Taxes can be a huge expense—for everyone. The following tax tips are geared toward millionaires, but that doesn’t mean you cannot use them too. After all, by taking control of your federal tax bill you are leaving more money in your pocket rather than Uncle Sam’s.
5 Tax Tips
Here are five tax tips you to reduce your tax bill.
- Charitable Donations – In general this comes in handy only when you can itemize your tax return. Unless your deduction is equal to or higher than the deductions below for 2022, it makes sense to claim the standard deduction. Keep in mind, you can deduct up to $300 in donations (for single tax filers) or $600 (for married joint filers) in cash contributions to charities on your federal taxes even if you don’t itemize. The 2022 itemized deductions are:
- $25,900 for married couples filing jointly;
- $12,950 for single tax filers, and;
- $19,400 for heads of household.
- Property Taxes – You can claim up to $10,000 (for married joint filers) or $5,000 (for single tax filers) on your federal taxes. Remember the limit applies to state and local taxes, including property taxes and state income or sales taxes.
- Investment Income – If you have investment income you can live off rather than earned income, this is a great way to save on taxes. Investment income can have a relatively low capital gains tax rate, provided you hold the investment for over a year. The capital gains tax rates are either 0%, 15%, or 20%, depending on your income and tax filing status. If selling investments at a loss, you can also get a tax break because the losses are used to offset gains, which could reduce your tax burden.
- Step-Up Basis – To avoid paying taxes when investments increase in value, pass the asset onto an heir. Then the asset is adjusted in worth at the time of death. For example, you bought an investment for $15,000 and held onto it for a long time. Its value increased to $150,000. When the buyer dies, the heir receives the step-up basis benefit because the asset is revalued at $150,000. No capital gains taxes would be owed and the profit would be untaxed.
- Family-Limited Partnership – In this case, a partnership is created and assets are transferred to the partnership. Heirs are gifted an ownership interest in the partnership, and the value of that ownership interest is discounted under estate tax rules. This reduces the amount of assets that transfer through probate and are considered part of the taxable estate. Beware, this only works when you have a substantial estate that would be subject to tax.
Don’t wait until tax time to determine if these tax tips are right for you. Speak with a licensed CPA that knows the tax laws and how to apply them to your situation. Give me a call today to discover ways you too can save on taxes like the rich and famous.