5 Tips to Lower Your Tax Bill By Bob Diamond

Here are five simple maneuvers that could slash what you owe to the IRS.

Nothing is certain but death and taxes, but most people would probably rather not hand over a portion of their hard-earned money to the government. Fortunately, there's a number of legal ways to lower the amount you pay the taxman each year. These include credits, deductions and advanced investment strategies.

Some tax savings are available only to small business owners or the self-employed, while other options are based on your income level.

The tax code can and does change frequently, but here’s a look at how to pay less taxes based on current law.

Here are 5 you can implement fight away.

1. Take Advantage of Long-Term Capital Gains

One effective tactic to reduce your taxes and enhance your investment strategy is by taking advantage of long-term capital gains. When you hold an investment for more than a year before selling, you benefit from significantly lower long-term capital gains tax rates. 

For instance, the federal long-term capital gains tax rate is only 15% for individuals earning between $47,000 and $518,000 annually. Married couples filing jointly who earn less than $94,000 annually pay no long-term capital gains tax, making their profit entirely tax-free.

2. Invest in a 401(k)

Contributing to a 401(k) plan can substantially reduce your taxes. By contributing pre-tax money, you lower your taxable income for the year. This means if you earn $65,000 and contribute $15,000 to your 401K, you're only taxed on $50,000, potentially saving you thousands in taxes. Moreover, many employers offer to match your 401K contributions, effectively doubling your investment for free.

3. Leverage Real Estate Laws

If you're a homeowner or real estate investor, several tax breaks are available that could save you a significant amount of money. These include the Capital Gains Exclusion, 1031 exchange for rental properties, depreciation deductions, and tax credits for energy-efficient home upgrades. Leveraging these laws can help you minimize your tax liability while maximizing your real estate investments.

4. Utilize SALT Tax Workaround

In response to the limitation on deductions for state and local taxes imposed by the Tax Cuts and Jobs Act, several states have devised a workaround for businesses like S corporations. This approach allows businesses to pay state income taxes directly, circumventing the $10,000 deduction cap. Business owners then receive a credit for their share of the taxes paid on their personal state tax returns, reducing their overall tax liability.

5. Hire a Top-Flight CPA

Investing in a top-notch Certified Public Accountant (CPA) can be a game-changer when it comes to tax optimization. A skilled CPA doesn't just handle compliance and document preparation; they provide strategic advice on financial structuring, estate planning, and long-term investment strategies tailored to your specific needs. Partnering with a good CPA can significantly contribute to the success and sustainability of your business.

In conclusion, by implementing these legal tax strategies, you can minimize your tax burden while simultaneously growing your wealth. Remember, taxes are a critical but often overlooked aspect of financial planning. Investing time and resources into tax optimization can lead to substantial savings and financial prosperity in the long run. So, start leveraging these strategies today and take control of your financial future.

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