Tax Planning Strategies forHigh-Income Earners
Finance
By: Dr. Cozette M. White
So this is almost the time of the year when you have to start thinking about your taxes. Taxes have been a huge expense for most people and especially for high-income earners. They pay a higher percentage of their income in taxes and there is no way they can avoid it!
However, what if we tell you that there are tax planning strategies that you can use to reduce your taxable income and save you some money? Wouldn't it be great if you can use these strategies to reduce your tax bill and have more money to spend or save? In this article, we will be discussing some of these tax planning strategies that you can use as a high-income earner. Let's find out!
1. Pass-Through Entity Income Deduction Opportunities
If you are a high-income earner, you can take advantage of the new pass-through entity income deduction opportunities. This deduction allows business owners to deduct a certain percentage of their qualified business income from their taxable income.
You can qualify for this deduction if you own a sole proprietorship, partnership, S corporation, or LLC. The deduction is 20% of your qualified business income. However, if you are in a service business, the deduction is reduced to 17.5%.
2. Charitable Giving Tax Planning Opportunities
Charitable giving is another great way to reduce your taxable income. You can donate money or property to a qualified charity and receive a tax deduction for the donation. The amount of tax deduction depends on the type of donation you make and the value of the donation.
For example, if you donate cash, you can deduct the amount of the donation from your taxable income. If you donate property, you can deduct the fair market value of the property from your taxable income. It can be an effective way to reduce your taxable income and save money on your taxes.
3. Estate and Gift Tax Planning Opportunities
Estate and gift tax planning is another great way to reduce your taxable income. You can transfer money or property to your loved ones without having to pay any taxes on the transfer. The amount that you can transfer without paying taxes depends on the type of transfer and the relationship of the recipient to the donor.
For example, you can give $15,000 per year to each of your loved ones without having to pay any taxes on the transfer. You can also transfer property or money to your spouse without having to pay any taxes. However, you should consult with an estate planning professional to find out what the best strategy is for you.
4. Health Savings Accounts (HSAs)
Health Savings Accounts (HSAs) are a great way to save money on your taxes. You can contribute money to an HSA account and use the money to pay for qualified medical expenses. The amount that you can contribute depends on the type of health plan that you have.
For example, if you have a high-deductible health plan, you can contribute up to $6,750 per year. The money that you contribute to the account is tax-deductible and the money that you withdraw to pay for qualified medical expenses is tax-free.
5. Retirement Plans
Retirement plans are some of the great ways to reduce your taxable income. You can contribute money to a retirement plan and receive a tax deduction for the contribution. The amount that you can contribute depends on the type of retirement plan that you have.
For example, if you have a 401(k) plan, you can contribute up to $25,500 per year. The money that you contribute to the plan is tax-deductible. However, the money that you withdraw from the plan is taxable. There are many other retirement plans available that you can choose from. You should consult with an accountant or financial advisor to find the best plan for you.
6. Invest In Municipal Bonds
Another way to reduce your taxable income is to invest in municipal bonds. When you invest in a municipal bond, you are lending money to a municipality. In return, the municipality pays you interest on the loan. The interest that you earn on the bond is not taxable.
In addition, municipal bonds are considered one of the safest investments available. This is because the municipality has strong financial backing and is very unlikely to default on the loan. The municipality has a strong track record of giving back money to investors.
7. Opt For Long Term Investments
The best way to reduce your taxable income is to invest in the long term. When you invest in the stock market, you are investing in a company that will be around for many years. The company may not be profitable today, but it may be profitable in the future.
When it comes to long-term investments, investors enjoy 0%, 10%, 15%, or 20% capital gains tax rates, which are much lower than the ordinary income tax rates. If you are single and your taxable income is less than $40,400 you don't have to pay any taxes on your capital gains. If you are in a higher tax bracket, you can still enjoy a lower tax rate on your capital gains by investing in the long term.
8. Hire A Professional Accountant To Manage Your Taxes
This is probably the best way to reduce your taxable income. When you hire a professional to handle your taxes, you can be sure that you are taking advantage of all the tax deductions and credits available to you.
The best part is that you don't have to do anything, the professional will take care of everything for you. They are aware of all the latest changes in the tax law and will make sure that you are taking advantage of them. In addition, you don't have to worry about making any mistakes on your return, the professional will make sure that everything is perfect.
Conclusion
Tax planning is one of the most critical parts of financial planning. By following the tips in this article, you can reduce your taxable income and save money on your taxes. Make sure to do your research and consult an accountant or financial advisor to find the best tax planning strategies for you. Good luck!
About our contributing writer, Dr. Cozette M. White is an acclaimed 6x best-seller author, tax and accounting strategist, speaker and philanthropic. Dr. Cozette is the Founder and CEO of My Financial Home Enterprises, a financial management firm helping entrepreneurs and organizations develop solutions that fuel business growth and transform products into accelerating profits.
Learn more about Cozette via her website at www.MyFinancialHome.com and follow her on most social media platforms @cozettemwhite.
More on Dr. Cozette M. White
Dr. Cozette M. White helps tax and accounting professionals start and grow highly profitable virtual firms. She is an acclaimed best-selling author, nationally recognized finance and tax strategist, international speaker and philanthropist.
Dr. Cozette is the resident Money Matters Expert for Fox40. In 2017, Dr. Cozette was awarded the President’s Lifetime Achievement Award by President Barack Obama.
Read more about Cozette and the services offered via her website http://www.MyFinancialHome.com
Follow Dr. Cozette on LinkedIn and other platforms @cozettemwhite
