Are you high income and need some ideas on how to legally lower your taxes? here are 50 best ways to lower taxes for high income earners.
Do you have a high salary, own a business, own real estate, have capital gains, or generate a lot of income from inherited assets? If any of these situations apply to your situation, this article will be of great help to you. It goes without saying that in almost every country in the world, the more you earn, the more taxes you will have to pay.
According to a survey by Spectrum Group, two in three rich people are worried about the tax implications of the investments they have made or have made. And this concern is not unfounded. In fact, a Vanguard study found that taxes can cost up to 2% per year.
Price: $ 70,000 if you invest $ 10,000 per year for 20 years and earn 4% on your money instead of 6%. For high income countries – those earning more than $ 220,000 a year – the amount going to the tax administration is important.
In addition, federal and state income taxes are not the only taxes paid on income. Those with income also pay social security and health care taxes. In addition to taxes levied directly on income, there are also property taxes, vehicle license taxes, sales taxes and the many hidden taxes we pay: gasoline taxes, tobacco taxes, taxes on shows and restaurants. hotel taxes and luxury taxes, etc.
For many inventors, the taxes levied on them can go a long way in reducing profits if they do not take proactive steps to minimize the impact of these taxes. For people earning between $ 100,000 and $ 209,999 per year in fiscal 2016, the effective or average tax rate is 17%, according to the Federal Reserve Bank of St. Louis. And those who made between $ 200,000 and $ 499,000 had an average tax rate of 22%. It is overwhelming!
Most high income earners are reluctant to pay more tax than necessary, and many of them do some sort of tax break, even if it’s as simple as keeping track of contributions and placing a income in retirement accounts. As wealth becomes more complex, so too should strategies.
Those who are very wealthy often use sophisticated tax avoidance and tax reduction strategies to reduce their income taxes, as well as property transfer strategies to reduce their property tax obligations. When they can’t avoid paying taxes, they look for ways to defer tax payments, such as allocating large amounts of pre-tax compensation (with increases) to qualifying pension plans.
It should be noted, however, that tax evasion, when it constitutes tax evasion, is illegal, at least in the United States of America, and therefore the advice that will appear on this list is only intended to minimize taxes and not evasion. fiscal. Here are 50 tax strategies you can use to reduce high income personal taxes.
50 Best Ways To Cut Taxes On High Income
1.401 (k) or 403 (b) : If you are an employee and have an employer sponsored 401 (k) or 403 (b) sponsor, in 2021 you can contribute up to $ 18,500 per year of your gross income, contribution, whatever you do will be paid directly from your paycheck before it is taxed and the money will be taxed at 401 (k) or 403 (b). If you are 50 or older, you will make up $ 6,000, so your annual contribution limit is $ 24,500.
Solo 401 (k) is also available for higher income individuals with self-employment income, and only you, or you and your spouse, can install Solo 401 (k). This allows you to pay the same annual fee as the standard $ 401,000. US) – $ 18,500 or $ 24,500 if you are over 50.
2. Roth Conversions: A Roth IRA is a type of retirement account that grows tax free. In the case of a regular retirement account, when you put money into it, you get tax deductions. The price of money will increase over time, and each time you intend to “withdraw” you will have to tax the amount you withdraw.
The Roth IRA, on the other hand, is somewhat different from the regular IRA. You don’t get a tax deduction when you enter it, but it becomes tax deductible and all the money you take from Roth is 100% tax free. The IRS will allow you to take some of your existing or 401 (k) IRAs and convert them to Roth IRAs, and the good thing is that once in Roth, all future taxable income, growth, and fixed assets are now tax deductible for you, your spouse. and future generations – it’s a non-taxable permanent account!
This can be a good time to convert if, for example, you’re a business owner who has had a really successful year followed by a year that generates less income and thus puts you in a lower tax bracket. This could be a good year for some of Roth’s transformations.
Another example of a good time for transformation would be when a high-wage worker retires and is temporarily in a lower group until they reach the age of 70. and half and must make the minimum allowances required. These are just a few of the situations in which a Roth transformation can make a lot of sense in tax or year-end retirement planning.
There is one thing that you should notice, however, that you have to pay taxes on your conversions, so plan your conversions carefully. Take a look at your tax brackets and see if the conversion is really right for you.
It’s also good to note that recently you can’t re-characterize your Roth IRA transformations – they are now permanent, so be sure to check your calculations and make sure you really want to do that Roth IRA transformation as it can’t. not be reversed.
