How to Minimize Taxes

This is not meant to be an all-in total tax guide, but rather some valuable high-level education on taxes to help you dig deeper and minimize your tax liability. As every situation is different, a tax expert should be consulted.

The best place to start is to begin to educate yourself as to how may be the best way to reduce your tax liability. Do you feel that you overpay? Do you do any tax planning? What is the potential impact of taxes on retirement? Investing? Estate planning? Do you know how much you are paying in taxes?

Taxes and Your Take-Home Pay

It’s that time of the year again to file your taxes. If you are expecting a refund, remember, this is not a gift. This is your money.

Eighty-five percent of American households live paycheck to paycheck. Perhaps you are living paycheck to paycheck making ends meet, borrowing on your credit card to put food on the table, then getting a tax refund. Think about this: If you are borrowing from your credit card and paying 18 to 24% and then getting a refund for overpaying your taxes, this is poor financial planning.

Here is the one thing you can do right now to increase your take-home pay and eliminate a tax refund or perhaps a potential tax liability. As your income is the number one wealth-building tool available to you, we need to make sure you maximize your take-home pay, whether you are self-employed or working for someone else.

This is a very simple tactic and the IRS actually has a calculator. I have been using this strategy for a number of years. My refund or liability to the government is always small. I just want to pay what I need to pay not any more or any less.

Here is a step-by-step guide to calculate your liability and have the proper tax withheld using the Tax withholding Calculator: https://thepersonalfinancewizard.com/tax-withholding-calculator/.

Real Estate
Buying a home is the largest purchase one will likely make during a lifetime. The American Dream is to own your own home. Many folks focus on this goal, but do they take advantage of the rules to maximize returns?

Price appreciation is one of the advantages of home ownership. This increase in value can be taxable if you do not handle it correctly. Gains from a potential sale could be deferred if you purchase another home for greater value. Even if you decide not to purchase another home, gains up to $500,000 for married couples could be exempt from taxes.

Retirement Planning
The most tax-efficient instrument to use for retirement wealth accumulation is a Roth IRA or 401k.

Why Roth? All contributions are made with after-tax dollars. It is these after-tax dollars that will then grow tax-free. Yes, you can accumulate your wealth tax-free. Is there a better way than tax-free?

Imagine if you contributed 15% of your income to a Roth for 20 years.

Wrapping Up
As you can see, learning a few simple tax tricks can save you a bundle. The tactics discussed above are just the beginning. There are other tactics that can save you more.

Begin to educate yourself, get professional help and save tax dollars.

Good luck!

You work hard for your money, make sure it stays your money!

Thanks for reading. I hope you found this helpful. QCBN

By Steven Calabrese

Steven Calabrese, CPA, is the CFO of Polara Health. He also is the owner-operator of a website known as thepersonalfinancewizard.com. Such topics as budgeting, investing, paying off debt, and goal setting are discussed.