Tips on Reducing High Taxes From Net Worth
The United States uses a progressive income tax system. That means that the people who earn the highest salaries are asked to pay a higher rate of income tax that those who earn a lesser income. Even so, there are strategies high earners and high net worth individuals can use to reduce their tax burdens and keep more of the money they earn.
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Roth IRA
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If you are getting ready to retire, pulling the bulk of your income from your Roth IRA can reduce your tax burden substantially. When you pull money from a Roth IRA, you do not have to pay any Federal income taxes on that money. If you are still saving for retirement, putting money in a Roth IRA instead of a traditional one gives you long-term tax benefits, even if it does not lower your current taxable income.
Tax-Free Bonds
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High income and high net worth individuals often derive a significant portion of their incomes from their investments, and structuring those investments properly helps them save money and keep more of what they earn. Tax-free municipal bonds provide income in a portfolio, but they are free from Federal taxation. If you invest in a municipal bond issued by the state where you live, that bond may be free of state income taxes as well.
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Capital Gains
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The tax rate on long-term capital gains tops out at 15 percent, while the top bracket on income is 35 percent. Structuring your investments so that you derive the bulk of your money from capital gains can save you a fortune in income taxes. Strategies like taking the bulk of your pay as stock and stock options can reduce your overall taxes and help you keep more of what you make.
Professional Help
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When your tax situation is simple and all you have is wage income, having your taxes professionally prepared can be a waste of time and money. But as your tax situation grows more complex and your income rises, the value of professional tax advice and financial guidance rises as well. Even if you prefer to prepare and file your own return, it pays to have a professional review your tax documents. An experienced CPA or tax expert can spot deductions you overlooked, or structure your income in a way that lowers your overall tax rate.
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References
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