3. Selling Inherited Assets: Another tax reduction strategy for high income earners that is not yet fully understood by most people is to sell inherited assets. When you inherit real estate, especially in accordance with municipal property rules, you take a leap forward by increasing your property tax.
For example, your parents bought a house for $ 100,000 and it is now worth $ 1 million. If they sold it, they would have made a profit of $ 900,000 ($ 1 million minus $ 100,000).
If in the event that they both die and you get the property still worth a million dollars. , but your value base for tax purposes is increased to $ 1 million. If you sell your home very soon after it is completed, say within a year or so, there will be little to no benefit because you have a new base of value. If you sell it for $ 1,005,000, you only make a profit of $ 5,000 because you have a step of $ 1,000,000.
Note that many children or beneficiaries who have inherited real estate sell when they learn that this increase uses tax deductions. Some people don’t know this and end up holding property that they really don’t need, not realizing that there won’t be any property tax consequences.
3. Donor funds: One of the best tax reduction strategies for high income earners is donor funds, as they can allow you to take contributions from the current year and the next year and to deduct them all the current year.
In other cases, in order to use the funds provided by donors, you will need to create an account with a custodian such as TD Ameritrade, Schwab, Fidelity, brokerage firm, etc., they will have a special account type, a donor recommendation fund, where as soon as you put money into it it becomes a tax deduction for a charity.
However, that doesn’t mean the money will go to charity; rather, it means that you are a trustee. You can invest as much as you want. You can also decide which charities will receive the amount you want this year and beyond.
If you’re going to give $ 10,000 a year to charity for the next 10 years, that’s $ 100,000. If you are in the highest tax bracket you will ever fall into this year, this may be the year to receive this tax deduction. Invest $ 100,000 in a donor-funded fund, get full tax deduction upfront while you’re in the top group, then donate $ 10,000 annually to any charity you choose.
To improve the effectiveness of the donor fund, you don’t have to give money. Instead, donate your precious stocks held outside retirement accounts. Regardless of the value of the share on the date of donation or donation to this account, there is no tax and you do not need to pay tax on the profits from the sale, which in fact a double advantage.
5. Investing in Real Estate: Although selling real estate was mentioned earlier as a way to reduce taxes, investing in real estate can also be a great tax reduction strategy. For example, if you need to buy a million dollar property.
You have to divide real estate between land and buildings. Let’s say that part of a building is worth $ 750,000 or 75%. You can write off or deduct a portion of this property over 27 and a half years, which means you will receive a capital cost allowance of $ 27,000 each year.
Now if you take the rental income minus your expenses, and if you have $ 27,000 in profit, guess what – you can’t pay any taxes because you’ll get that capital cost allowance. And this will continue for the next 27 and a half years. If you love real estate, why not buy a property for $ 10 million? You now receive $ 270,000 in capital cost allowance – in other words, non-taxable income.
However, there are some limitations. To make these deductions, you or your spouse must be a real estate professional. This means that you have to work 750 hours per year, and that should be the majority of your time.
If you work full time at work, 2,000 hours per year, you will need to spend 2001 hours in real estate investments to qualify, which is probably unrealistic. But if you or your spouse is not working, they may be a real estate professional, so you can take advantage of these deductions.
6. Withholding under section 209A: This may be advantageous for investors in the lease. Using the Section 209A deduction, you can deduct up to 20% of your small business or rental property profits. However, this is a deduction unlike a tax credit.
This means, for example, if your business earns $ 100,000, 20% of the business is paid. 100 of that is $ 20,000, so it’s a deduction. If this is your only income, you end up paying $ 80,000 in tax instead of $ 100,000.
Anyone who owns these businesses can claim this 20% tax deduction, but there are restrictions if you own a service business. Sole business owners are starting to eliminate that 20% with total taxable income over $ 157,500. The phase-out is $ 315,000 for married couples.
7. Report less income to your state. Most states do not tax the revenue of the Consolidated Revenue Fund from your funds. But if you have diversified taxable bond funds, you may need to search the websites of stock companies for tax documents showing the percentage of treasury interest.
(For example, in 2016, the Vanguard General Bond Index Fund received 30% of its income from US debt.) Likewise, you generally don’t need to pay government tax on income from a national fund. municipal bonds. Mooney bonds in your state.
8. Sell the losers when you can : Many taxpayers wait until the end of the year to check to see if there are any investments that have lost money since the purchase and that can be sold to recover profits. This is not the best approach, however. Instead, you should look for opportunities to collect “tax losses” throughout the year. The opportunity that presents itself in February can be missed long before November.
