Cut Your Tax Liability - Legally

 

Taxes may be a fact of life, but they need not be excessive. The average family, however, pays far more in taxes than they need to, primarily because they do not know of all the options available to them. By using smart, legal strategies, some people can even live tax free! The following tax saving tips have been used by thousands of people to cut or avoid taxes by as much as $5000 or more each year. And you can use it, too.

 

PART 1: As a real estate investor (or any other business operator) - even part-time - you are entitled to save taxes by setting up a deductible home office. This deduction is based on the percentage of space your office takes up in the home. For example, if your home office utilizes 20% of the space in your home, you can deduct 20% of your electric bill, heat bill, water/sewer bill etc. If renting, you can also deduct a proportionate part of your rent. Homeowners may depreciate a portion of the value of the building, as well as mortgage interest (even if you do not itemize on your 1040).

 

More Tax Savings: Equipment and supplies for your business, including computer, fax machine, printer, desk etc. are all fully deductible if used solely for business.

 

PART 2: If you set up your business as a sole proprietorship and you have children under the age of 18, you can pay those children up to $5000+/year without them incurring ANY taxes - not even FICA. Meanwhile, you can deduct their salaries as a business expense, avoiding more taxes. So, for each child, $5000+ of your income becomes completely tax free. Better still, you need not actually "lose" that money - the child can now pay for the things you would have purchased on his/her behalf, anyway, such as school clothing, toys, radios etc. Any balance can be saved toward college - all tax free. If you have 2 children, and you are in the 28% tax bracket, this strategy can knock about $3000/year off your tax bill. And, if you have self-employment income, it can save you another $1500/year on FICA taxes. This amount completely pays for one-half of each child's salary, and the remaining half is used to buy those things you would have purchased for the child, anyway.

 

PART 3: Now that your child has $5000/year, consider investing $2000 of that each year into a ROTH IRA. Because a Roth IRA is non-deductible (taxes are paid on the income before going in, and money drawn out is then tax-free),this is perfect for a no-tax saving plan for your child. Because the child pays no tax on the income, he/she pays no tax when it goes in OR when it comes out. And each $2000 IRA deposit earning an average of 10%/year will be worth between $80,000-$100,000 when the child reaches retirement age. A 10 year old child who places $2000/year into their Roth IRA that earns 10-12% through to retirement will be able to retire at age 60 with an annual income - all 100% tax-free - of roughly $750,000/year for life (or until age 87).

And that, my friend, is how wealth is REALLY created.