It’s expensive to be poor. Or maybe we should say, “It’s inexpensive to be rich.” Especially when you file taxes like a rich person.
From favorable interest rates on all sorts of loans, the wealthy have access to major money-saving advantages over their poor and middle class neighbors, who often have no other choice but to pay extra fees and deal with sky-high interest rates.
But most of the time, the savings we talk about for the wealthy comes on Tax Day. It’s true! Tax rates on the rich are usually low. Heck, even though recent tax cuts offered some ease to taxpayers with lower incomes, most of those cuts will slowly ease back to normal by 2025.
Want to know a secret, though? Favorable tax rates aren’t the only things helping the wealthy hold onto their money. The rich employ tax strategies that low and middle classes taxpayers don’t, simply because they don’t have some pricey accountant or tax attorney to guide them.
Today, we want to give you a leg up. Here are a few tax filing strategies the rich use that you might be able to benefit from, too. Take a look and find out what you can be taking advantage of before the end of the year!
Contributions to retirement accounts are often deductible—or at least untaxed. This is fairly well known, but for some reason, many taxpayers neglect to take advantage of it.
Wealthy folks often make the maximum annual contributions to their IRAs, which boosts their savings while offsetting their tax responsibilities for the year. Business owners can benefit even more, even employing a spouse to increase their contribution!
While A Cash Balance Pension Plan or Defined-Benefit Pension Plan may not be right for you, but you can really benefit from rethinking how you approach savings. For example, you probably only discuss your retirement savings in future terms. “If I contribute X each year, I’ll have Y by Z date.” But if you also consider the money you’ll save at tax time, you may realize your budget can actually sustain a larger contribution.
Not only will this help your tax savings, but it will also inch you that much closer to your long-term savings goals!
Sure, you may think you’re maximizing your deductions. But many self-employed people miss out on huge tax savings they could normally benefit from.
One reason why so many wealthy people have LLCs in their name is for this reason, exactly. For example, they can often gain access to even larger retirement contributions and tax breaks.
If you’re self-employed or own a small business, you should strongly reexamine the way you file. For example, if you work for yourself, you can write off your health insurance and give you (and your spouse) access to better health plans, which will lower your out-of-pocket costs and result in more savings.
Depreciation doesn’t apply to all taxpayers, but it applies to more than you may think—and that group might include you. In fact, depreciation is a tax strategy the wealthy employ all the time to lower their tax burden.
Depreciation is, in a nutshell, the wear and tear on property—like a house or a car—over time. It helps to account for that leak that may spring in a roof or the driveway that’s slowly turning into gravel. The wealthy, who may have rental properties or other large assets, write off this depreciation on their taxes.
There are a lot of restrictions to what the IRS considers a qualifying write-off, but if you use your car for work—or even have a home office—you may be able to take advantage. Or, if you rent out a vacation home for a month out of the year, you can claim part of a year’s worth of depreciation. Although your depreciation claims will end up factoring in when it’s time to sell your property, they can really help you on your taxes. And another benefit: depreciation losses can roll over to next year’s return!
The rich do have some inherent advantages on Tax Day.
However, the wealthy also know a lot of really useful tools that help them reliably lessen their tax burden each and every year. With the right planning and the right research, you can boost your deductions, lower your taxes, and improve your financial situation overall.
And, of course, if you ever need any help finding the right tax strategies to maximize your benefit, we’re always here to help.