Tax Planning Strategies To Help You Pay Less In Taxes

The Internal Revenue Service (IRS) tax code is full of legal ways for high-income Americans to pay less in taxes. Taking a proactive tax-planning approach can help you minimize your taxes both today and in the future.

During my nearly 20 years as a West Hollywood financial planner, I often am hired to help people stay on track for their most important financial goals like a secure retirement, achieving financial freedom, or perhaps, purchasing a second home in a fabulous place like Palm Springs or Puerto Vallarta. Earning your income in a more tax-efficient way can make that process easier. Tax planning is a significant portion of every financial roadmap I put together for my clients. As I always say, it’s not what you make but what you keep.

Maximize The Tax Advantages of Retirement Accounts
Making the maximum contributions each year to your retirement account is one of the most common ways to minimize your taxes each year.

For the highest income-earning folks reading this, you will likely need to invest well beyond basic IRA or 401(k) limits to truly make a dent in your tax bills or stay on track for a fully funded and secure retirement for that matter.

For high-income-earning business owners, as your income grows, the number of tax deductions you will need to keep your tax bill in check will also increase. Luckily, you can potentially set up a 401(k) profit-sharing plan and contribute $61,000 per year (as employee and employer combined). That alone may be reason enough to hire your spouse. Pre-tax double contributions to this type of plan will make a big dent in your tax bills.

Don’t Forget to Capitalize on Depreciation
Here is a quick description of what is considered depreciation from the IRS website.

“Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property.

Most types of tangible property used for your business (except land), such as buildings, machinery, vehicles, furniture, and equipment, may bring tax benefits from depreciation. Likewise, certain intangible property, such as patents, copyrights, and computer software, is depreciable.”

They are Self-Employed and Maximize Tax Deductions
There are many more tax-planning strategies available for the self-employed or business owners. While not very sexy, ensuring your business has good bookkeeping can help you lower your tax bill each year. If you forget about a tax-deductible expense, you are likely overpaying your taxes. Staying current with bookkeeping will help you avoid missing valuable tax deductions for your business. This is even more imperative now with the new Qualified Business Income (QBI) pass-through deductions for small business owners.