I’m giving you some tips on how to Legally avoid taxes since tax season is right around the corner! I’m probably reposting this closer to tax season!
- Contribute to a IRA. You can get a $6000 tax deduction and if you are older than 50 then it’s $7,000. You pay the taxes when you withdraw. 10% penalty rate for early withdrawals. You will be forced to withdraw at the age of 72 1/2.
It’s a way to save for retirement and invest your money.
- It’s now currently Open Enrollment for individuals to obtain health insurance from Healthcare.gov or their state’s marketplace.
So, you can contribute to an HSA. (Health Savings account) This is another way to get a tax deduction on it!
If a single person has coverage with a deductible greater than $1,400, they can contribute up to $3,600. The maximum out of pocket is capped at $7,000.
If its for family coverage then the family deductible will need to be more than $2,800 and they can contribute up to $7,200. The maximum out of pocket is capped at $14,000.
You do need a HDHP (High Deductible Health Plan) to qualify for this.
You are going to be using the money either way, so why not set up an HSA and get the tax savings on it?
- Rental Depreciation
If you are a taxpayer with a rental property, you could qualify for Depreciation. The deduction for residential properties is over 27.5 years and 39 years if it’s a commercial property. You would need to file a IRS Form 4562 with your 1040 tax return and with a Schedule E.
If your previous tax accountant did not claim this for you and this is after the first year where the item was placed in service then a IRS Form 3115 is required to be filed with the IRS, with the Return.
- Cash donations.
A special tax provision will allow more Americans to easily deduct up to $600 in donations to qualifying charities on their 2021 federal income tax return.
Ordinarily, people who choose to take the standard deduction cannot claim a deduction for their charitable contributions. But a temporary law change now permits them to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to qualifying charitable organizations. Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify.
Under this provision, individual tax filers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021. The maximum deduction is increased to $600 for married individuals filing joint returns.
- Setting up an S-Corp
First, you need to talk with your CPA about this and see if it’s worth it for you to be an S-Corp.
When you are a S-Corp, you need to pay yourself a reasonable salary from the company. When you take a distribution you are not subject to FICA taxes and that’s where the savings start kicking in.
You need to be aware of State fees associated with being a s-corp versus Sole Proprietorship.
Such as Franchise tax or Annual State filing fees.
Thank me later. 🙂