Most of us have heard the saying that death and taxes are the only two things that are certain in life. When you think about it, there really isn’t a way of escaping either entirely. Take death for example. Unless someone manages to develop treatments to extend our life expectancies by over a year every year, thereby achieving actuarial escape velocity, there is no avoiding being lowered six feet under at some point.
Taxes, however, provide a more interesting intellectual exercise. Taxes, while never completely avoidable, is actually on a spectrum. Rather than a hardline separating life and death, taxation comes in degrees and forms a spectrum between almost nothing and wishing you ‘only’ forked out a quarter of your earnings like how serfs used to in the old days.
This is where so many of us choose to do battle. Besides the standard deductions we all know and take full advantage of, those are not the only ways of trying to minimize this certainty of modern life. From registering your gigs as a business to increasing your revenue sources, the sky is the limit for what you can do.
Increasing Your Income
Sometimes, it is simply the case that you need to make more money in order to get by. Now, this does not mean committing yourself to work all of your waking hours. One could do something like simply place money from a little side hustle into an online high-interest savings account. Online accounts like these accounts recommended by Doughroller offer super competitive rates and perks. Through an online presence, these banks save on overhead and do something seldomly heard of, passing the benefits on to the customer.
High Interest Savings Account
In recent times, savings accounts have been notorious for giving a negligible rate of return to their depositors. In fact, there are many parts of the world where savings accounts and even government bonds provide a negative return, meaning that you are losing money for having the good sense not to spend it all when your paycheck comes in.
In times such as this, relatively bold steps are definitely in order. As it turns out, there are many savings accounts out there that provide a rate of return you can actually notice. Some even keep up with inflation. It is sad that this is considered to be steal when barely over a decade ago, savings accounts that at least kept up with headline inflation numbers was taken for granted. But such is the world we live in today and those of us who wish to earn at least something on our hard-earned money would be behooved to look at the options out there.
Reducing Your Legal Tax Exposure
Reducing one’s tax obligations through legal channels is usually what most taxpayers aim for. While increasing your income through an extra economic endeavor may sound exciting to some, others might not have the time to spare. Fortunately, there are some surefire ways for ordinary folks to reduce their tax liabilities.
The Power of the LLC
For those who either have a side hustle or participate full-time in the gig economy, there is a real possibility of greatly reducing your tax burden if you register yourself as an LLC. By registering as a business, you open up the door to a whole world of deductions and exemptions that most do not even know exist.
By filing as a business either in substitution as a wage earner or in conjunction, you will be able to avail the beneficial deductions and exemptions a regular business would be able to and greatly decrease the proportion of your overall income subject to the income tax brackets.
For example, you might qualify to include the mortgage or rent payment on your residence as part of your business expenses and reduce your taxable income by that amount. Many people have been able to do this by simply working a few hours outside their regular jobs which can qualify them to file as a business alongside a wage earner.
Tax Sheltered Accounts
One of the main inhibitors to ordinary middle-class wage earners becoming investors is the tax burden commonly associated with doing so. True, capital gains and dividends taxes are generally lower than income taxes, but when subtracted from what you made and adjusting for inflation and risk, many deem the venture too much trouble to be worth it and stay out of the market.
But with a tax-sheltered account, you are allowed to put away money up to a certain amount every fiscal year and have it grow with certain tax advantages automatically made available. You can either put in pre-tax money into the account and only pay income taxes after you start withdrawals decades into the future or you can put in after-tax money and withdraw it tax-free once you hit a certain age.
This will have the effect of either reducing your taxable income by as much as what you put in or it will provide you with tax-free returns which will serve as a motivator for you to save as much money as possible up to the statutory limit so that you can maximize retirement income.
Something Good is Always Better Than Nothing Good
Almost no force on this Earth can save you from taxes completely. This is a sad truth of our time and will most likely be the case for the remainder of it. But what is certainly not written in stone is how much of it we have to endure.
As it turns out, the more you look around for solutions, the less you will have to endure in the long-run.