Taxes. Nobody likes to pay them, but at the end of the day, Uncle Sam is reaching into most people’s pockets.
The highest income earners in the United States can pay up to 26% in federal taxes.
Does that make you mad? Does that make you want to learn about tax reduction strategies?
Tax reduction can be a major key to building wealth. Here is how to reduce taxes for high-income earners.
Capital Gains
One of the best tax reduction strategies that you can use is learning how to use capital gains efficiently. It is best to know the IRS laws on capital gains and capital losses here.
What you need to know is that there is a different tax percentage here depending on how long you keep this capital.
Let’s say that you bought a piece of real estate property that is not your primary residence on January 1st, 2022. The day you sell this property will be key to determining how much capital gain tax you will have to pay.
If you decide to sell the property before the end of 2022, this will be considered a short-term capital gain. These tend to get taxed higher and it can work similarly to regular income.
However, if you hang onto investment property for more than a year, this turns into a long-term capital gain.
What this means is that you will have to pay less taxes. This is one of the key reducing tax liabilities strategies you can use because once you have capital for over a year, you cannot get taxed for more than 20% of the gains that you make with it.
The bottom line is that if you use this right, it can become a great tip on how to pay less taxes legally.
Knowing Your Deductibles
Another tip on how to pay less taxes legally that you can use is knowing what type of deductibles you can claim. This is especially important for small business owners or those that are self-employed. The reason is that there can be a little more leeway with what taxes you have to pay.
An example is if you are a small business owner that has family members working for your business. What you can do here is if you have a spouse that you run the business with, you can give that spouse a salary. Then, that should eliminate five or six figures worth of income from your business that will be taxed significantly less on one salary.
Another tax reduction tip you can use here is if you work from home. If you own your home, one of the best tax reduction strategies you can use is declaring your home an office space.
When you do this, it allows you to dedicate a percentage of your home as an office space that you have to pay a lease for. Generally, the rule is that you can only declare the percentage of your home that you use as an office.
For example, let’s say that you use 20% of your home as a home office. Combined with your mortgage and utilities, it may cost you $2,000 per month to keep your home running normally.
In this situation, you can claim about $5,000 per year as expenses for your home office. While this may not sound like a lot to some, it is still more money that you can keep in your pocket and use to get a step closer to building wealth.
Work With Your Partner
One of the best reducing tax liabilities strategies you can use is to work together with your partner. This is especially the case if you already make a high income and your partner does not.
Essentially, you can use your partner to your advantage because you can put some of the assets in their name. This is a great tip on how to reduce taxes for high-income earners because this partner can still stay in a lower tax bracket depending on what kind of assets you are putting in their name. However, be careful becuase this might make sense from a tax reduction perspective but could create liability from an asset protection perspective. Just be sure you have your assets properly structured for this to both protect and reduce taxes.
For example, let’s say you buy a piece of real estate property when you are already worth seven figures. The property can easily make around $100,000 per year in profit.
In this situation, you would be subject to higher taxes because you are already in the highest tax bracket with your other earnings. However, if you put this in your partner’s name, that $100,000 in earnings does not face as high as a percentage of the income being taxed.
There are two keys here that can allow you to continue building wealth from this. The first is to make sure that you trust your spouse and that they will not sell the property behind your back. The second is to make sure that you do not give them an asset that also puts them in the highest tax bracket.
If you review this carefully, this is a great tip on how to pay less taxes legally.
Learn How to Reduce Taxes for High-Income Earners
These are just a few tips on how to reduce taxes for high-income earners. If you are in this category, you are likely aware that a lot of your income is subject to taxes if you are not careful. However, this does not have to be the case.
Find out what tax deductibles you can use, take advantage of capital gains, and have a discussion with your partner about this.
Do you want more tips? Get a free consultation from us today.
