Spending <1% Time on Taxes is a Mistake
Aha! The Tax “Investment” I Wish I’d Known Sooner
“💡 Tax is the biggest expense for most of us, yet we spend less than 1% of our time each year on it. That makes no sense!”
— 34 years old Billionaire Jess Mah, in my First Million interview
That was my lightning‑bolt moment. Building Cotax AI and talking with dozens of tax pros taught me: every dollar you save on taxes is a risk‑free return, often beating any stock pick.
Below, we’ll walk through three “what‑if” scenarios for a $500 K W‑2 earner, step by step, adding an Airbnb and a side hustle (each new income stream not only boosts earnings but unlocks even larger tax savings: 50K-60K annually):
1️⃣ Core W‑2 Only ($500 K salary)
💰 Total Savings: $10 120
(You probably know all of these—they’re the absolute least you can do each year, but still essential.)
🏦 Max Out Your 401(k):
$22 500 × 37 % = $8 325 saved
💊 Health Savings Account (HSA):
$3 850 × 37 % = $1 425 saved
🏠 Home‑Office Deduction (Simplified):
$5 / sq ft × 200 sq ft = $1 000 → $1 000 × 37 % = $370 saved
2️⃣ + Airbnb ($50 K gross revenue)
💰 Additional Savings: $29 800
🔢 Cumulative: $10 120 + $29 800 = $39 920
🏠 Airbnb Tax‑Saver Strategy
What it is: Treat your short‑term rental (Airbnb) as an active business (stays ≤ 7 days) so losses offset all income
Why it works: Depreciation + property costs often exceed your rental revenue—creating a net “paper loss” you can deduct
Example Math ($1 200 000 purchase, $50 000 revenue):
Assumptions: land = 40 % of purchase not depreciable
Gross revenue: $50 000
Depreciation:
Building (80 %) → $576 000 ÷ 27.5 = $20 945
Short‑lived assets (20 %) → $144 000 ÷ 15 = $9 600
Total depreciation: $21 212
Other write‑offs: Mortgage interest, property taxes, repairs, cleaning, management fees = $50 000
Total deductions: $30 545 + $50 000 = $80 545
Net loss: $50 000 – $80 545 = $(30 545)
Tax Impact:
You pay $0 on your $50 000 rental (saving $18 500).
You deduct $30 545 against your W‑2 (saving $11 302).
Total Airbnb saving: $29 800
⚙️ Effort & Cost: Moderate; cost‑segregation study $3–5 K recoups in ~ 1–2 years
📚 IRS Pub 946 on Depreciation
3️⃣ + $100 K Side Hustle
💰 Additional Savings: $15 050
🔢 Total Cumulative: $39 920 + $15 050 = $54 970
💼 S‑Corp Payroll‑Tax Split
What it is: Elect S‑Corp for your LLC (Form 2553), pay yourself a reasonable salary, take the rest as distributions
Why it works: Distributions avoid the 15.3 % self‑employment tax
Example Math ($100 K side income):
Sole‑Prop SE tax: $100 000 × 15.3 % = $15 300
S‑Corp split 50/50:
Salary $50 000 × 15.3 % = $7 650
Distribution $50 000 × 0 % = $0
Savings: $15 300 – $7 650 = $7 650
⚙️ Effort & Cost: Moderate; payroll setup + accounting fees $500–1 K/yr
📚 IRS S‑Corp Guidelines
📈 20 % Qualified Business Income Deduction
What it is: Pass‑through entities deduct 20 % of eligible business income under Section 199A
Why it works: Directly reduces your taxable side‑hustle profit
Example Math ($100 K side income):
QBI deduction = 20 % × $100 000 = $20 000
Tax savings: $20 000 × 37 % = $7 400
⚙️ Effort & Cost: Low; LLC formation $100–500, track income/wages/assets
📚 IRS QBI Deduction Details
🌱 Longer‑Term Stepping Stones
🔄 Mega Backdoor Roth
After‑tax 401(k) + in‑plan Roth → shelter up to $66 K/yr, tax‑free growth
↩️ Backdoor Roth IRA
$6 500 IRA → convert to Roth → tax‑free forever
🎓 529 College Plan
$10 K contribution × 5 % state = $500 saved + tax‑free growth
These moves don’t boost this year’s deduction but lock in future, tax‑free growth, compounding your risk‑free returns over decades. 🚀
🚦 Strategy Ranking by Annual Tax Saved
📈 Summary
Scenario 1: $500 K W‑2 only = $10 120
Scenario 2: + Airbnb = $39 920
Scenario 3: + $100 K side hustle = $54 970
Strongly recommend consulting a qualified tax pro to finalize and compound these strategies. In fact, any advisor fee is trivial compared to the cumulative, risk‑free returns you’ll earn year after year.
DM me if you want recommendations on tax pros! 📩