15+ Tax Planning Strategies for High-Income Earners!
by Abdul Aziz Mondal Finance Published on: 24 July 2024 Last Updated on: 29 July 2024
High income tax planning or managing your finances is one of the most critical and essential today. It can help you dodge steep tax payments and prepare you for taking on tax-based obstacles. However, understanding it is not an easy job. It all feels like fun and games till you must start paying out vast sums of money as taxes. However, you do not need to worry about that anymore.
Thankfully, the government has aided and created legitimate ways of saving taxes. However, the information about these high-income tax plans is kept under wraps. As a result, many people need to learn about their existence for their corporate tax planning as well as high income tax planning.
That is why you need this article. In this article we will talk about some of the best and most reliable high-income tax planning strategies. Let us dive right in!
Let us dive right in!
Top High Income Tax Planning Strategies
Being a high-income earner is all fun and games till you must start paying out vast sums of money as taxes. However, you do not need to worry about that anymore.
Thankfully, the government has aided and created legitimate ways of saving taxes. However, the information about these high-income tax plans is kept under wraps. As a result, many people need to learn about their existence for their corporate tax planning as well as high income tax planning.
Lucky for you, we have scoured the internet and brought to you 15+ high-income tax planning solutions that you can check out for yourself.
Here we go!
Retirement Contribution
One of the most staple and reliable ways to reduce tax brackets is to avail yourself of retirement tax benefits that the government has proposed over the years. These programs reduce the tax bracket today and tomorrow.
The government has introduced several tax rebate solutions like the traditional 401(k), Roth 401(k), IRA, Roth IRA, Solo 401(k) and SEP-IRA. All of these allow users to cut down on the general tax bracket.
Charitable Contribution
Another reliable way to reduce tax brackets is by making charitable contributions. In some cases, the government reduces tax if a high-income individual donates to charitable organizations.
As per the government mandate, individuals who contribute to DAF, Bunching Donation, Charitable Lead Trusts, and more, get leeway from the government regarding tax. This leeway is decided upon by the overall income and tax bracket. Therefore, the rebate percentage depends on a lot of factors.
SALT Deduction
SALT, or State and Local Tax deductions, are tax deductions the local government can provide to taxpayers. This allows taxpayers to reduce or skip locally paid land taxes from their federal income. This is a legitimate way of rebating taxes.
The taxes that qualify for SALT reduction usually consist of local land taxes, income taxes, and sales taxes. It is essential to know that the government is aware of this loophole and has limited the tax rebate to a certain amount.
QSBS Rebate
The government understands the importance of small businesses and the essence that they might have on a business ecosystem. As a result, the government is making sure to increase tax rebates to help small businesses grow.
The IRS usually monitors this tax rebate. The QSBS or Qualified Small Business Stock allows investors to rebate the total amount of their small business stocks. However, this also comes with some forms of restrictions. Hence, it would help if you learned it from a financier.
83(b) Election
83(b) Election is an equity program that allows small and new business owners to cut down on taxes and help them invest more smartly. This is a part of the equity compensation plan. This equity program gives optimal headway to newer entrepreneurs.
83(b) Election is meant to level the playing field. This leeway allows taxpayers to procure resources at a ‘fair price’ rate, making it easier for small businesses to take advantage of the economy and do business easily and comfortably. This seminal high-income tax planning strategy allows newer businesses to grow above and beyond.
Tax Loss Harvesting
As an entrepreneur, you often come across investments that do not make any profits. An inexperienced entrepreneur would usually see these assets as liabilities. However, we at RWB believe our audience needs to be more experienced.
One smart way to tackle these dead investments is to use these investments to get tax rebates. However, since this is also controlled by the IRS, you might have to face rebate caps. However, the allowed amount oscillates between $1500 to $3000.
Qualified Opportunity Zone Investments
Qualified Opportunity Zones or QOZs are referred to underprivileged communities. These communities fulfil the legal requirement to be called endangered. As a result, the government tends to let go of high tax percentages.
