Tax Strategy for Washington's Complex Earners
A Visual Guide for Salary, Rental & Investment Income
URGENT ALERT: 2025 WA CAPITAL GAINS TAX HIKE
The single most important change for WA investors is a new tax tier effective Jan 1, 2025. This creates a critical planning window in late 2024.
Gains up to $1M
7%
State Tax
Gains OVER $1M
9.9%
State Tax
This 41% marginal rate increase makes timing your large asset sales more critical than ever.
The Washington Tax Dichotomy: A Trade-Off
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THE BENEFIT
0%
State Tax on Salary & Wages
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THE COST
10.35%
Combined Sales Tax (e.g., Seattle)
Strategic Income Management
W-2 Salary Income
Use the IRS Withholding Estimator to adjust your W-4s. Account for all income sources (spouse, rental, investments) on the highest earner's W-4 only to prevent under-withholding.
Rental Property Income
Rental losses are "passive" and usually can't offset salary. But they create a powerful, deferred tax asset.
1. Generate "suspended losses" annually from expenses like depreciation.
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2. These losses carry forward indefinitely.
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3. When you sell the property, all suspended losses are "released" to offset any other income, like stock gains.
Investment Income
Holding investments for more than one year is critical for favorable federal tax rates.
High earners also pay a 3.8% Net Investment Income Tax on top of these rates.
The Tax-Advantaged Savings Waterfall
Maximize your federal tax deductions and build wealth by funding accounts in this specific order of priority.
401(k) up to Employer Match
Priority #1. This is a 100% return on your contribution. Don't leave free money behind.
Max Out Health Savings Account (HSA)
The ultimate "triple tax-advantaged" account. Contributions are deductible, growth is tax-free, and qualified withdrawals are tax-free.
Return to 401(k) and Max It Out
After securing the match and funding the HSA, contribute up to the annual limit ($23,500 for 2025).
Fund a "Backdoor" Roth IRA
Circumvent income limits by contributing to a non-deductible Traditional IRA, then immediately converting it to a Roth for tax-free growth.
Do You Need a CPA?
Tax software is for compliance (filling forms). A CPA is for strategy (saving money). Your income sources determine your need.
DIY Software is Likely Sufficient If...
You only have W-2 salary income and take the standard deduction.
Hire a CPA If You Have...
- Rental Property Income (Passive Loss Rules)
- Significant Capital Gains (WA State Tax)
- Multiple Income Streams (W-4 & Estimated Taxes)
- A Desire for Proactive, Year-Round Planning