Earning a generous income and building up a high net worth are part of the American dream. Paying high taxes is not. As a U.S. taxpayer, it is important to balance paying your fair share with making smart decisions that will allow you to continue to grow your wealth.
TPI’s accounting team is adept at tax planning for high income individuals. We draw on our experience to put the best tax strategies to work for you so you can enjoy significant tax savings while enjoying your success.
TPI’s tax strategies for high income individuals are always tailored to your specific situation, needs, and financial goals, but one thing they all have in common: proper record-keeping.
Proper record-keeping is a must to ensure we have a full understanding of your tax situation and can locate all tax deductions available to you. This means you must track business expenses, deductible travel and entertainment expenses, tax-deductible charitable gifts you make, and tax-free gifts or inheritance you receive. The more diligent you are, the better we can help you. We can help you establish a record-keeping process.
We use a variety of tax strategies for high income individuals that are designed to help you take advantage of a lower tax rate, typically at retirement. They include:
- Deferring income
- Maxing out your 401(k)
- Contributing as much as possible to an IRA or Roth IRA
- Deferring bonuses or other earned income
- Accelerating capital losses and deferring capital gains
- Gifting up to $14,000 per year to individuals (aka, the gift-tax exclusion)
- Investing in Treasury securities and tax-exempt municipal bonds
- Donating appreciated assets to charity
- Tracking mileage for business, medical or charitable purposes
- Medical and dental expense deductions (if they exceed 10 percent of your adjusted gross income)
- File separately as a married couple (if one spouse has large medical expenses, miscellaneous itemized deductions, or casualty losses or your incomes are about equal)
- Take advantage of special deductions or hire your child if self-employed
- Take out a home-equity loan (interest is deductible)
Following the fiscal cliff crisis of 2012-2013, numerous changes were made to the tax code that will directly affect you sooner or later. Working with a smart, capable accountant who knows tax planning for high income individuals as well as the palm of his hand is more important than ever. That’s where the TPI team comes in.
Here’s why tax planning is so important:
If you and your spouse make $300,000 or more ($275,000 for head of households and $250,000 for single filers), your personal and dependent exemptions will be gradually phased out. For every $2,500 of adjusted gross income (AGI) over $300,000, your exemptions will be reduced by 2%. Personal exemptions disappear at income levels over $422,500 for joint filers. (Note that these income thresholds will be adjusted annually for inflation.)
Itemized deductions are also changing. Write-offs of mortgage interest, property taxes, charitable deductions, and state and local income taxes will be reduced by 3% of your AGI that exceeds $300,000 (this also follows the same income levels listed above). There is a silver-ish lining: Itemized deductions cannot be reduced by more than 80%, and you may continue to fully deduct qualified medical expenses, investment interest, theft and casualty losses, and wagering losses.
To counteract these phase-out rules, TPI will put together a tax plan for you that lowers or postpones taxable income so that you stay under the applicable thresholds and continue to take advantage of all exemptions and deductions in full.
Did you know that the average American pays 31% in taxes every year? Want to pay a lot less as a high income earner? TPI will work with you to uncover smart tax savings strategies for high income earners that will have you smiling on April 15.
The tax savings strategies we will look at for you tend to benefit high income earners the most, as you have more cash on hand that can be moved around, thus greatly reducing your taxable income. They can include:
- Maxing out your 401(K) or 403(b) plan
- Determining the best level of contributions towards Flexible Health /Savings Accounts and Child Care Expenses
- Selling stocks that are trading at a loss (realized losses from stock you sell are tax deductible)
- Increasing charitable donations
- Downsizing to a smaller home as an empty-nester (married couples can exclude up to $500,000 on the sale of a home)
- Using tax-advantaged benefit plan deductions for self-employed individuals (you can deduct up to 100% of income or up to $205,000 for contributions to a private pension plan and usually more than 100% of total health care costs)
- Deducting up to $25,000 of capital asset purchases used for business
- Eliminating taxable dividends and short term capital gains
- Deferring compensation
- Buying cash value life insurance (all investment gains and death benefits are tax free to the beneficiary)
- Taking non-cash tax deductions for real estate depreciation.
- Using asset-based mortgages to free up funds for investments