5 WAYS ONE CAN SAVE ON THEIR TAXES
“I don’t want to pay any taxes”. If I had a $1.00 for every time a client said that to me, I would be sitting on the beach in Bora Bora sipping on Mai Tai’s and have someone else preparing my taxes! So, who can we blame for having to pay taxes??
Per Wikipedia (my go to guide to keep up with my kids), the first income tax was implemented by Abraham Lincoln with the Revenue Act of 1861 during the Civil War. In 1895, the Supreme Court ruled the U.S. federal government could not tax interest, dividend, and rental income as it was unconstitutional in Pollock v. Farmers’ Loan & Trust Co., because it was a direct tax. Unfortunately, that was short lived, and that decision was overruled by the ratification of the Sixteenth Amendment to the United States Constitution in 1913. Since then, the U.S. federal government has been taxing our income and taxes have become more and more complicated as the years go by.
We know we will never get away without paying taxes, there are however ways of not paying SO much in taxes. The following are the top 5 ways one can save on their taxes
- Max out your 401(k) or contribute to an IRA. This is one of the easiest ways to start saving money. Many employers offer plans where you can elect to defer a portion of your salary and contribute it to 401(k) plan. Some employers match a portion of your contributions to the 401(k).
- Take advantage of company Health Spending Accounts (HSAs). You can write-off your medical and dental expenses on the amount that exceeds 7.5% of your adjusted gross income. In 2019 that percentage increases to 10%. If you are a high-income earner, you wouldn’t be able to write-off any of your out-of-pocket medical costs. However, you can get a deduction for contributions made to your HSA.
- Contributing to a retirement plan. If you have your own business, consider contributing as much as possible to a retirement plan such as a SEP, Solo 401K or a Traditional IRA. Reach out to your financial planner for which retirement plan works best for you.
- Proper Entity Structure. If you have your own business make sure you have that business in the right entity. There are many entities to choose from, from Sole-Proprietorship, to LLC, to S or C Corporation. It is critical to wisely choose which entity is best for you.
- Tax Planning. One of the biggest mistakes made is the failure to plan!