Six Ways the Wealthy Manage Taxes

Taxes can be one your most significant expenses, and the government can place a heavy tax burden on wealthy individuals. If you have a high net worth and and want to learn how to save money on taxes, the following six strategies may apply to you.

Take Business Tax Deductions

Wealthy people who own businesses can take many more tax deductions than people who don’t. With the proper corporate entity in place—and an intent to create a profit—you may be able to deduct:

• Advertising
• Travel
• Office supplies
• Vehicles
• A home office
• Continuing education
• Meals
• Certain assets
• And more

You may also be able to depreciate a percentage of the cost of certain equipment. It’s vital to tap professionals like Legally Mine, though, to ensure the legality of your deductions.

Emphasize Investment Income

As much as possible, wealthy people switch from earned income, such as paychecks, to investment income. The government can tax earned income at a rate approaching 40%. In contrast, capital gains taxes on investment sales can be around 20%.

Take advantage of capital gains taxes by holding dividend-yielding stock and selling the shares when they appreciate. In addition, if you own rental real estate, you can deduct certain property expenses to reduce your taxable rental income.

Buy Whole Life Insurance

Some wealthy individuals and families use certain whole life insurance policies as investment accounts. The cash value of a policy can grow more quickly than the premiums paid into it, and the growth is tax-deferred.

For certain purposes, the owner of a policy can take out tax-free loans from the policy, possibly to buy investments. Of course, when the owner dies, the policy pays a large tax-free benefit to a beneficiary or beneficiaries.

As an investment strategy, though, whole life insurance may only succeed with the right product and an expertly-crafted plan.

Deduct Property Taxes and Mortgage Interest on a Second Home

If you have the resources to purchase a second home, you should look into the tax advantages associated with it. You may be able to take itemized deductions of property taxes and interest payments.

You might also be able to apply these tax advantages to a houseboat or yacht, if it contains a kitchen, a toilet, and a place to sleep.

Avoid the Estate Tax

If you have received a large inheritance or achieved a certain level of assets on your own, you might want to reduce your potential estate tax. Proper planning could increase the amount you leave to your family or other beneficiaries.

Common tactics for lowering your estate tax include:

• Giving gifts to family members
• Donating to charity
• Transferring assets to a family limited partnership
• Creating an irrevocable life insurance trust
• Transferring your home to a qualified personal residence trust

Contribute the Maximum to Retirement Accounts

You can further reduce your taxable income by contributing as much as possible to tax-advantaged retirement accounts. You can fund a 401(k), IRA, and other types of accounts with pre-tax money, even opening and using multiple accounts of different types.

Some account types allow you to choose between a traditional and Roth version of them. The traditional option gives you tax advantages immediately, whereas a Roth option gives you tax-free income during retirement.

How can you as an individual be sure you have the latest information on how to save money on taxes? Connect with an asset protection team such as Legally Mine, which continues to study the latest tax laws. The strategies above may change eventually, but a strong team can help you take advantage of the most current tax codes and achieve your goals.