Benjamin Franklin is credited for saying:
“The only things certain in life are death and taxes.”
Taxes are one of the largest and most unavoidable expenses any individual or business owner might face.
Unlike other expenses, taxes scale up with your income, and your tax burden can be very high if you’re a high earner.
Fortunately, there are ways to reduce your tax burden and prevent yourself from paying more than necessary in taxes. Tax planning isn’t difficult, but it does require some know-how.
Here are a few of the ways you can minimize your tax burden:
Invest your money in a tax-deferred account. Traditional IRAs allow you to grow money on a tax-deferred basis, allowing you to defer taxes until you withdraw the funds. This allows you to set aside money while your earnings are high and pay a better tax rate once your tax bracket has dropped.
A Roth IRA is taxed when you put money into the account, but you pay no taxes on it or its growth after you withdraw it. Both can be excellent investment vehicles to trim your tax bill.
Establish a business with tax benefits. If you have a lucrative hobby or side business, like real estate investment, the way you designate that business can have an effect on your taxes. Check with an accountant to see what option will best suit your needs.
Take advantage of deductions. Tax write-offs for business owners abound, and some of the expenses you can deduct may surprise you. This method only saves you money if you’re already spending money on these expenses, but it does allow you to spend pre-tax dollars for necessary expenses. This ultimately allows you to pay a lower tax bill.
These are just a few basic concepts that can help add up to massive tax savings.
Each person’s situation is different, so you’ll want to research your options and speak with a qualified CPA to figure out the best way to reduce your tax burden.
A little careful tax planning today can help you keep more of your money in your pockets and investments.