Summary: Everyone wants to save money in taxes, but the question is how?! We’re about to share 7 of the best tax saving strategies, so you can decide the right ones for you and your lifestyle!
We’ve given plenty of tax tips in our time. Why? Because taxes are something EVERYONE deals with.
There’s something about death and taxes, ya know?
But even though we all have to pay taxes, we don’t necessarily have to dread them as much as we do. We actually have several options available to us for saving our hard-earned dollars when the yearly collection time comes around.
And before we get into what these methods are, the answer is yes…
Of course we have a favorite way to save money in taxes aaaand make a lot of passive income while we’re at it. And we can’t wait to tell you about it in a bit. 😉
But we know that all humans are unique and sometimes need totally different things. So, we’re giving you the full picture for tax savings today. Instead of just telling you what WE think is best, we’ll give you all the different methods so you can choose what YOU think is best.
Some of these are more traditional, and some are on the newer side, but ALL are totally legal and ethical tax saving strategies. 🙌
Ready to get to the good stuff?
Here’s what’s on the agenda today:
- 1. Add to your retirement accounts.
- 2. Start saving for college.
- 3. Find out if you qualify for certain tax credits.
- 4. Get the most out of your deductions.
- 5. Start a business or a side hustle.
- 6. Hold long-term assets.
- 7. Invest in apartment syndication.
1️⃣ Add to your retirement accounts.
Our first tax saving strategy is pretty common and has been around for a while. If you want to pay less taxes on your income, a good place to start is to reduce your taxable income.
Make less, pay less, right?
Don’t worry though, you’re not aaaactually making less money. But when you contribute to your retirement accounts, the government does not consider that money taxable. It still goes to you (in a way), but not to your main bank account.
If you’re adding to your 401(k), you will eventually have to pay taxes when the money is withdrawn, but not the year it’s made.
Sooo, what’s even the point?
Many people find that they pay less taxes later on, because they could be in a different tax bracket or receive different benefits when they withdraw the money.
This can be a useful strategy if you’re in a high tax bracket, or just want to defer some of your tax payments for a later date.
Along the same lines as your 401(k), contributing to an IRA can also lessen your taxable income. This would be your retirement account, and you don’t need to be employed to open one. Your contribution to an IRA is made with pre-tax money, butttt there’s one important thing to note…
A Roth IRA would still need to be taxed at the time the money was made, defeating the whole purpose of saving tax dollars.
So, if you go the IRA route, just know that a traditional IRA is your better bet, if your goal is to save tax money now.
2️⃣ Start saving for college.
If you have kids, putting money aside in a college fund is a good way to save some pre-tax dollars. There’s a special account called the 529 plan, which allows money to grow without being taxed.
The purpose was originally to set aside money for college tuition, but 529 accounts have more recently expanded to be used for any education tuition.
Different states may have slightly different tax deductions and benefits for contributing to your 529, so it’s a good idea to check your state’s specifics.
Here’s the BEST part of these cuties…
Certain qualifying withdrawals for 529 accounts aren’t taxed at all! Cheers for educational savings. 😏
3️⃣ Find out if you qualify for certain tax credits.
The government offers several different tax credits for people who qualify in different ways. The Earned Income Tax Credit, for example, helps low to moderate workers and families. Of course, not just anyone can apply.
To qualify, you need to meet a few criteria:
- Earn income less than $57,414
- Make investments below $10,000.
- Be a US citizen with a valid Social Security number
- Don’t file a foreign income form
Some other tax credit programs include the Child and Dependent Care Credit, Advance Child Tax Credit Payments, Recovery Rebate Credit, and Education Credits.
It’s worth looking into what credits you might qualify for, to save a little extra in taxes.
4️⃣ Get the most out of your deductions.
Okay, so nothing new here, right?
You probably have been making deductions every year since the first paycheck you ever made. Butttt we just want to make sure you’re getting ALL the deductions available to you.
Did you know that investors get some pretty epic tax benefits?
Check out our podcast episode that explains all about tax law, and how to get benefits as an investor: CM EP011 – Your Guide to Paying WAY Less in Taxes.
Here’s a little list of real estate and investment deductions available to you, just to make sure you’re saving as much as possible.
- Home office
- Depreciation of investment properties
- Investment interest
- Property taxes and insurance costs
- Ongoing property maintenance costs
Plus, don’t forget all your non-investment related expenses that definitely add up and help you save in the long run.
5️⃣ Start a business or a side hustle.
We know, we know, we know…this might sound more expensive than some of the other options. Starting a business is a lot of commitment to take on. But if it’s something you’re already considering, it can save you some money in taxes.
You see, you can get some more deductions when you work for yourself!
As always, we recommend the help of an accountant to know what deductions you can legally make. But if you’re ready to dive into being your own boss, or doing some freelance side gigs, make note of eee everything you spend for business related things.
6️⃣ Hold long-term assets.
Capital gains are the tax credits applied to assets that are held longer than a year. Think about what sort of assets you currently own – real estate, cars, business, and even stocks – and try to hold onto them.
This one is a simple test of patience. Assets held shorter than a year are taxed MORE, while assets held longer than a year are taxed LESS.
So, it totally pays to keep a hold of the same house, car, etc.
7️⃣ Invest in apartment syndication.
Okay, so we’re a bit biased on this one, but we saved the besssst tax saving strategy for last.
Apartment syndication has been our chosen method of creating passive income, living life on our terms, AND saving tons in taxes. So, we can’t help but GUSH about it every chance we get!
Investing in apartment syndication allows you to own assets without ever having to get your hands dirty (you know, like with toilets, trash, and termites). You could just sit back and watch the passive income come rolllllling in…
Right along with those sweet tax benefits. 😍
As an investor, you get a document each year called a Schedule K-1, which shows your income and losses for every asset. And you know what’s reeaaally great about the K-1?
The first year usually shows up as a paper loss, meaning your losses were higher than your income. This means you get to significantly reduce the taxes you owe on your syndication investments (they might even cancel each other out).
And that’s just ONE of the reasons we love apartment syndication so darn much!
If you want to learn more about the exciting benefits and maybe get in on some investment action yourself, send us a message!
We have tons of fun while helping people save AND grow wealth to live more financially free lives. ✨
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