If you prefer to make a large number of charitable donations during the year with the sole purpose of reducing your income tax bill, generally, you will be allowed a deduction as long as you satisfy all requirements. In addition to claiming deductions, you can also shelter income from tax by choosing investments that provide the maximum tax savings.
The IRS encourages taxpayers to save for retirement by allowing them to deduct a certain amount of contributions to a traditional IRA account. In addition, you achieve tax deferral on all investment income and gains in the IRA since the IRS will not impose an income tax on those earnings until you retire and start making withdrawals. When evaluating an investment, the IRS encourages you to consider the doctrine of "substance over form.
For example, the federal tax law prohibits you from assigning income you earn to another taxpayer who is subject to lower tax rates.
If you are solely responsible for earning the income, then even with a corporation, you should be solely receiving a salary. Effectively, there is no substance to adding your family member to the payroll. However, many taxpayers enter into these types of transactions only because it appears easier to hide it from the IRS. The penalties for entering into illegal tax shelters are clear, but also severe. The IRS treats illegal tax shelters as fraudulent activity and can charge you a penalty that is 75 percent of the tax you underpay as a result of your illegal tax scheme.
In addition, taxpayers run the risk of criminal prosecution and the possibility of a prison sentence. Remember, with TurboTax , we'll ask you simple questions about your life and help you fill out all the right tax forms.
Whether you have a simple or complex tax situation, we've got you covered. Feel confident doing your own taxes. Just answer simple questions about your life, and TurboTax Free Edition will take care of the rest. For Simple Tax Returns Only. Going Green? In addition, you must use Schedule D Form to report the capital gain and Form to report the sale of your home. One easy way to reduce your tax liability is to open an HSA and set aside an estimated amount each year for your medical expenses.
You must have a high-deductible health plan to open an HSA. With this HSA, you can use the nontaxable funds to cover out-of-pocket medical and health expenses for the year. You can make contributions from your paycheck to fund the account and spend the money as you need it.
Angel investors invest in small businesses and startups. Going this route can potentially allow you to take a tax credit and give you a nice return on your investment if the business succeeds. As an angel investor, you might qualify for a state tax credit that enables you to write off a portion of your investment right away. Your children could help you protect some of your hard-earned dollars if the children are in your care and qualify as dependents.
The deduction is meant to lower your adjusted gross income, and thus, lower your overall tax liability. For those employed, you can itemize qualified medical expenses to get a deduction.
You can enroll in a college savings account , otherwise known as a plan. A plan is provided by a state or educational institution that allows for several tax benefits. In addition, many states offer partial tax deductions or tax credits based on their unique plan. As a business owner, you can deduct a variety of qualified expenses used to maintain the operation of your business. And for small-business owners, you can also deduct use of your car and your home if used for your business.
Sabah Karimi contributed to the reporting for this article. Every day, get fresh ideas on how to save and make money and achieve your financial goals. Sponsored Links by Zergnet. Sign up for our daily newsletter for the latest financial news and trending topics. For our full Privacy Policy, click here. Advertiser Disclosure. I will be in touch with you shortly via our newsletter. We have good news and not-so-good news.
The thing is, no matter what investment or profession you are a player in, tax is an inevitable aspect of any financial landscape. By definition, tax shelters are methods which help you reduce your tax bill. It protects your wealth. It allows you to channel your hard-earned money into income-generating assets such as real estate syndications , apartment complex buying , and other profitable streams of income.
Take note that your high W-2 income is also a financial strength which makes you eligible to be an accredited investor. Every dollar you save from liabilities like expenses and taxes is another dollar added to your investment capital. This will put you in the right path for wealth generation and financial freedom.
Please consult with your tax advisor to discuss your situation. Did you know that by simply declaring yourself or your spouse a realtor by profession, you are already eligible to deduct your real estate losses from your taxable income?
In order to declare your Real Estate Professional Status, you simply need to meet the following primary qualifications:. In any case most of your time is devoted to clinical services, you may have your spouse non-working or part-time working declare themselves as the real estate professional.
Take note that your taxes must be filed jointly in order to make this strategy work. For a more comprehensive guide on declaring your Real Estate Professional Status, read our other blog here. For extra wealthy, seasoned investors, oil and gas investments tax deductions stand out as a vehicle that is great at growing wealth. Increased interest on domestic energy production here in the US has paved the way for numerous tax shelters and investment opportunities, and oil is definitely part of the lucky roster.
There are many methods to get into oil and gas investments — mutual funds, partnerships, royalties, and working benefits. For the purpose of getting the best possible tax shelter outcome, the partnership method reaps the most oil and gas investment tax deductions, which we will discuss in a bit.
To learn more about the different oil and gas investment methods, you can refer here. Moving on to the tax benefits of oil and gas investing, there are different variations available which are found nowhere else on the tax code.
This means that even wealthy physician investors can directly invest in oil and gas partnerships, as long as they limit their ownership to 1, barrels of oil per day. Considering the current market turbulence, investments in Oil and Gas are extremely risky in my opinion. Without further ado, the tax benefits of oil and gas investing include:.
A conservation land easement, also referred to as a conservation agreement, is a voluntary and legally binding agreement between a land owner and a land trust or government agency.
When a landowner decides to donate an easement to a land trust or government agency, they are giving away a portion of rights affiliated with the land. This is usually done under the premise that the piece of land holds intrinsic value — it could be a migration field for rare species, a green space amidst a highly developed area, or it could be congruent with a valuable body of nature such as a river or a forest. Before you get into this tax shelter method, it is crucial to know that the federal government keeps a wary eye on such tax strategies.
According to ProPublica , there is nothing wrong with conservation easement tax benefits in its purest form. In that scenario, the public enjoys the benefit of undeveloped land and the taxpayer gets a charitable deduction.
We emphasize: although it may be a rather sensitive tax shelter undertaking, conservation easement tax benefits are legal and highly advantageous as long as done properly. Whether big or small, any method that contributes to positive tax shelter scenarios are worth considering. These are other strategies you can utilize to save money from taxes:. If you have reached this far, you may be overwhelmed with all this information. A trusted CPA in your corner will definitely help create the best scenarios of tax shelters out of your existing investment portfolio.
There is a ton of variation in the services offered by these CPA firms, so please be careful to select the one that offers you a customized solution.
By maximizing all these legally accredited tax shelter strategies, you are able to protect and grow your wealth and maximize your high W-2 income as a physician.
Here at PhysicianEstate , we welcome all physician entrepreneurs to learn about commercial real estate investments, rental property investments, and wealth generation. We encourage all physicians to eventually become real estate physician investors. We know a great deal about Who — What — Why — How.
Stay in touch with us by signing up for our newsletter. The newsletter will keep you up to speed on the current real estate investments we are looking at, provide physicians with investment opportunities, and much more. Don't forget to share this post! Sharing is caring. Authored by Harsha Moole, M. Hey there! I hope you enjoyed reading this blog.
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