Tax strategies are an important piece of your FIRE dreams. In order to minimize your Federal Income Tax exposure, it is critical to plan and implement robust short term and long term tax strategies.
Over the years, I’ve used both a CPA and Certified Financial Planner, as well as self planning and tax preparation. I have found that doing my taxes myself using a Tax Preparation Software gives me the best insight into my own tax situation. I especially like being able to do “What IF” analysis to drive my own decision making as it relates to tax strategy. Currently, I use Turbo Tax an Intuit product. If you use a tax preparer, I highly recommend doing your own taxes prior to having the preparer complete the return, so you can do “what if” analysis to see if you can benefit from additional deductions. Most preparers prepare your taxes based on the information you provide them. So, know your options and communicate your detailed needs, when appropriate.
Know and manage to your Tax brackets for 2019:
The 2019 Core 401k contribution maxium is $19,000 while those over 50 can contribute up to an additional $6000 catch up.
2019 Contribution maximum is $6000, with an additional $1000 catch up.
These maximums apply to the combined contributions into a Traditional or Roth accounts.
There are income thresholds that need to be considered, as well:
Health Savings Accounts allow a maximum of $7000 contribution for 2019, for those 55+ of age can contribute an additional $8000.
Other accounts/strategies that you may obtain tax benefis from include:
- 529/Education Savings Accounts savings plans
- Tax Loss Harvesting
- Charitable donations
- Mortgage interest deductions
- Small Businesss deductions
Small Business deductions
I first read Diane Kennedy’s Incorporate and Grow Rich in the mid 2000’s. I already knew many of the tax advantages of running your own business, whether it be as a Self-Proprietor, Limited Liability Corporation, Incorporated business, or similar legal entities. I was, however, shocked at the vast array of benefits beyond the basics. Whether you’re interested in running a business full time or as a side business, you’ll benefit from the many tax advantages business ownership offers.
Diane Kennedy Tax Strategy: https://www.ustaxaid.com/
Side Hustle School: https://sidehustleschool.com/
Tax preparation software: https://turbotax.intuit.com/
Do you have experience or advice you’d like to share?