Various taxes come with higher earnings. This aspect is the primary concern of every working individual. Heavy taxes are imposed on high-earning working professions which burn away through the final income generated. There are dozens of taxes in 2023 that are imposed on high-income earners.
Therefore, every working professional requires specialized assistance to save significant finances otherwise catered to tax payments. An individual can avail outsourced bookkeeping services so that specific strategies can be adopted to reduce taxes. Moreover, tax laws change frequently, so one might need to change the strategy frequently to avoid paying a huge amount of tax to the state. Assistance from professional accounting firms is useful in this scenario.
11 Ways for High Earners to Reduce Taxable Income 2023
One cannot go to a financial analyst whenever he/she needs to clear tax payments. Therefore, individuals must follow a few practices to reduce the amount of tax to be paid. The following are 11 ways for high earners to reduce taxable income in 2023:
- Maximize retirement contribution: The tax on money invested in a retirement plan is considerably less, so an individual can invest a significant amount of income in retirement accounts such as 401(k). These retirement plans are usually tax-deductible, and you must deposit less tax.
- Utilize health savings accounts (HSAs): The part of income invested in the health plan is not liable for payment of taxes. If you are eligible, you can contribute part of your income to a health saving account to save for medical expenses. These contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.
- Invest in tax-efficient funds:Tax-efficient funds mean investing in these funds significantly reduces the amount to be paid as tax. There are various tax-efficient funds like index funds, ETFs, etc. You can invest in these tax-efficient funds, and your taxable events would be reduced significantly. You can sell off the investments with losses and achieve capital gains which can help to reduce taxable income.
- Leverage tax deduction:Mortgage investments, state and local taxes, charitable contributions, and unreimbursed business expenses are some situations where the tax to be paid gets reduced significantly. A working professional can wisely adjust their income to use in some of these and significantly reduce the tax imposed on their income. It is one of the most common ways of reducing the amount of tax imposed.
- Establish a solo 104(k) or SEP IRA: If you are self-employed, then you can consider this option. You can reduce the taxable income by setting
up a solo 104(k) or SEP IRA to contribute more towards the retirement plan. - Consider a Donor-Advised Fund (DAF): This method is for you if you wish to get an immediate tax deduction. While you contribute to a Donor-Advised Fund, you receive an immediate tax deduction and can distribute donations to charity over time.
- Invest in tax-advantaged real estate:In this tax deduction method, you can utilize real estate investments with tax benefits like depreciation, mortgage, interest deductions, and 1031 exchanges to achieve capital gains and eventually save the amount of tax to be paid.
- Establish a Health Reimbursement Arrangement (HRA): Health Reimbursement Arrangements are tax deductible. Business owners can use HRAs to reimburse eligible medical expenses for themselves and their employees. This would help them to reduce the tax amount imposed on their earnings.
- Utilize tax-deferred exchanges: If you are selling an investment property, then you can sell it according to this. While selling an investment property, consider the 1031 exchange to achieve capital gains taxes by reinvesting in similar properties.
- Opt for tax-efficient gifting strategies: Individuals can reduce the tax by investing income in charitable trusts or family limited partnerships. High- income earners can significantly reduce their taxable income by transferring assets while receiving income or real estate benefits. It is yet another efficient way to manage taxes while investing in properties.
- Implement tax planning and consultation:To make even wise decisions, one can reach out to tax professionals having deep knowledge of taxes and devise wise strategies to reduce the amount of tax to be paid to the state. They can assess your situation and provide personalized plans to reduce taxable income.
While opting for all these strategies, ensure all the procedures are done legally so that no complications occur in the future. Availing tax preparation services from expert agencies such as Outsourced Bookkeeping is highly recommended. Check the official website of Outsourced Bookkeeping to learn more.