Five Intelligent Tricks Used By Rich People To Pay Less Taxes
Almost every taxpayer wants to pay less in taxes and the ones with fat bank accounts are not an exception to this. If you are a little proactive and have a solid tax strategy, you can actually minimize your taxes, too. This starts with documenting all your earnings and expenditures. Staying on track of your financial goals, such as buying your dream retirement home or sending your kids to college, is essential. Tax efficiency is integral to personal finance management. High net worth individuals often adopt a few intelligent tricks to pay less in taxes. Although not all of these tricks will work for every taxpayer, you can surely pick more than one to slash down the amount you pay in taxes each year. Here we go!
Rich People Take Advantage Of Tax-Advantaged Accounts
Optimal usage of retirement accounts is arguably the easiest way to reduce taxation in high-income families. The top earner in the family may just put away $18,500 every year and minimize the total amount to pay taxes. If both spouses are working individuals, they each contribute $18,500 every year. Individuals who have reached the age of 50 or are older can contribute an additional $6,000 toward their retirement accounts. If you are a small business owner or you are self-employed, you can even opt for a 401(k) Profit Sharing plan (you have to contribute $55,000 every year and you can ire your wife or husband to make a big dent in your annual tax bills).
They Take Advantage Of Depreciation
Depreciation is defined as a reduction in income tax which a taxpayer may be entitled to in case a property has deteriorated and needs repair and maintenance. Most tangible properties such as machinery, buildings, automobiles, furniture pieces, and kitchen and home equipment are depreciable. Certain intangible properties such as computer software products, patents, and copyrights are also depreciable. Recently, Trump’s son-in-law showed a depreciated property to minimize his taxes. Whether or not you like Trump, he is a business magnate who knows how to pay less in taxes.
They Are Mostly Self-Employed
Being self-employed or having a business of your own comes with certain tax-saving benefits. Compared to a salaried American, you get more options to save your hard-earned money. All business owners and self-employed individuals should do bookkeeping to track of their earnings and expenses. If you can’t manage it on your own, hire a professional bookkeeper, a CPA, and a financial planner to make sure you grab every little tax-saving opportunity. If you are self-employed, or you have a small business, you can avail a larger variety of tax breaks and deductions and max out your retirement contributions.
Rich People Donate Highly Appreciated Stocks To Charity
Many rich Americans hold a considerable amount of their accumulated wealth in highly-appreciated investments. People who are tax-savvy often donate some of their highly appreciated stocks to charity. In return, they get a tax reduction for the entire amount of the stocks donated. However, this doesn’t end here. They also don’t have to pay the capital gains which would incur if they had merely sold the stocks. What you will get in return of donating your stocks is called “Fair Market Value Deduction”. For example, if you shelled out $10,000 for buying stocks and it’s now worth $100,000, you will be eligible to get a tax deduction for the higher amount.
They Write Off Their Health Insurance If They Are Self-Employed
This might be the most obvious way to get a tax deduction, but here’s how you can do it to max out your tax savings. If you are a self-employed individual, you can simply write off your healthcare insurance. You can convert this expense from a personal expense to a business one. Also, it’s wise to have your wife or husband work for your business in this scenario. You may be able to buy a better (and costlier) health insurance plan post the tax deductions, but your out-of-pocket expenses would also come down.
However, don’t let these five tax-saving tricks overwhelm you. Not all of these tricks may work for you nor you would be able to employ all of these strategies. But as your income grows, you need to be aware of the tax deduction options you probably have at hand. Hire a financial planner to be on the right track.
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