19 Ways to Minimize Taxes
The word “taxes” causes much controversy. Those who have little, think those who have plenty, should pay more. Those who have plenty, think those who have little, should take less. Few of us want to pay more than our fair share.
Recently a well-known billionaire declared the wealthy should pay more in taxes. The same year, he sued the IRS for charging him too much. There’s much frustration, anger and angst associated with the subject.
My hope is that my clients pay the least amount of taxes possible. Taxes in many ways are charity. Congress is not the charity I would choose, and I believe that most of my clients would choose better charities too. So what can we do to minimize our tax liability?
Here are nineteen ways to minimize today’s, yesterday’s or tomorrow’s taxes.
- Invest in assets that appreciate rather than pay interest or dividends.
- Invest in assets that create deductions such as real estate.
- Become self-employed so you have more tax write-offs.
- Maximize IRAs if you have earned income.
- Maximize Roth IRAs if you qualify for long-term benefits.
- Make sure you itemize all deductible expenses.
- Keep track of your charitable giving.
- Contribute into your employer-sponsored retirement plan for the deduction, and to maximize any matching contributions.
- If you have a nonworking spouse, and sufficient income, contribute to their IRA.
- Invest in a 529 plan for your children or grandchildren’s college education, which depending on the state you live in can be deductible.
- Manage your income when you retire so you level out your taxes rather than having periods of high tax rates, and then years of no taxes.
- Ask your accountant to help you thoughtfully minimize your taxable income prior to year end.
- Make sure your beneficiaries are appropriate so that at death undue taxes are not payable on your IRAs.
- Determine which assets should be given at death vs. during your lifetime. Highly appreciated assets sometimes are better given at death because of the jump up in basis.
- If you’re self-employed hire your children as appropriate.
- Barter for services as appropriate.
- Consider tax-deferred investments such as annuities for excess investments.
- Consult with a financial professional to help you plan a tax efficient withdrawal strategy for retirement.
- Deduct your financial planner’s fees as investment advice.
You would be lucky if 5 or 6 of these things are appropriate to your circumstances this year, but this can change from year to year. The only way to minimize your tax liability is to be active in an ongoing process of thought that leads to better decisions.
Is paying less taxes the number one priority in all financial decisions? Absolutely not! However, if you aren’t mindful and thoughtful each year you will probably pay more taxes than necessary. Becoming more tax efficient is not an event, it is an ongoing process.
Pennies add up to dollars, dollars add up to choices, choices add up to financial rewards, financial rewards add up to a more fulfilling life. Be intentional about minimizing your taxes and those saved pennies could lead to much more.
Note: This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.