Tax Savings for 2021

We’ve heard stories of the ultra-rich paying little to no taxes, but sometimes there’s mystery surrounding how that’s done. Although the wealthy have greater resources than the middle class, everyone can use the same strategies they use. Here are some of those strategies.

1. Pay yourself a low salary. If you are self-employed or have a side-hustle, one way to reduce your taxes is to pay yourself a low salary, and reinvest the remainder into your business. If you keep the money in your business, you can be taxed at a corporate rate of 21%. If you take it as personal income, you can be taxed at a top marginal tax rate of 37%. Many wealthy reinvest the profits in their businesses, and pay a lower corporate tax rate of 21%. If they sell the business, they are required to pay a capital gains tax, but there are ways to avoid this tax, too.

2. Charitable contributions to your own non-profit organization. In addition to making tax-deductible charitable contributions, you can set up your own non-profit organization. Even if you own the non-profit, you can get a tax deduction by contributing to it. Furthermore, the law does not require a non-profit to spend all it’s income each year. The money can also be used for whatever non-profit cause you design it for. Furthermore, any additional income the non-profit earns isn’t taxable as long as it’s used for the organization’s purpose.

3. Mortgage and property tax deduction. The majority of the wealthy own at least one home, so they can deduct the mortgage interest and property tax from their income taxes. Since the wealthy usually own more expensive homes, the tax break is larger.

4. Inheritance through an irrevocable trust. If wealthy patrons grant their heirs assets through an irrevocable trust, much of the estate taxes can be avoided, too.

Taxes are an important consideration in your financial game plan. It’s good to plan for them before the year is over so you can save money.

Have a great Sunday, and I’ll talk to you again soon!

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