6 Tips to Save Thousands on Your Taxes
In America, we work hard each and every day to earn our income. We should be doing the same to keep our money in the bank! The same amount of time you put towards earning money should be put towards learning, saving, and investing your money. That goes for taxes too!
You might be saying, "That’s what I have a CPA for Jen.” Well, guess what, although your CPA is on your side, no one is going to work as hard for your money as you will! It’s your job to educate yourself on tax-saving strategies and be sure to check for updates each year as new tax guidelines roll out.
The more you’re able to learn on your own to take back to your CPA, the more money you will ultimately have in the bank! Wouldn’t you just love to not have to write the IRS a check every year?
So with that, I'll leave you with 6 tax strategies you can begin studying today, and hopefully implement this tax season!
Tax Tips the Wealthy Use:
1. Augusta Rule (IRS section 280A)
Did you know you can lease out your home for up to 14 days per year for tax-free rental income? If you hold team meetings, a conference, photoshoots, etc. you can apply a standard rate to “charge” and then write that off on your taxes. This tax strategy can be leveraged for up to 14 days each year without having to report it as rental income on your individual tax return.
Example: If a conference were to cost you $4,000 to host at a venue, and you instead held it at your home 14x throughout the year, you could apply | $4,000 x 14 = $56,000 rental income. You would then take this rental income and multiply it by your tax bracket | $56,000 x 37% = $20,720. The savings are huge!
2. Cost Segregation
When buying real estate, you are allowed to apply your property’s depreciation as tax savings. Accountants typically use what is called straight-line depreciation, and apply average asset depreciation over the course of 27.5 years for tax write-offs. Instead, you can apply what is called accelerated depreciation, and write off up to 30%-35% of the purchase price in the first year! This type of depreciation reduces the amount of taxable income early in the life of an asset so that the tax liability is deferred into later periods. Note, you will still apply the remaining 70% of the asset’s depreciation over 27.5 years.
Example: If you purchased an investment property for $500,000, you could deduct 30% or $150,000 off your taxes immediately. This means, if you put down 10% to purchase the property ($50,000), and took out a loan for the remainder ($450,000), you’ve only spent $50,000 of your own money and would receive a tax deduction of $150,000!
3. 45LTax Credit
This tax credit is a dollar-for-dollar tax offset that can be applied against taxes owed on a property when energy-efficient mechanical/appliances are installed (including solar panels) or an energy-efficient property is built. This tax credit can be applied across single-family homes, multifamily properties, and commercial builders and typically range between $2,000-$5,000 per unit/dwelling. The IRS requires that the installation of the energy-efficient property or equipment gets certified by a third party.
4. Health Savings Account
As an individual, you are eligible to contribute up to $3,650 each year ($7,300 as a family) to an HSA account. This tax-free money can then be used to help cover medical expenses such as doctor visits, long-term care, eyeglasses, massages, and so much more! One benefit to note is the money doesn’t expire each year. All monetary HSA contributions roll over each year and will be there when you need them. (Note: In 2023 HSA contributions increase to $3,850 for individuals, $7,750 for families, and an additional $1,000 per year can be contributed for individuals over the age of 55).
Wealth Building Books:
5. 529 Plan
When thinking about future investments to benefit your family, looking into a 529 plan may be a good option. Similar to a Roth 401k, the 529 college savings plan allows you to invest after-tax contributions into investments such as mutual funds and EFTs, and withdraw tax-free money later down the road, to be used on qualified education expenses. Note, the contributions never expire, but do need to be applied towards higher education expenses such as college, textbooks, etc. If your child(ren) decides to not go to college, the funds can be used for a grandchild.
6. Coverdell Account
Similar to a 529 plan, a Coverdell Account can be used to help fund a child’s education. However, there are different restrictions between the two. For example, the Coverdell account only allows you to contribute up to $2,000 per year and has restrictions on who can open an account. The benefit of a Coverdell Account is that it can be used for a wider array of K-12 expenses such as supplies, tutoring, room, and board, plus many more - while the 529 plan limits you to $10,000 tuition for K-12.
I am not a licensed tax attorney, CPA, tax advisor, financial advisor, real estate attorney, etc. These are suggestions only. Anything that you are interested in implementing should be fully vetted and discussed with a preferred professional of your choosing!
Happy saving!
Jen
Wealth Building Books + Podcast Recommendations:
Rich Dad’s Cash Flow Quadrant by Robert Kiyosaki
The Psychology of Money by Morgan Housel
Tax- Free Wealth by Tom Wheelwright, CPA
Rich Dad, Poor Dad by Robert Kiyosaki
The Wealthy Code by George Antone
The Bankers Code by George Antone
The Lifestyle Investor by Justin Donald
Invest in Debt by Jimmy Napier
The One Thing by Gary Keller and Jay Papasan
Roths for the Rich by Will Duffy
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