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If you earn a lot of money, you pay a lot of taxes. It’s life, right?
Even if you are a W-2 employee, there are ways to minimize your taxes. It takes a little thinking outside the box, but with the strategies mentioned below, you can watch your tax liabilities decrease.
Contribute to a 401K or IRA
Your money contributed to a traditional 401K or IRA is tax deductible and can reduce your tax liabilities. It’s easiest to make regular contributions to your retirement account throughout the year, but you can also make one lump sum contribution by April 15 for the previous year’s taxes and get the deduction. For example, to reduce your 2022 taxes, you have until April 15, 2023, to contribute to a retirement account.
Open an HSA
If you have a high deductible insurance plan, your employer may offer a health savings account. This is a tax-advantaged account, much like a retirement fund. The money you contribute is pre-tax. The money grows tax-free and if you use the funds for eligible healthcare expenses, the withdrawals are tax-free too.
Make Charitable Contributions
If you itemize your deductions, your charitable contributions can be tax deductible. Your contributions must be within reason given your income and normal for the charity or cause.
Work in Real Estate
If you become a licensed real estate professional and work at least 750 hours a year in the profession (this includes managing your own rental properties), you can take certain deductions including depreciation and other losses that can significantly reduce your tax liabilities.
Run a Short-Term Rental
If you rent out property for 7 days or less each time, the income is treated as business income and not an investment. You’ll get more write-offs that can help offset your W-2 income.
Create a Land Conservation Easement
If you own land (or buy land), put an easement on it that stops anyone from developing it. You’ll get a one-time tax deduction for the difference between the land’s fair market value without the easement and with it.
Put Money in Working Interests in Oil and Gas
If you invest in working interests in oil and gas (could be risky) your earnings aren’t considered passive, so you get to write off any losses, which usually occur early in the investment.
Finding ways to decrease your W-2 tax liabilities is possible. If you want help lowering your tax liabilities, we can help!