As a high-income earner, managing your taxes and keeping your wealth intact for your financial future is crucial. If you do not take a proactive approach to business tax planning, you will waste thousands of dollars on taxes yearly. But with some proper strategies put in place, you can get away with taking advantage of the tax loopholes in ways you should be compliant with, without actually having to pay a high tax. The following blog outlines ten effective tax-saving techniques for individuals and businesses with high incomes.
Why Is Tax Saving Important for High-Income Earners?
The tax code is especially demanding for high-income earners. For the most part, higher income levels force people into the top tax brackets, where a large portion of their earnings go towards taxes. Not until you create a strategic business tax planning strategy will you know how much you are paying. But effective tax saving measures not only reduce your overall tax liability, in fact, it also helps you to invest those savings back into your business or wealth.
In addition, high-income earners are subjected to more complicated tax regulations, and many of them also have to pay the Net Investment Income Tax (NIIT) or Alternative Minimum Tax (AMT). Extra accountability might erode your financial growth without the right planning. From a strategic tax planning point of view, it means that you would use the available tax deductions, credits, and other relief measures. In addition, it gives you more resources to invest in new business ventures, retirement, or charitable contributions by reducing your taxable income and improving your liquidity. A forward tax strategy works on safeguarding your wealth and also keeping your business and personal financial landscape competitive.
Maximize Retirement Contributions
Maximizing contributions to retirement accounts is one of the simplest ways to keep taxable income down. This could mean that for business owners, contributing to a Solo 401(k) or a SEP IRA. Furthermore, these contributions not only help you in the future to have financial security but also serve as significant tax deductions, reducing your taxable income today.
Utilize Health Savings Accounts (HSAs)
HSAs are triple tax advantaged: contributions are tax-free, they grow tax-free, and withdrawals for qualified medical expenses are tax-free. HSAs become very attractive to high-income earners who qualify for them because they allow them to both reduce taxable income and save for future healthcare costs. Yet, if you get proper business tax planning, you can make sure each year you’ll take the full benefits out of them.
Invest in Tax-Advantaged Accounts
Some accounts are tax advantaged, such as Roth IRAs (if eligible) or municipal bonds. With these vehicles, you can grow or earn tax-free and thus maintain more of your earnings in the future through smart tax saving planning.
Leverage Charitable Contributions
Charitable giving is a great weapon used in both philanthropy and saving on taxes. When it comes to donating appreciated assets such as stocks instead of cash, larger tax deductions are available while helping causes you care about. Donor-advised funds can also be used for long-term charitable business tax planning by high-income earners.
Implement Income Shifting Strategies
Income shifting includes moving income from higher to lower tax brackets to family members. The advantage of this strategy is especially useful for business owners with family members that can work for them or for whom they can set up trusts to save family tax burden through legal tax saving methods.
Take Advantage of Business Expenses
If you run a business, make sure you take advantage of all the tax deductions you are allowed for operational expenses. This includes the costs of home offices and vehicles used for business and professional services. Comprehensive business tax planning helps identify deductible expenses and decrease taxable profits.
Deduct Qualified Business Income (QBI)
Qualified Business Income can be deducted by qualified business owners up to 20%. This is a substantial tax saving opportunity available to many pass through entities such as LLCs and S Corps. The structuring and planning of this tax deduction will give you proper criteria and maximize this deduction.
Incorporate Tax Loss Harvesting
Tax-loss harvesting is selling underperforming investments to offset gains and lower your taxable income. This is a particularly good strategy for high-income earners with large investment portfolios and can be a key part of business tax planning for investment-based businesses.
Explore Real Estate Tax Benefits
There are several ways to save on tax through real estate investments. Depreciation, 1031 exchanges, and opportunity zones can provide significant tax deductions and are a nice way to grow your investment portfolio. Smart business tax planning will help you take full advantage of these gains.
Consult with a Tax Expert
Complex tax laws require expertise. When you work with a professional who specializes in business tax planning, you avoid breaking the law and at the same time use the right strategy in taxes. This proactive approach will help secure your wealth while also gauging new opportunities to save taxes.
Conclusion
High-income earners who must protect and grow their wealth need effective tax-saving strategies. 406 Consulting is a business and personal tax planning firm that assists companies and individuals in avoiding business tax complexities and maximizing all available tax deductions. With our unique approach, you avoid legal penalties while keeping your tax liability to a minimum.
Don’t leave money on the table! Contact us today to discuss customized tax strategies that fit your financial needs.