9. Take the 0% income tax rate . People between 10% and 15% (including co-registrars with income less than $ 75,900 and single men under $ 37,950) do not pay long-term capital gains tax. If this is your case, be prepared to sell some of the winning funds later this year, even if you redeem them immediately. Yes, you may need to pay a trading commission. But you’re going to dump your “base value” (what you paid) higher, so you owe less in taxes on future profits than you otherwise would.
10. Put your funds in the right places. Use your brokerage account to hold funds that do not generate a significant amount of taxable income, such as a municipal bond fund or low turnover stock index fund that you plan to hold for years. Keep a high yield option like a junk bond fund. in an IRA or 401 (k) to deduct that income from the income you deposit next spring.
11. Get credit for a tough time . People who earned income during the year but have been unemployed for a long time may be eligible for tax relief. Married couples with three or more children can have an income of $ 53,505 and still be entitled to up to $ 6,269 with tax bill.
12. Subtract job change expenses: If in 2021 your job search expenses such as printing, CV preparation and travel, and other miscellaneous expenses were more than 2% of your income, the amount can be deducted if you transfer.
That 2% low will be lower than normal in dollar terms if you’ve had a rough year. However, you should note that you should be looking for a job in your current field. Separately, if you had to move to get a new job, you could deduct unrecovered moving bills.
13. Save your raise . Before you get used to a higher salary for a new job, increase your 401 (k) contribution. If this is a traditional plan funded in pre-tax dollars, you will reduce your tax bill. The annual maximum you can save on your paycheck is $ 18,000 if you are under 50, plus an additional $ 6,000 if you are at least 50 or if you will be celebrating that birthday by the end of the year. ‘year.
14. Take advantage of the big changes. If your life has changed a lot like marriage, childbirth, divorce, death of your spouse, etc., you can take advantage. A major joy or sorrow in your family can also have a significant impact on your taxes.
If so, file a new Form W-4 with your employer to adjust the withholding if you haven’t already. The status of your application for 2021 depends on your year-end situation, with one exception.
15. Newlyweds: If you are newly married, you must submit a joint declaration. Many people find it best to serve separately in marriage. This is not the best step. Separate registration will not help you avoid the so-called marriage penalty or tax increase that many couples with similar incomes face after marriage.
You are better off applying jointly, except in rare cases, such as if one of you has a low salary, but high expenses that are only deductible above 2% of income.
16. Take a loan for this lovely new baby . You are entitled to a child tax credit of up to $ 1,000 per child, in addition to the exception for that new family member. Couples who apply jointly can claim the full amount of $ 110,000 in income. For a couple with one child, preferential loans are available for incomes below $ 130,000. One of the conditions is that you must have a social security number or a tax identification number for each of your children.
17. Deduct any child support payments you pay: You can deduct any child support payments you wrote to your ex while he or she has to report it as income. This should not be wrongly interpreted as alimony, which, on the contrary, is neither deductible nor taxable. You and your ex need to make sure the child support amounts match on your tax forms; otherwise, you may run into problems with the IRS.
18. Claim special widowed parent status: If you have a dependent child and do not remarry, you can apply for an “eligible widow or widower” within the next two years while retaining the same benefits as the co -registration.
20. Find the right home for your funds: Use your 401 (k) s and IRAs for investments that throw in short-term capital gains or interest income that is taxed like regular income. This means taxable bond funds, high yield dividend funds and actively managed funds that are frequently traded.
Then use taxable accounts for buy and hold stock funds that don’t trade frequently, such as index funds and mooney. bond funds. With a smart approach to “asset tracking”, you can save up to 0.75 points per year.
20. Share with Uncle Sam your pain: sell stocks that have fallen and use the losses to offset profits elsewhere in your account For the past decade, do this once a year at the end of the year added 0.6 points of annual income to your taxable person. account, according to data compiled by Wealthfront, an automated investment service.
21. Develop Your Alphabet: According to a PNC survey, even among millionaires, more than a third are concerned about rising health care costs. It’s clear. A typical 65-year-old couple would spend $ 260,000 on health care in retirement.
If you opt for a high deductible health insurance plan, you can deposit up to $ 350 in input tax as an individual or up to $ 6,750 per household into a health savings account or HSA at the same time. tax-sheltered ($ 7,750 for those over 55) …
As with 401 (k) s and IRAs, the money entering the HSA is tax free and can grow tax free. If you saved $ 6,750 per year for 20 years at HSA, earning 6% per year, you would have $ 248,000 – enough to cover average medical bills. And withdrawals to pay for qualified medical services are tax exempt.
