We have heard the popular expression, “There are many ways to skin a cat.” While this expression is about the many ways to skin a catfish, it can also be equally effective when applied to all the ways to beat Uncle Sam.
Tax season is around the corner, and Republican front runner Romney is facing critics who claim that his tax plan does only favor the rich.
Before you vehemently argue in favor or against Romney’s tax plan, I want to ask you, “Have you given any thought to being tagged as rich yet?”
Here’s the scoop — you don’t have to be rich to enjoy the many tax savings normally fall into richs’ hat. Before you nod your head in disbelief, I’ll reveal the secret — you have to think like an entrepreneur to save big on your tax bill.
All it takes is to learn legal ways to find deductions by planning ahead to beat Uncle Sam. I have several tips to significantly reduce the drag of taxes on the growth of your assets. You don’t have to make any radical changes in your life to get these favors from Uncle Sam. You just have to learn how to beat Uncle Sam in his own game.
1. Own a rental property
Real estate that you own as an investment — and not the one that you live in — offers several tax shelters. The twist is that you get to depreciate your rental property, even as — in fact — it may be appreciating. If you purchased a foreclosed duplex from a bank for $120,000, you get to depreciate the value of the building — which may be $100,000 — for 27.5 years. So, you can deduct $3,637 every year from your tax return even though — in real life — your property is generating positive cash flow, and it is also appreciating over the time. Not to mention, you get to deduct interest and taxes every year also. So, if you are paying 6% interest on $100,000 loan, you can deduct $6,000. If you are paying $2500 for the property taxes then you can deduct total $12137 for owning a single rental property.
2. Open an LLC or S-Corp
There are many tax benefits given to a business entity. Incorporation Canada is key to avoid any fines or expensive penalties for failure to operate within compliance of the law. You can open S Corporation or LLC for the rental property that you own. If you are managing this rental property yourself then you can deduct 55.5 cents for the mileage when you drive back and forth to your rental property. You have to keep track of your mileage but, if you are driving on average 2000 miles per year to manage your property then you can deduct $1,110 from your tax return. Not bad to get rewarded by Uncle Sam for owning and managing your own rental property.
3. Invest in 529 plan
If you have kids, a 529 plan provides a terrific alternative to the education savings account. Nearly all states allow 529 plans. You can invest in a 529 plan and let it grow tax-free until it reaches the limit of the maximum tuition charged by a private university in your state. Even though the plan itself is non deductible on your federal income tax return, your investment grows tax-free. Also, in most states, the limit to invest in 529 is $300,000 per child. So, if you are a high income earner, you can squirrel away big chunks of money every year in your children’s 529 plan. What makes this plan more attractive is that you are allowed to invest in 529 plan in Georiga and let your children attend college in California or New York.
4. Maximize contribution to your retirement plans
This is the simplest form of tax shelter you can use to beat Uncle Sam. Yet, surprisingly, only 54% Americans hold stocks in their 401(K) or IRA account. Most employers provide matching contribution of up to 5% to employee’s 401(k) plan. That’s free money. And it is tax-free. To even make it more juicier, try to maximize your contribution – $16,500 for the current year – to deduct entire amount from your tax return. If you are 50 years and older, you are allowed to contribute additional $5,500 as catch-up contribution. You can’t rely on social security for your retirement. So, maximizing your retirement plan contribution is the sure way to not only get tax deduction, but also to secure your retirement.
5. Your own home
If you own a home and if you are paying more than $11,500 in interest and taxes, you must avoid standard deduction when you file your tax return. You are allowed to deduct the entire amount paid in interest and taxes from your federal tax return.
You will soon have to file a tax return. Why not start planning for ways to beat Uncle Sam by focusing on ways to reduce your tax bill? Given that Romney has a team of tax advisers to help him pay less but, you can do the same on your own. Uncle Sam loves those who can scrupulously beat him on his own game.
The taxpayer – that’s someone who works for the federal government but doesn’t have to take the civil service examination. ~Ronald Reagan
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