taxes
If you want to lower your taxes, it’s important to have more than a vague understanding of how our tax code works, what tax bracket you expect to be in, and what sort of activities are incentivized and disincentivized by the Internal Revue Service.
Throughout the year, opportunities exist if you know how to look for them. A lot can be done to lower taxes. I’ll share more than ten ways you can lower your taxes. Most can be used by everyone including W-2 employees, a couple of them are specific to business owners
It’s not always about making your taxes as low as possible, but about optimizing your tax situation. I’ve detailed my thought process behind making traditional versus Roth contributions. In general, the more money you make, the more it makes sense to defer the tax, but there is some nuance to that decision.
Using a donor advised fund is especially smart if you normally donate just enough to exceed the standard deduction. Instead, make five years’ of donations at once and much more of your donated dollars will result in a tax deduction for you.
If you are an independent contractor or any kind of small business owner, it’s imperative that you understand how this deduction applies to your situation specifically. If not, you could make a costly mistake.
If you’ve realized significant capital gains by selling an asset for well above what you paid for it, you can postpone the tax due for years and have a portion of it forgiven by making an investment in one (or more) of thousands of qualified opportunity zones (QOZ) throughout the United States.
Depreciation is another option for real estate investors. The Tax Cuts and Jobs Act temporarily brought back bonus depreciation. This benefit is scheduled to be phased out by 20% per year from the years 2023 to 2026. After that, you’ll still be able to depreciate your properties at a rate of a few percent per year.
As a business owner, you owe taxes on the business profits rather than the total revenue. Those earning on a 1099 (or K-1 in the case of a partnership) will tell you that they have quite a few more tax deductions than they might have had in a previous life as a W-2 employee.