This is one of the most prominent methods of getting tax rebates. However, qualifying for this tax rebate is a challenging task. It requires careful consideration and a mountain of valid documents. Otherwise, you will not be eligible for this rebate.
Mortgage Interest Deduction
A mortgage is something that most people must pay at some point in their lives. Therefore, an entrepreneur can use the mortgage to reduce overall tax rebate. In fact, this process can help entrepreneurs save money on taxes.
The MID or Mortgage Interest Deduction is a common and lucrative means of getting tax rebates. This rebate is one of the lucrative ways of? However, the money disbursement is a whole different deal altogether. In some cases, it can take up to 90 days (about 3 months).
HSAs & FSAs
Health Savings Accounts and Flexible Spending Accounts are two of the most prominent forms of tax advantages that the government recognizes. Both of these tax rebates are absolute and easy to file.
HSAs are usually available for people who must pay steep and frequent medical bills. The program recognizes their problem and allows tax rebates. Similarly, FSAs enable individuals to set aside pre-tax dollars to reduce overall taxable incomes. This will allow individuals to save up tax dollars for a rainy day.
Entrepreneurial Benefits
The government understands the importance of including self-employed and small-scale entrepreneurs in their business programs. This endeavor boosts the overall economy by helping entrepreneurs to invest more in their businesses.
These entrepreneurial benefits are very lucrative. As a result, you can do it as well. Just ensure you get it done by a professional financier, and you will be perfect. Otherwise, you might risk messing up the process and losing out on the rebate.
QME Benefits
The government understands that only some people are financially capable of paying out vast sums of money as tax. Especially if they have high medical expenses, this is a significant tax rebate that can help people suffering from terminal and chronic illnesses.
As per the rule, if a person is paying 7.5% of their income as medical bills, then they qualify for the tax rebate. This long-term rebate can be renewed occasionally. The rebate covers almost every medical expense out there.
QEE Benefits
Just like medical bills, education is something that can be expensive. As a result, you can include your student loan as a part of your high-income tax plan. In fact, this can help you get rebates and connect you to programs to pay out your loans with more manageable interest rates.
To qualify for this rebate, the student loan payments must be at least 10% of an individual’s income. Otherwise, one cannot avail of the benefits of the loan.
Tax Residency Planning
As per recent sources, around nine states in the US have not levied any income tax. Therefore, if you belong to one such state, you can receive the rebate freely.
However, you can only apply for the rebate if you are a resident of one of these states; you need proper residential proof and a passport to claim these tax rebates.
Tax-Efficient Investment Strategies
Tax rebates are not the only means of reducing payable taxes. In fact, you can even invest in Tax-Efficient Investment Strategies. These strategies are formulated in a way that helps in reducing the overall tax bracket and improving tax management
Some of the most common Tax-Efficient Investment Strategies include asset location, tax-efficient funds, 529 plans, and Municipal bonds. All these things allow taxpayers to get tax exemptions by making thoughtful investment plans.
Real Estate Investing
Only a few people know this, but the real estate business is a lucrative means of flipping your assets and reducing the overall tax bracket. This is also a prevalent means of lowering taxes, which countless young and small entrepreneurs take advantage of.
Some of the most common ways to invest in real estate are rental properties, 1031 exchanges, etc. All these procedures use your real estate property to reduce and improve the tax bracket.
Environmental Tax Breaks
Finally, the newest means to gain tax exemption is the ETB or Environmental Tax Breaks. As an entrepreneur, you can avail yourself of ETB if you want to invest in sustainable solutions but lack the funds. This high-income tax planning allows small businesses and individuals to avail themselves of taxes for these sustainable upgrades.
The Final Thought
In summation, these are some of the best high-income tax planning that every young or small entrepreneur can exploit to further their financial gains. If you want to take advantage of these rebates, you can do so by consulting a financier. If you liked this content, check out our page, where we discuss the entrepreneurial journey.
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