Two things nobody can escape – the first one is death and the second one is taxes. Well, even though I completely agree with number one, in reality, most of the rich people out there know many ways to escape, or at least reduce their taxes. Did you know that poor people pay taxes at rates two times higher than rich people? In the year 2010 in the United States, the top 1% of people by income were taxed at an average rate of 5.6% and the poorest 20% of Americans were taxed at around 11.2%. The next 60% by income are taxed at 9 % on average. Why do poor people and the middle class pay rates as twice as higher as the riches? Because riches know how they can reduce the amount owed to Uncle Sam. And here is a nice infographic, that shows some popular techniques used by the wealthy to reduce their taxes. Don’t forget to share your opinion of this below.
10 ways to reduce your taxable income
Some techniques you can use to reduce your taxes, created by TopAccountingDegrees.org
Some more thought on legally reducing your tax bill
Tax avoidance is a situation in which taxpayers legally lower their taxes by complying with the law. This may be in the form of deductions, exemptions or credits, or taking advantage of tax incentives offered by taxing authorities. While the most commonly used methods of reducing your taxes are deductions, exemptions, and credits, these aren’t the only ways. With a few simple steps, you can take advantage of additional legal methods of avoiding paying high taxes.
1. Make use of tax incentives.
Tax incentives are put in place to encourage certain types of activity, such as home ownership, retirement savings, and charitable giving. By taking advantage of the available tax incentives, you can put more money back in your pocket each tax season. You can find out what types of tax incentives are available in your area through government websites or by talking to an experienced tax consultant.
2. Invest in tax-exempt investments.
Many investments are exempt from taxes, including US savings bonds, municipal bonds, and certain types of IRAs. Investing in these tax-exempt investments is a great way to protect your money from taxation and enjoy a higher return on your investment. Before investing, contact an experienced financial advisor to make sure you understand the risks and benefits associated with the tax-exempt investments you are considering.
3. Defer taxes.
Deferring taxes is an effective way to delay the amount of taxes you have to pay. Deferring taxes involves investing your money in something like a 401(k) plan or other retirement accounts, which allows your contributions to grow without being taxed until you withdraw the money. You can also defer income by taking a bonus or other large sum of money and having it paid out in multiple smaller payments throughout the year.
4. Make strategic charitable donations.
Making charitable donations is one of the most effective ways of legally avoiding paying high taxes. In addition to the tax break, charitable donations provide you with a feeling of giving back to your community and making a positive difference in the world. In order to ensure your donations are properly accounted for, have a tax expert evaluate the best type of charitable organization to donate to, as well as the right amount and frequency of donations that will provide you with the greatest benefit.
By taking these steps and working with an experienced tax expert, you can get the most out of your money while still being compliant with the law. With the right strategies, you can legally avoid paying high taxes and put more money back in your pocket each year.
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