While the stress surrounding tax season might never really go away, there are tax strategies you can use to relieve your concerns and alleviate your anxiety levels when that time of year unavoidably arrives.
Below is some advice to help wealthy individuals keep more money in their pockets and increase their earnings.
Invest in Tax-Efficient Index Mutual Funds and Exchange-Traded Funds (ETF)
Every high-income individual should have a strategy to diversify the taxation of income in retirement. For taxable accounts, an exchange-traded fund (ETF) or tax-efficient index mutual fund might aid in decreasing the taxes you pay on your investments every year. ETFs and index funds may be more tax-efficient than actively managed funds.
Consider Cash-Value Life Insurance
This is one of the most frequently used tax deferral strategies for high-income earners due to the higher limits that can be invested. You make contributions with after-tax dollars, but the money can increase tax-free and withdrawals up to the amount of premiums paid aren’t taxed.
Qualified Retirement Plans
Contributing to a 457, 403(b), or 401(k) is one of the simplest ways to postpone investment income. The SECURE Act allows high-income earners over 50 to save about $27,000 annually in a 401(k) so they can manage their retirement. Your earnings are protected from tax until withdrawal, meaning you won’t pay tax on capital gains, dividends, and interest until you take a distribution from the account at age 59 ½ or older.
There are several strategies to help you increase your charitable contributions and lessen your income tax. High-income earners should contemplate:
- Stacking future charitable donations in a year
- Donating to a donor-advised fund
- Donating affordable basic stock
Make The Maximum Retirement Contribution
Depositing money into your retirement account decreases your taxable income since your contribution total may be withheld from your income. This means your remaining income will require a lower tax amount to be paid.
For high-income earners, it’s vital to ensure retirement account contributions are a priority. Pre-tax contributions to several retirement accounts like IRAs and 401(k)s might save tax filers in a high-tax bracket a significant amount of money in taxes.
Experienced Tax Preparation for Denver’s High-Income IndividualsIf you are a high-income earner and need help with your tax preparation in Denver, talk to one of our financial advisors today.