Top Tips to Do Your Taxes Like the Wealthy
By Alan Olsen
Everyone would like to be wealthy. But unfortunately, not everyone is. But that doesn’t mean you can’t do certain things like the wealthy, like protect your money from taxes. In other words, you don’t have to own several mansions and luxury cars, or dine in the world’s fanciest locations to use some of the same tax strategies as the rich. In fact, here are three smart tax-saving strategies that the world’s wealthiest individuals use to protect their money from the IRS. And you can use them, too.
1. Determine Your Taxable Income–this might seem obvious, but the first thing you need to do is determine how you are being taxed. Many taxpayers really don’t know this information, which can hurt them. Your taxable income is determined by the amount of money you make during the year, minus your exemptions and deductions. So any money you’ve earned, whether it’s wages, salary, investments, discharged debts, or anything else,counts as taxable income. Next you need to check the tax bracket tables to see where you fall. Ifyou’re close to the edge of a bracket you could find ways to drop yourself down by lowering your taxable income. For example, you could contributemore to an IRA or a health savings account. This would reduce your pre-tax income, which could put you in a lower tax bracket.
2. Donate to Charity–donating to charity is one of the big ways wealthy individuals save on taxes. Any taxpayer can benefit from charitable donations. But under the new tax law it’s a little more difficult. Because the standard deduction has gone up to $24,000 for married people filing jointly, it’s harder to accumulate enough deductions to justify itemizing. However, you could donate every other year and just double what you give. This would allow you to itemize every other year and lower your taxable income.
3. Converting to a Roth–this is another favorite strategy used by the wealthy. If you already have a traditional IRA it will cost you to convert it to a Roth IRA. You will have to pay taxes on it at the time of conversion. However, it will likely save you a lot in taxes down the road. When you convert to a Roth you contribute post-tax income, which cannot be taxed later when you withdraw that money. Additionally, any interest you earn is also tax-free. Furthermore, if you pass your Roth onto family members as inheritance, they can withdraw money tax-free, as well. Theaccount just has to have been open for more than five years.
Don’t Give More to the IRS Than You Have to
With the new tax law in place, you have a lot of new things to consider when filing your taxes. Make sure you aren’t giving more money to the IRS than you have to. Using these simple strategies will help you better protect you money from the taxman. For more helpful advice to save money on taxes, contact GROCO today.