By Ryan Velez
A common mindset among the wealthy is not to think about how much money they are making, but how much money they are keeping. After all, no one wants to see their income drained away via taxes. As a result, the wealthy employ talented accountants who use every trick in their arsenal to keep their rich clients wealthy and minimize the amount of taxes they pay. While some of these techniques aren’t really viable for everyone (claiming a yacht as a second residence), a recent article from The Network Journal shows some of the popular tax-saving techniques that you may be able to apply to your own life.
Pompano Beach, Fla.-based accountant Eric J. Nisall, founder of AccountLancer, which specializes in accounting for freelancers, says that one major way that the wealthy save on taxes is by making income off their investments as well as their traditional income. The tax on earned income can be as high as 39.6 percent, so you may want to consider investing in high-yielding dividend stocks. People in the 39.6 percent tax bracket pay a 20 percent tax rate on long-term capital gains from these dividend stocks. Another option is purchasing rental properties, but this is a bit more difficult. Not only does the path to real estate ownership require a major upfront investment, but you need to make sure you are picking lucrative properties in the right locations. Try to understand your obligations as a landlord as well.
If you own a business, your options to save on taxes grow considerably. Your potential options for tax deductions run the gamut of options, from vehicles to meals to travel to office supplies to advertising, even your home office or courses you take to improve the business. However, not every business qualifies for these type of benefits. The IRS says that this needs to be a true business rather than a hobby to qualify for tax write-offs, and factors they consider are whether you carry on the activity in a businesslike manner, whether the time and effort you put into the activity indicate you intend to make it profitable, or whether you depend on income from the activity for your livelihood.
Also, turning your business into a family business can have its tax benefits. According to the IRS: “Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to Social Security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.” If your money has to change hands, why not help your child out and get some work done as well? Of course, there are limits to this idea. Gail Rosen, a Martinsville, N.J.-based certified public accountant, notes that the child’s work must be legitimate and the salary must be reasonable to qualify.