes that most tech workers simply absorb. A Cash Balance Plan paired with an S-Corp structure is the most aggressive and legal way to neutralize that income before it hits your return. An actuary designs the plan. We help you implement it.
IRC Section 280A(g) — commonly called the Augusta Rule — allows a homeowner to rent their personal residence to their business for up to 14 days per year. The rental income received by the homeowner is completely tax-free. The business deducts the payment as a legitimate business expense.
This creates a legal income transfer from your business to you personally with zero tax on the personal side and a full deduction on the business side.
- The 14-day limit is strict. Day 15 makes all rental income taxable
- You must charge a fair market rate — document this with comparable venue rental rates in your area
- Meetings held at the residence must be legitimate business meetings with documented agendas and attendees
- Works for S-Corps, C-Corps, and partnerships. Sole proprietors cannot use this strategy
- The business deduction reduces your net business income, which also reduces your QBI deduction base — factor this into the math
This is one of the most misunderstood strategies in the code. Done correctly with proper documentation, it is completely defensible. Done sloppily, it is an audit trigger. We set this up with a formal rental agreement, market rate documentation, and meeting minutes for every client who qualifies.
If you own a business or operate as self employed, you can pay your children for legitimate work performed for that business. For sole proprietors and spousal partnerships, wages paid to children under 18 are exempt from FICA, Social Security, and Medicare taxes in addition to being deductible to the business.
You deduct the wages at your marginal rate, which for most high income tech professionals is 32% to 37%. Your child receives those wages tax free because the amount falls under the 2026 standard deduction of $15,750. The same dollar is deducted at the top bracket and received at zero.
- Work must be legitimate and age-appropriate. Document the job description, hours, and pay rate
- Pay must be at market rate for the work performed — not inflated
- Wages earned by the child can be deposited directly into a Roth IRA in their name, starting decades of tax-free compound growth
- S-Corps and C-Corps can use this strategy but owe payroll taxes, so structure matters for maximizing net savings
This strategy reduces your taxable income, funds your child's future, and keeps family wealth out of the IRS's hands. The documentation and market rate pay requirements are non-negotiable. Done right, this is one of the most efficient income shifting tools in the code.
Before the OBBBA, bonus depreciation was being phased down to 40% in 2025 and 20% in 2026 before expiring entirely. The OBBBA permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025. This is one of the most significant business tax changes in the bill.
- Applies to tangible personal property with a recovery period of 20 years or less
- Computers, equipment, machinery, vehicles (with limits), and certain improvements qualify
- Can create a net operating loss that carries forward to future years
- When combined with an S-Corp structure and accountable plan, equipment purchases can generate both a deduction and a tax-free reimbursement
The OBBBA made this permanent after years of phase-downs and uncertainty. If you have been deferring equipment purchases or upgrades, 2026 is the year to act. Full deduction in year one instead of recovering it over seven years is a cash flow and tax planning win.
An Accountable Plan is a formal reimbursement arrangement between a business and its owner employees. The business deducts the expense. The owner employee receives the reimbursement in cash. Because it flows through a qualified accountable plan, the payment is completely non-taxable and does not appear as income on your W2.
- Qualifying expenses include home office, cell phone, internet, vehicle mileage, and professional development
- Must have a written plan document and substantiation requirements (receipts, logs)
- Any overpayment must be returned to the business or it becomes taxable wages
Most business-owning tech professionals are already spending this money out of pocket. The accountable plan formalizes the structure so the business covers those costs and you are reimbursed without the IRS treating it as additional income. One of the lowest-lift, highest-return moves we set up for every client.
You Are Strictly W2.
No Side Business.
You do not need a business to have a strategy. High income W2 earners in tech have access to powerful tools that most never use. These moves work whether you are at Google, Microsoft, Salesforce, or any enterprise tech company. The key is acting before the year closes.
The foundational move for every high income W2 earner is maxing the pre-tax 401(k) deferral. In 2026, the employee contribution limit is $24,500, with an additional $8,000 catch-up for those 50 and older. At a 37% marginal rate, maxing this out alone reduces your federal tax bill by over $9,000 annually.
If your employer allows after-tax 401(k) contributions and in-plan Roth conversions, you can execute the Mega Backdoor Roth — potentially contributing up to the $70,000 total limit for 2026.
- Mega Backdoor Roth requires your plan to allow after-tax contributions and in-plan Roth conversions. Not all employer plans permit this. Confirm with your HR or benefits team
- Pre-tax contributions reduce your AGI dollar for dollar, which can also lower your exposure to income-based phase-outs on other deductions and credits
The 401(k) is the most accessible tax reduction tool a W2 employee has. The Mega Backdoor Roth is the upgrade most tech employees at large companies are eligible for but have never been told about. Confirm your plan documents and start there.
The Health Savings Account is the only account in the tax code that is triple tax-advantaged: contributions are pre-tax, growth is tax-deferred, and withdrawals for qualified medical expenses are tax-free. There is no other account that does all three.
- Requires enrollment in a High Deductible Health Plan (HDHP). Confirm your plan qualifies
- Unused balances roll over indefinitely — this is not a use-it-or-lose-it account
- After age 65, withdrawals for any purpose are taxed as ordinary income (like a traditional IRA), making it a stealth retirement account
- Invest the balance in index funds rather than leaving it in cash to maximize long-term tax-free growth
Most tech employees with HDHPs are not maxing their HSA. They are leaving a pre-tax deduction on the table and missing decades of tax-free compounding. Max it, invest it, and do not touch it until retirement unless you have a qualifying medical expense.
RSUs vest as ordinary income at your marginal rate on the vest date. For a tech professional with $100,000 to $300,000 in annual RSU vesting, this creates a predictable and manageable income spike — if you plan for it. Most do not.
- Increase 401(k) contributions in vesting months to offset the income spike
- Coordinate RSU sales with tax-loss harvesting in your taxable brokerage to net gains against losses
- Consider charitable giving in high-vesting years using a Donor Advised Fund (DAF) to front-load deductions
- If you hold RSUs after vesting, you now own stock with a cost basis equal to the vest price. Any appreciation above that is capital gains, not ordinary income
RSU planning is a calendar exercise. We map out your vesting schedule at the start of the year and build a tax strategy around it. The goal is to neutralize as much of the ordinary income spike as possible before December 31.
High income tech professionals are typically phased out of direct Roth IRA contributions. The Backdoor Roth is the workaround: contribute to a non-deductible traditional IRA and immediately convert it to Roth. The result is the same — tax-free growth and tax-free withdrawals in retirement — without the income limit restriction.
- The conversion must happen quickly to avoid earnings accumulating in the traditional IRA (which would be taxable on conversion)
- The Pro-Rata Rule: if you have other pre-tax IRA balances, a portion of the conversion will be taxable. Roll them into your employer 401(k) first to clean the slate
- Married couples can each do a Backdoor Roth for up to $14,000 per year combined ($16,000 if both are 50+)
This is a straightforward annual move that most high income earners skip because they assume they are ineligible for Roth. The Backdoor Roth is how you stay eligible. We walk every W2 client through this at the start of each year.
Stop Filing.
Start Planning.
Every strategy in this guide has a window. Most of them close before December 31.
Book a Tax Assessment below and we will identify exactly which strategies apply to your situation right now — before the year closes.