If you feel like you’re paying way too much in taxes, you’re not alone. Even financial pros like Preston Seo, host of “The Legacy Investing Show,” have ended up owing more than they would have liked.
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In a recent YouTube video, Seo shared that he once owed over $30,000 in taxes on top of his W-2 withholdings. But that all changed when he learned how to work within the U.S. tax code to keep more of his income.
“Now my tax bill looks completely different — not because I make less, I actually make more — but because I learned how to legally use the system the way that it was written,” Seo said.
Here are nine IRS-approved strategies the wealthy use to pay less in taxes, that you can start using, too.
If you have a high-deductible health plan, you likely qualify for a health savings account (HSA) — and you should be taking advantage of it.
“Most people don’t realize how powerful these are,” Seo said. “You get a tax deduction going in, tax-free growth and also tax-free withdrawals for qualified medical expenses.”
To get the full tax benefits, Seo contributes the maximum amount to his HSA every year, but he doesn’t use the account to pay his medical bills.
“I pay those out-of-pocket and keep the receipts,” he said. “That lets my HSA compound untouched, and years from now, I’ll be able to reimburse myself, tax-free, with decades of growth on top. It’s like a hidden retirement account, only better.”
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A backdoor Roth IRA is a strategy that allows high-income earners to contribute to a Roth IRA, even if their income exceeds the IRS limits for direct contributions. (For 2025, single filers must have an income of less than $150,000 and joint filers must make less than $236,000 to make a full contribution to a Roth IRA.)
To use this strategy, contribute money to a traditional IRA, and then convert it into a Roth IRA.
“Every single year, I max out [my IRA contributions], convert them, and now I have money growing completely tax-free,” Seo said.
A Solo 401(k) is a retirement savings plan that can be utilized by self-employed individuals or business owners with no full-time employees. You may qualify for this type of account and not even realize it.
“Let’s say you have freelance income from consulting, Airbnb or even selling things online — you may qualify for a Solo 401(k),” Seo said. “I use mine through one of my LLCs, and it’s a great way to reduce tax on side income while also building wealth.”
If you’re currently registered an LLC, you should consider filing for S Corp status to enjoy the tax benefits that come with it. To qualify, you must own a business that makes $50,000 or more in profit.
“This move could be a game changer,” Seo said. “When you elect S Corp status, you pay yourself a salary and you take the rest of your income as distributions, which aren’t subject to self-employment tax.”
With the help of his accountant, Seo filed for S Corp status as soon as his business crossed the profit threshold.
“The first year alone, that saved me nearly $20,000 in taxes,” he said.
If you are self-employed and have an area of your home that you exclusively use for business, you can deduct a portion of your housing costs, including your mortgage or rent, utilities and even home repairs.
“I use it [for a] 300-square-foot room in my house,” Seo said. “It’s about 6.25% of the house, and that means I can write off over $7,000 per year just for working where I already live. I just keep the documentation, like photos and floor plans, in case I ever get asked.”
If you have children and you have your own business, you can legally hire your kids to work for you. Seo pays his son to help him with content and perform other administrative tasks.
“The key here is the work must be real, age-appropriate and documented,” he said. “We track the hours, use time sheets and keep everything above board. Since he earns under the standard deduction threshold, he pays no income tax. I get the deduction, and he learns real financial responsibility. It’s a great way to shift income into a 0% bracket, and also build wealth inside your family legally.”
The Augusta Rule is an IRS rule that allows homeowners to rent out their home for up to 14 days per year tax-free. Seo recommends renting your home to your business.
“If you have any strategy sessions, filming days or internal retreats, you can use your home and have your business pay you,” Seo said. “I do this several times a year. I receive income without paying a dime of tax on it.”
If you own a rental property, you’ll want to take advantage of this tax break.
“Real estate is one of the few areas of the tax code where the government practically rewards you with deductions,” Seo said. “If you do own or plan to buy a short-term rental and manage it actively, you can use appreciation losses to offset your other active income, and this is a big deal.”
Seo owns several short-term rentals. He keeps guest stays under seven days and puts in over 500 hours per year managing them.
“That lets me treat the income as active, meaning I can use cost segregation and also bonus depreciation to reduce taxes on my other businesses,” he said. “One year, I wiped out over $50,000 in taxable income using the strategy.”
A 1031 exchange is a tax-deferral strategy that allows a real estate investor to sell one investment property and reinvest the proceeds into another “like-kind” property without immediately paying capital gains taxes on the profit from the sale.
“That means you defer the tax bill, and you get to reinvest all of your profit,” Seo said. “I used this when I sold two four-plexes. I rolled the equity into a 24-unit commercial building and paid no tax on the gains. That single move preserved hundreds of thousands of dollars.”
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This article originally appeared on GOBankingRates.com: 9 Secret Strategies the Wealthy Use To Cut Their Tax Bills, According to Preston Seo