22. Structure your business the right way: 8 in 10 millionaires who are entrepreneurs have built their businesses from scratch, according to a US survey. Only 2% inherited it. From the outset, sole proprietorship is often the best way to limit taxable income. If you lose money at the beginning, you can use the losses to offset other gains, including capital gains, which is more difficult to do in a corporation.
But if you are looking for liability guarantees and you start to generate near six-figure income, the decision to pay taxes as an S corporation rather than a limited liability corporation or LLC can help you avoid self-regulation. – labor taxes which cover social security and medical care. While workers pay only half of their social security and health care taxes – their employers cover the rest – the self-employed receive a rate of 15.3%. But S corp gives you control over how you get paid.
If your business earns $ 150,000, you can choose a salary of $ 75,000 for yourself and the rest as what is called an income distribution. You will only pay self-employment tax on your salary of $ 75,000. S also avoids the 3.8% Medicare income tax imposed by Obamacare for high earners. This step will save you over $ 7,000 per year if implemented correctly.
23. Recruit Your Spouse: 4 in 10 wealthy entrepreneurs like to hire loved ones, according to a survey by the US Trust. At the same time, 6 in 10 are worried about taxes. Solve both problems by hiring a spouse and putting the majority of their salary into a 401 (k) plan.
This will reduce your total taxable income and increase your retirement savings. The maximum contribution for 2016 is $ 18,000, or $ 24,000 for those over 50. If you have a 401 (k) solo, you can add your spouse to it.
24. Hire children: To reduce taxes, you can hire your children and schedule a direct transfer of their costs to the college’s 529 tax protection plan or Roth IRA. The first $ 6,300 they earn will be tax deductible for them, as they will receive the equivalent standard deduction on their tax return.
They will be taxed at 10% on the next $ 9,225. In addition, their salary will be a tax-free business expense for you, just like the salary you pay to others. Just make sure you assign the kids to age-appropriate jobs. And don’t pay too much for them in the event of an IRS audit.
25. Donate stocks or other securities to nonprofit organizations. … Individuals who have invested in stocks, bonds and other securities can donate those whose value has increased in value for at least a year, which translates into significant income tax savings. In fact, donating shares saves even more taxes than donating cash because no capital gains tax is levied when valued securities are transferred to non-profit organizations. .
Here’s how it works for people with a 39% federal tax rate and 6% government tax: By donating $ 10,000 in cash, they can save $ 4,500 in taxes. However, by donating a stock of $ 10,000 that doubles its value, you will save approximately $ 6,000 in taxes, including $ 1,500 in future capital gains taxes.
26. Donate other goods that have been appreciated . The IRS also offers tax breaks for people donating other assets, such as certain wines, art, and land.
27. Buy movie and television credits. Some states offer tax breaks to television and film companies that make television series or feature films in that state. These companies can transfer or sell these loans to individuals, which means that an individual can purchase a film tax credit and receive tax credits on their tax return.
Here is an example of how it works: An investor purchases a loan of $ 20,000 from a movie studio for $ 17,500 before December 31, 2021. As a result, the investor becomes eligible for a government tax credit of US $ 20,000. However, in 2021, the investor will be required to report $ 2,500 in short-term capital gains.
28. Crop Tax Losses : Take the opportunity to sell stocks that are worth less than what you paid for them. Realizing or incurring losses, investors can offset taxes on income from other investments and possibly other income.
For example, people who invested in the SPDR SP Oil Gas ETF in January, believing that oil prices would recover in 2021, lost money. This particular investment was down about 17.5% in mid-October, which means the $ 40,000 investment made in January is worth $ 7,000 less today.
29. Invest in a low income credit partnership . These tax breaks stimulate the use of private capital to create affordable housing for low-income Americans. The tax breaks are attractive because they allow a reduction in the taxpayer’s income tax in dollars per dollar.
30. Use the Federal Solar Tax Credit: Officially called the Federal Investment Tax Credit, this grant provides owners of solar farms with a 30% tax credit. These loans are available for an investor interested in a partnership or other businesses with a solar power system. There is also a federal tax credit for homeowners to install a solar solar system.
31. Provide a loan to your spouse: To reduce the tax impact on passive investment income, couples can distribute the wealth through a loan, whereby a high-income spouse lends money to a partner. low-income spouse for investment purposes.
Quite simply, the borrowed spouse invests the money and pays interest to the spouse who borrowed the money. Both must report interest, but the low-income spouse can deduct the interest expense from the income when used for the investment, provided the money is in a non-registered taxable account that generates income. such as dividends.
