Since tax season is almost over, I wanted to talk a little bit about what you can do to get the most bang for your buck. If you live in America, then you have a season called tax season that starts at the beginning of the year. This is when you have to calculate whether you owe the government or the government owes you, and submit it to a for-profit company. This is not a blog about why taxes should already be done, since the government already has all the information that it needs. But I’m going to help you save some money, so let’s dig into it.
Understanding What a Write Off Is
To begin with, you must understand what a write-off is. It is a deduction that you claim on your tax returns, which reduces your taxable income and the amount of taxes you owe. Not all investments are tax-deductible, but some of them are. If you are in the investing game for the long haul, the years start to add up. However, some investments may require you to pay more taxes than others. Follow along, so you can understand which types of investments are best for you
Retirement Accounts
A personal favorite investment that I like to use is a retirement account, such as a 401k or an IRA. There are other versions of these accounts, such as a Roth 401k and a Roth IRA, which use income that has already been taxed. However, the way I like to use a 401k is by contributing money before it is taxed. This usually happens at your job before you even get your paycheck. They’ll take a certain deduction before taxes are calculated for local, federal, and state taxes. You can use this to lower your taxable income, so the government doesn’t know how much money you really make, which means you won’t be taxed on that money.
Real Estate
When most people think about tax write-offs, they think of homes or real estate. Yes, if you own a property, you can write off the interest payments on your taxes, as well as some of the improvements needed for the home, especially if you have an older property.
However, you can take this a step further. If you own any type of commercial property or land, the expenses to upkeep those properties can be written off on your taxes as well. That’s why you’ll see a lot of people who own homes or multiple properties getting a huge income tax return.
Investing in a Business
One of the last points I would like to give you is that if you invest in a business, that business will eventually invest in you. This is a good way to lower your taxable income because it takes money to run a business, and in the capitalist society that we live in, you will benefit from owning a business.
Expenses like rent, utilities, supplies, and even employee salaries and benefits packages are tax-deductible for you as a business owner. Even if you invest in a smaller business, you could be eligible for a tax credit
Talk to a Financial Advisor
The last thing I want to mention is that you should consult a financial advisor before making any major investment decisions. It’s a big decision, and you don’t want to get in trouble with the government or the IRS for not filing your taxes correctly.
A financial advisor will be able to help you understand your individual situation and keep you informed, so you can make the best decisions possible. They can even give you advice on planning to minimize your tax liability in the future.
Rob’s Opinion
Overall, pennies turn into quarters and quarters turn into dollars. If you save a little bit each year on your taxes, it could eventually add up to a great amount of wealth over time. So, use this blog as a stepping stone to open up your eyes to the possibilities of your individual financial situation.
Everyone wants to get the most money possible during tax season. While many people claim dependents, I don’t recommend doing so just for taxes. Check out my other blogs on how to increase your overall earning potential, so that tax season can become your favorite time of the year.
