One of the difficulties that people face is when they need to pay their taxes. This can be a highly discouraging thing, as taxes can eat into your income. The rich have off-shore tax shelters that keep their funds out of the government’s hands, though that can be considered illegal. Paying taxes is a responsibility as a citizen, but there are legal ways to reduce your tax payments.
Non-billionaires can find some legal shelter in some laws that can protect their income and investments. Here are some of them:
1031 Exchanges
Real estate is a big investment but it also comes with large taxes. Fortunately, you can protect the worth of your properties with 1031 exchange. The number refers to the code section that allows for it. In essence, people can sell their property and use the money to buy another. This defers the capital gains tax to be paid on that property until it is fully sold. This method can be done a number of times as long as the trade is done on properties of equal worth and delay that tax until you finally think it is worth it.
Though it’s technically not stopping the government from collecting taxes, it does delay it. This allows you to use the money you would have paid to taxes as a further investment. This can mean more money in the long run.
Own Real Estate
Owning property can also cut down on your taxes. When you buy property, there’s a sizable tax deduction for the year you purchased it and there will be continuing tax deductions as you own it. For example, if you used a mortgage to buy the house, you can use it to deduct from your taxes. Property taxes can also be used as deductions from your main tax payments.
Even selling a house can have tax deductions. If you have lived in a house for two to five years and then sell it, the capital gains tax on the sale can be reduced by $250,000. If it was a family home and your partner included it in their own tax filing, then you collectively have half a million dollars off from the capital gains tax.
Put Money in Retirement Accounts
This is a method people don’t often notice. Their retirement accounts have significant tax deductions and putting money in them can protect them from the normal taxes they face. Though different types of retirement accounts are available, the basic tax benefit they all share is that any money you put into it, you will just skip paying taxes until the funds are withdrawn. That’s a big benefit, especially if you maximize the amount you put into your account.
Become an Entrepreneur
Either a full-time business or a side-hustle can be a source of income and tax deductions. For example, if you use your computer for work, you can put it down as tax-deductible. If you work out of your home, you can deduct some of your utilities spending as part of your tax deductions using a simple formula.
If you feel like the tax is taking too much of your hard-earned money, don’t resort to illegal means. That just tempts them to call in an audit. The above methods can protect your assets while being completely legally compliant—use one or some of them so that you can get your due.