At the same time, the income from the money invested is taxed at a lower rate than in the case of a spouse with a higher income.
32. Move to the corporate level: For business owners, include proposals to improve tax efficiency, including capital gains exemptions on the sale of company shares or farm or fishing property eligible. For professional entrepreneurs and other high income entrepreneurs, the merger is certainly a good strategy, but in some ways it is a waiting game with pending rule changes.
Among the maneuvers being considered is income dispersion, whereby the income of the business is divided between the business owner, the spouse and the adult children in order to reduce the overall tax burden.
33. Use basic tax havens. While it is tempting to imagine the wealthy hiding their money overseas to hide from the IRS, real and legal tax havens are clearly visible. These include Registered Retirement Savings Plans (RRSPs), Registered Education Savings Plans (RESPs), Registered Disability Savings Plans (RDSPs, for families with loved ones with disabilities) and even tax-free savings accounts (TFSAs).
And they are accessible to everyone. The RRSP is a bridging account that defers income tax owed today until retirement, when the money is expected to be withdrawn at a lower tax rate. The immediate savings are significant.
34. Manage your tax deductions time : . If you know in advance that you will benefit from significant tax deductions, you can choose the tax year in which you purchase them. This can be important for most of your tax deductions right now, especially if you are a sole proprietor.
For example, if you have high taxable expenses and your income for that year will push you towards the next tax threshold, it may be best to purchase your item before the end of the tax year. This will reduce your taxable income for that year and in some cases may result in a lower tax bracket.
On the other hand, after a year, when you get unpaid leave or a break from work and your income (and taxes) are lower, it may be better to defer the purchase of tax-exempt items until. so that your income and taxes increase (so you will have more taxes to save).
This will help you reduce the tax payable on the highest tax bracket and save more money. To paraphrase: If you need to purchase a high-value work-related item at the end of a fiscal year (fiscal year July 1 to June 30), purchase that item in the fiscal year when your income is highest. This allows you to maximize the value of your tax deduction (and your tax refunds).
35. Investments affect your taxes. Depending on your personal finances or your situation, investments can also help you reduce taxes considerably. However, it is definitely not for everyone. Before making an investment decision, talk to your financial planner who can advise you if an investment is right for you.
Remember that investments should benefit you now AND in the future – it doesn’t make sense to save a small amount and charge taxes now if bad investments ultimately result in the loss of your original capital.
36. Paying off your mortgage can lower taxes. Typically, you’re taxed on your savings (because of the interest income you earn from saving), so if you’re a keen saver, you might end up with a huge tax bill in the end. every year. If you’re buying your own home, you can kill two birds with one stone by transferring your savings to your mortgage.
You pay off your mortgage and are no longer taxed on that money. The overpayment is usually always available for a new draw if you need some of the money in the future. However, watching your credit drop more and more is fun and can make you think twice before you dive in.
If you need to save money that you can easily access, you can always lower your mortgage interest rates by using a compensation account. It is recommended that you speak with a financial advisor to help you plan for the best mortgage and personal finance management for your needs. conditions.
37. Adjust your finances with your partner. If you have a partner, you can configure your finances between you to optimize the tax conditions. For example, if you, as a couple, shared your savings in a short-term account earning a certain percentage, it would be advantageous to invest this money in the name of the lowest beneficiary, since they will pay the least tax on the interest. earned on this savings. Your financial advisor can help you do this.
38. When selling assets, pay attention to details: Are you planning to sell a capital gains tax (CGT) asset? One of the most common examples is rented property or a house that has already been rented.
If you are selling an asset that triggers CGT, there are a few things to consider. How long have you owned the asset? If you have owned the asset for more than twelve months, you may qualify for a 50% reduction on capital gains. If you haven’t owned the asset for at least twelve months, you will have to pay CGT more.
Does your income change? If this is the case, you may be able to sell the asset in a year, which you hope to receive at a lower return, as the capital gains will not have the same effect on your tax obligations. How selling assets can affect your taxes can be a bit tricky, so it’s best to seek the services of a tax agent.
39. Pay your property tax bill in advance: If you have a property tax bill due in January and you pay it, paying it by December 31 will deduct the payment from your taxable income on your 2021 tax return. … However, you must be careful when moving on this path.
Prepaying your property taxes can lead to an alternative minimum tax, designed to prevent the wealthy from using so many legal deductions to avoid taxes. Several popular deductions, including property taxes, must be added when calculating AMT liability. Speak to your withholding agent or use tax software to determine if you are vulnerable to AMT.
