Why all the w2 hate? Where is the sweet spot?

[Mike Landry]

Is a W2 job really that bad?  I laugh when I read all the posts and articles talking about how horrible w2 income is, .  And then people talk about sheltering via s corps with low salary and distributions to avoid self employment tax? Often overlooked are the benefits of a w2 job and how the combination of w2, self employment income, and investment income can work wonders on wealth accumulation and financial freedom.  Don't quit that JOB.  That being said, I am still interested in where that sweet spot is.  Let me show you what I mean with some examples.  I'll make some assumptions that we all like to procreate and eventually have kids. 

W2 below the SS limit, about $119,000 this year.  You are paying your tax rate plus %6.  But you still have massive deductions and credits for dependents.  Nothing is phased out yet due to income limits.

W2 119,000 - $150,000 - I think this is a good spot to be in.  You still qualify for most deductions and credits but some things are starting to get limited, child tax credit, real estate losses, ect.  But the best part is that you no longer pay the %6.2 SS tax.  Now, think about if you also have a small business making say $30,000 a year.  You don't have to pay that self employment tax because you have already paid the maximum contribution with your employer.  What's that, a tax savings of 12-15%. 

w2 - 150,000 +  At this point a lot of credits and deductions start phasing out and you start running into the Alternative Minimum Tax around the low $200,000 depending on your deductions. 

I'm not going to argue against investment income at all.  If you can live off of it, great.  But don't forget you'll be paying that depreciation recapture tax of %25.  You better hold it until you die or 1031 it. 

Point is I look at income like a portfolio.  Everyone should have some diversification.