It’s common to hear people complain about the tax law – it’s complicated, confusing and making a mistake is punished with penalties and interest.
At least once a week I have someone tell me that their prior tax advisor told them there was nothing they could do to reduce their taxes – that they simply make too much money.
Some of these people are even advised to make less money in order to reduce their taxes. It’s no wonder they are looking for a new tax advisor.
Let me be clear. I never think anyone’s income can be too high. My goal for everyone is to have massive amounts of income.
And, there is always an opportunity to reduce your taxes – regardless of your income.
In a recent staff meeting, my team came up with 62 ways to reduce a client’s taxes – and that was just in 5 minutes.
Making the Tax Law Work for You
The tax law in most developed countries offers many tax deductions, credits and other benefits that can save a taxpayer thousands of dollars every year.
Many of these tax benefits are minimized or even eliminated when a taxpayer’s income goes over a certain level. Many people (including tax advisors) get defeated at this point because they don’t know how to get around these limitations legally.
Knowing how to legally get around these limitations can save you thousands in taxes.
Here are just a couple of ways to do this:
#1 Adjust your wealth strategy
Your wealth and tax strategy go hand and hand. Reducing your taxes increases your cash flow which increases your wealth. It’s a great formula that can be repeated time and time again.
Where your income comes from, has a huge impact on how the income is taxed. Certain types of income garner tax benefits whereas other types of income have the highest tax rates.
When your income is high, it becomes even more important to identify income sources that leverage the tax benefits available to you. This usually means adjusting your wealth strategy.
#2 Add more taxpayers
It is possible to shift your income – legally – to other taxpayers.
Of course, you don’t just want to give your income away solely to reduce your taxes. But, there are times when it can work with your tax goals, wealth goals and personal goals.
For example, your business could hire your children. This shifts income away from you and to your children. By doing this, your income may fall under the income limits set for certain tax benefits so you can enjoy more of these tax benefits.
Even better, if your children are in a lower tax bracket, you can shift income out of your higher tax rate into a lower one.
This same concept of shifting income can be accomplished by adding an entity to your business or investing structure that pays its own tax.
Like I said before, there is always an opportunity to reduce your taxes.