In addition, you should take into account that the envisaged tax reform plans aim to reduce rates and at the same time reduce contributions and loans. In accordance with the tax plan of the House of Representatives, deductions for various local taxes, including property taxes, will be removed. The prepayment of the tax bill and its cancellation this year will surely overcome the impossibility of canceling it.
40. Deferred sale of winners of investments. If you are looking to rebalance your portfolio by selling some of the winners you can reallocate the funds elsewhere, remember that waiting until January 1 means you will not need to report the profits as part of your 2021 income. Never take an investment step. based only on the impact of taxes, but don’t ignore it.
41. Deduction of interest on mortgage loans . Despite the fact that as a result of the tax reform the deduction of interest on mortgages has undergone some changes, there are still many. Previously, you could write off the interest you pay on your mortgage up to $ 1 million, but new laws have lowered that threshold to $ 750,000.
However, this leaves a fair amount of space for home buyers with a higher income and price range. In addition, this change only applies to new mortgages. If you took out a mortgage for $ 900,000 last year, you still have the right to deduct any interest.
42. Child Tax Credit: Until recently, the Child Tax Credit offered $ 1,000 to applicants for children under 17. The problem, however, was that the loan was starting to be phased out at $ 75,000 for flat tax applicants. and $ 110,000 for couples filing taxes jointly. However, the new laws not only double the child tax credit to $ 2,000 for each eligible child, but also make it accessible to those with higher incomes.
In fact, the income limits to which it is gradually starting to drop have dropped to $ 200,000 for single applicants and to $ 400,000 for couples who file a joint declaration. Plus, unlike deductions, which work by exempting part of your income from taxes, a tax credit is an outright reduction of a dollar tax bill, which means it can really make a big difference. difference.
43. Lower taxes on long-term investments. Every time you earn money from an investment, the IRS is entitled to a reduction (unless the investment is held in a tax-deductible retirement account). But if you want to hold your investments for at least a year and a day before selling them, you will keep most of your profits to yourself.
This is because capital gains will fall under the category of long term gains and you will be subject to a much lower tax rate than what you pay for short term gains.
As in previous years, short-term capital gains are now taxed as ordinary income, and although most individual tax brackets have been reduced as a result of the above changes, they are still above current tranches of long-term capital gains, which are 0%. 15% or 20% for the best recipients. In other words, if you are patient with selling investments, you can realize additional tax savings.
44. Using Cost Separation Research to Speed Up Depreciation of Assets: IRS Website Explains Depreciation as an income tax deduction that allows the taxpayer to recover value or some other basis of certain assets. This is an annual deduction for depreciation, damage or obsolescence. Most tangible assets (excluding land) such as buildings, machinery, vehicles, furniture and equipment are depreciated.
Likewise, certain intangible assets such as patents, copyrights and software are amortized. To identify and speed up depreciation so that taxpayers can receive their tax payments today rather than 20 years later, taxpayers can go through a so-called cost-sharing study that divides assets into their respective categories. and assigns the appropriate deductions.
45. Take advantage of big tax deductions for your business: According to the Rich Habits Institute, 85-88% of American millionaires are themselves. One way to make a fortune? Own your own business. Business owners can take advantage of Section 179 of the Internal Revenue Code, which allows businesses to deduct up to $ 500,000 in assets during a fiscal year.
Plus, a measure called accumulated depreciation allows business owners to write off 50% of the value of equipment purchased and used. It will run until 2021, then amortize 40% of that cost in 2021 and 30% in 2021. This is a big plus, because you reduce your taxable income by taking big deductions. However, you have to be careful.
46. Deduct your health insurance if you are self-employed: Self-employed people can usually deduct their health insurance and it is paid continuously.
47. Subtract the legal fees needed to get child support: Only a certain group of taxpayers qualify for this deduction, but it is a strategy that can minimize taxes if used correctly. Since receiving child support is tax deductible, all legal fees paid for that child support are deductible. This strategy illustrates the trick of the tax code, which can only be used effectively if the taxpayer meets all the conditions.
48. Obtain the correct tax code: check your tax code every year (numbers and letters on your pay slip). If you enter the wrong code, you may be paying too much tax.
In conclusion, just because you earn more money doesn’t mean you can’t get your taxes cut. However, any decision to use a tax credit or deduction should be made as part of the overall financial strategy. But using these tips above and with the help of a tax or financial advisor can help you reduce the amount of your money that goes to taxes each year.