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There are legitimate way to pay less income tax by utilizing simple tax strategies, one of which I will describe in this newsletter. Many people unknowingly set themselves for a huge taxable event by using traditional IRA’s.
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There are legitimate way to pay less income tax by utilizing simple tax strategies, one of which I will describe in this newsletter. Many people unknowingly set themselves for a huge taxable event by using traditional IRA’s. The problem with traditional IRA’s is that if in the event of an emergency where you need to withdraw money from it before you retire this will be added to your taxable income for the year and could move you up into a higher tax bracket. The tax planning strategy that can secure protection against this type of situation is the Roth IRA. This way you insure that there will be no big surprises for you at the income tax season.
Planning for your retirement? High earning employees, need to give sufficient thought to your retirement even if it may seem like it’s a long way off. If you have a company matched 401(k) or 403(b) you can contribute up to $18,500 of your gross income every year. The money goes completely tax free into the retirement plan, since the contributions come directly from your pay check before it gets taxed. Of course as stated before, if you need the money before retirement the tax consequences could be substantial.
It couldn’t be simpler than a SIMPLE IRA: A ‘savings incentive match plan for employees’ individual retirement account’, more commonly known as a SIMPLE IRA, is a great plan for businesses with employees that do not wish to spend money on a Safe Harbor 401(k) or a regular 401(k). If you’re 50 or above, you have a $15,500 annual contribution limit, and if you’re below the age of 50, the limit is at $12,500.
Going solo A Solo 401(k) can be set up by high earners that are self-employed, for themselves and a registered spouse, enabling you to do the same annual contributions as a standard 401(k), $18,500 or up to $24,500 for those aged 50 and above. • Plans for seniors If you’re older than 40 and have a business with a high profit margin, then a ‘defined benefit plan’ might work out well for you.
It’s possible to put a significant sum of money into such a plan, up to $200,000, especially if you’re in your 60’s and are self-employed. • What about a Roth conversion? Our favourite is the Roth IRA. While you don’t get a tax deduction when you put money into your Roth IRA, it does grow tax-free and should you withdraw any money from your IRA, it will be 100% tax free. You are permitted by the IRS to convert your existing IRA’s to a Roth IRA, and once you do that, any future income and growth is tax free for you and your
spouse, not to mention future generations, and is a permanent tax-free account. Our recommendation is that you seriously consider this Selling inherited real estate to save money on taxes: This tax reduction strategy is one that is often misunderstood by high income earners, but it’s worth taking the time to get it right. Inheriting property usually gives you a full step up in basis and makes your property tax go up. Let’s say you inherited a property that was bought for $100,000 and at the time of your inheritance, it was worth $1 million. If the
property had been sold before it was left to you, the owners would have made a $900,000 profit, but as you inherited it at $1 million, your cost for tax purposes, increases to $1 million. Many of those who do inherit property end up selling when they begin to fully comprehend the step up in basis principle and can take advantage of the tax deductions. What about donor-advised funds? Taking advantage of a donor-advised fund may be among the best tax planning
strategies for high income earners, since it enables you to take current and future year contributions and deduct them all in the current year. Brokerage firms have a special kind of account called a donor-advised fund, and when money is added into them, they become charitable tax deductions. If you set up one of these accounts and put money into it, it doesn’t mean that your money goes to charity, instead it means that as a trustee, you can invest the funds however you see fit and make decisions based upon what charities receive certain amounts that year, and in years to come.
If you were to put $100,000 into a donor-advised fund, you would get a full tax deduction when you are in the highest bracket, and you simply need to give $10,000 of that money to your chosen charities each year. Putting your money into real estate: Many high-income tax earners, invest money in property, which can be an effective means of saving money on taxes. If you were to buy a property valued at $1 million, and allocate the property between land and buildings, if the buildings are worth $750,000 or 75%, then
you get to depreciate that over a 27 and a 1/2 year period, meaning that you’d get a $27,000 depreciation deduction every year. If you were to rent the property out to tenants, you could take the income raised from that and subtract the expenses, then pay zero tax on that profit because you get the depreciation deduction. This amounts to a tax-free income, which can really be beneficial as a tax planning strategy for high earners, provided either you or your spouse are a real estate professional. So, do tax planning strategies for high earners really work? These are all traditional tax saving strategies that are recommended for high
income earners, and they may well work, but what if you discovered you weren’t actually required by law pay those taxes at all? I know what you are thinking, that is a far fetched idea, but it is a reality, and one that many hard-working U.S. citizens are not aware of. So, here’s how it works: if you’re a high-income earner in the private sector and not employed by the federal government, then there’s a strong chance that you have been overpaying on taxes and can significantly reduce if not eliminate all federal income taxes you are paying!
As hard as it may be to believe, it is nevertheless true and all you need do to know to discover whether you qualify is to answer a few simple questions. There is also the potential opportunity that you are owed a refund for the two previous tax years, too. If you’re a high-income earner looking for ways to legitimately lower your taxes, then the tried and tested methods in this article just might work for you. However, if you like the sound of stopping your taxes for good – and to be frank, why wouldn’t you? – then contact a professional tax service company for help and guidance, and who knows, this time next year you could be a legally non-tax paying citizen!
End Taxes 4 Ever offer professional tax service to our clients to ensure they are only paying the amount of taxes owed and remaining in full compliance with both State and Federal income tax laws. Our tax experts have discovered that nearly all Americans are not just overpaying on income taxes, but in the vast majority of cases they lawfully required to very little if anything at all. We give tax planning strategies for high income earners, guide individuals in how to legally stop paying taxes, remain in full compliance with the income tax law and get the biggest tax refund that the law allows. Get answers to your questions like how many years back can i get a tax refund? and more by visiting our website .
