The Internal Revenue Service (IRS) tax code is full of legal ways for high-income Americans to pay less tax. Taking a proactive approach to tax planning can help you reduce your taxes now and in the future.

In my nearly 20 years as a West Hollywood financial planner, I’ve often been hired to help people stay on track to achieve their most important financial goals, like a secure retirement, achieve financial freedom, or maybe buy a second home in a fabulous place like Palm Springs or Puerto Vallarta. Earning your income in a more tax-efficient way can make this process easier. Tax planning is an important part of every financial roadmap I build for my clients. As I always say, it’s not what you make but what you keep.

Maximize the tax benefits of retirement accounts

Making the maximum contributions each year to your retirement account is one of the most common ways to minimize your taxes each year.

For the highest earners reading this, you’ll probably have to invest way beyond the basic IRA or 401(k) limits to really make a dent in your tax bills or stay on track. for a fully funded and secure retirement from elsewhere.

For high-income business owners, as your income increases, the number of tax deductions you’ll need to control your tax bill will also increase. Luckily, you can potentially set up a 401(k) profit sharing plan and contribute $61,000 per year (as an employee and employer combined). That alone may be reason enough to hire your spouse. Pre-tax double contributions to this type of plan will make a big dent in your tax bills.

Once you’ve contributed the maximum amount allowed to your 401(k), you might want to consider what I call the Wealthy Person’s Retirement Plan or the Cash Balance Retirement Plan or the Retirement Plan. defined benefits, as they are more commonly known. These types of diets have grown in popularity over the past few years, but interest has skyrocketed since the Trump Tax Plan, which began in 2018. You can potentially save a few hundred thousand dollars each year, before taxes! For business owners in California, the tax savings could be over 50%.

Remember to capitalize on depreciation

Here is a quick description of what is considered an IRS writedown website.

“Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. This is an annual allowance for wear, deterioration or obsolescence of the asset.

Most types of tangible assets used for your business (except land), such as buildings, machinery, vehicles, furniture, and equipment, can provide tax benefits through depreciation. Similarly, certain intangible assets, such as patents, copyrights and computer software, are depreciable.

They are independent and maximize tax deductions

There are many more tax planning strategies available for the self-employed or business owners. While it’s not very sexy, making sure your business has good bookkeeping can help lower your tax bill each year. If you miss a tax-deductible expense, you’re probably paying too much tax. Keeping up to date with accounting will help you avoid missing valuable tax deductions for your business. This is even more imperative now with the new Qualified Business Income (QBI) transfer deductions for small business owners.

They donate appreciated shares to charity

Why donate money when you can donate highly valued stocks? You get a tax deduction for the full current value of the stock, but avoid having to pay capital gains to convert the stock into cash to give away. Yes, you have to donate money to charity, but hopefully it’s something you do every year, regardless of the tax benefits.

Health insurance is tax deductible when you are self-employed

Insurance is generally less expensive when you have an employer to help cover most of the costs. However, when you are the business owner paying the full premium, you get tax relief for all of your premiums. At the same time, medical expenses are only tax deductible when they exceed 7.5% of your income. So, unless you have a very low income or major health issues, most workers will not be able to claim their medical expenses. With that in mind, it may make sense for a business owner to pay for premium health insurance, ensuring a larger tax deduction and lower out-of-pocket expenses ultimately.

They use life insurance like a rich person Roth

When properly structured, life insurance can provide tax-sheltered growth and income. the rich person roth doesn’t come with those pesky income limits and small contribution limits that minimize the value of a regular Roth IRA. This strategy for maximizing tax-free income is best for those who have already maximized their other tax-advantaged retirement accounts.

If you’re offered a huge permanent life insurance policy, you’re not in a high tax bracket, and you haven’t maxed out your other retirement accounts, someone is probably trying to make a huge commission at your expense and is not acting in a fiduciary capacity.

Don’t get overwhelmed by these six valuable tax-saving strategies. You don’t need to implement all of these strategies today, or ever for that matter. What’s important is that you know there are other tax-saving strategies you might need at some point. As your income increases (or perhaps tax laws change), you may need to put a little more effort into your tax planning to help you keep more of your hard cash. won. Keep growing your business and have an excellent fiduciary financial planner, who also offers tax planning advice, and a CPA nearby to keep your taxes from gobbling up your income increases.