There are many tax-related issues when you have many assets and income. One of the reasons people do not know the best ways to save money from taxes is because they say that it doesn’t matter how much you make or how much you own.
They will still take away as much as possible. This is not true, though it is true that there is no win-win situation regarding taxes between our government and us. Taxes might hurt us if we don’t know what we are paying for, but in most cases, using some advice from this post should help you reduce your overall tax burden by making smart decisions with your assets and income.
Tax-Loss Harvesting
Tax-loss harvesting is the process of selling investments that have lost money to get your capital gains taxes reduced. The idea behind this is that you can deduct that loss from your income and pay less in taxes if you sell at a loss.
For example, let’s say that you own shares of Apple Inc. (NASDAQ: AAPL) for $100 per share, and they’ve fallen to $75 per share. You can’t sell them because you’re holding on to them for investment purposes, but if you were to sell them, your taxable income would be $25 per share after selling costs.
You could instead sell them at a loss and then choose to reinvest the proceeds into more Apple shares, thereby reducing your taxable income by $25 per share and paying less in taxes as well assuming any losses are greater than the original investment.
Retirement Plan Contributions
One of the most confusing parts about taxes is figuring out how much you can deduct from your income when making contributions to a qualified retirement plan.
The amount of your deduction depends on whether you’re self-employed or a salaried employee and the type of plan you’re contributing to.
For example, many people assume that if they are self-employed, their contributions are deductible, but this isn’t necessarily true. You may have other sources of income that would make it impossible for you to deduct your contributions without reducing your overall tax bill too much.
Suppose this sounds like you; consider using an IRA instead of contributing directly to a 401(k) or another traditional retirement plan. IRAs offer some flexibility regarding deductions since IRAs allow both deductible and nondeductible contributions as well as distributions.
IRA Conversions
There are several ways to save money from taxes if you have an IRA. The most obvious way is to convert your traditional IRA to a Roth IRA. The conversion will result in tax-free income for the year you make the conversion and future years.
Another way is to use a backdoor Roth IRA conversion when setting up your account. This strategy allows you to avoid paying taxes on the amount you convert, but it doesn’t work for all accounts.
You can also contribute more than $5,500 per year and still be able to access your funds without paying an early withdrawal penalty or taxes.
Conclusions
There are numerous tax-saving opportunities that individuals can take advantage of today to save further from taxes. Be it investing or any other, there is no shortage of options for you. These opportunities have been designed to benefit from the tax breaks, which will result in some savings for you. If you are looking for ways to save some taxes, check out this article now.