Tax Secrets of the Wealthy Revealed
Contributed by Daniel Heuer
25 April, 2017
It's no secret that America's 1% have a variety of tricks up their (or rather their financial planner's) sleeve. The real mystery is how the pull it off. Aren't the tax laws in place to keep people from taking advantage of the system? Aren't we all supposed to be treated fairly? Here's the answer: Keep dreaming. But, here's the good news. The middle class can take advantage of a fair number of these tax techniques as well.
Get a retirement account
There are three big benefits when you put money into a traditional IRA. You can set aside $5,500, or $6,500 if you've hit 50, which will be deducted from your taxable income. You can choose to have up to $18,000 of your income, or $24,000 if you've hit 50, deferred into your account through a 401k. Best of all, you can make contributions of up to $54,000, or $60,000 if you've hit 50, that will not count toward your taxable income with certain pension plans and self-employment retirement plans.
Let's talk capital gains
Capital gains are mostly money made from investments. This money gets taxed at a lower percentage rate than regular income from your job or business. In other words, make some solid investments and you'll have less regular income to report. The least amount of income you can report the better off your wallet will be. Understandably, a middle class taxpayer will have to worry more about finding the right balance as to not end up cash poor.
Own property? Listen up.
If you have a mortgage on a piece of property you can claim a mortgage interest deduction. The catch? You have to itemize deductions in order to take advantage of it. Most people like you and me don't itemize deductions because there's not much of a point or so we thought. Talk with a financial planner to see if a mortgage interest deduction makes sense for you. There could be huge savings in it for you.
Perhaps you've heard of people deducting charitable contributions? It's a smart practice to get money back during tax time. But there's something even better than cash contributions. Assets. Like stock. "By donating stock, you never have to pay taxes on their capital gains and you can deduct the full market value. Imagine if you bought a stock for $2,000 and donated it a couple years later at $10,000, you'd only have to pay capital gains tax on the original $2,000 but still be able to deduct the full $10,000," says Joe Garza, financial lawyer at Garza & Harris. Sounds like a win win, Joe.
To sum it all up
Ok yeah, the wealthy have major advantages when it comes to these tax breaks, but fair is what you make it. You have access to IRA's, you can make those donations, and you can make smart investments. Take advantage of as many of these loopholes as you can, and you'll be better off than you were before.
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