With a GDP of $20800 billion, the US is among the richest countries in the world. It is a developed nation and serving 326 million of the population with essential facilities. This country spends a large part of the GDP on the nation's development, security, and efficiency to meet public requirements. Funds for these activities are generated from the taxes charged by the government on the income, property, and expenditure of the residents. Besides funding general facilities income from taxes helps in maintaining the financial stability and security of the country. Paying taxes is the responsibility of every individual and company towards their nation. However, it is an expense to business as it has to spend millions of dollars in the form of tax. You can save millions of your revenues with the help of some tax planning strategies.
Have A Look At Some Of The Most Popular Tax Planning Strategies:
1. Eliminate Medicare Tax:
Medicare tax or hospital insurance tax is charged by the US government on the taxable income of residents. This tax is imposed as a payroll tax to support health services to the tax payee. The US government charge this tax at a rate of 1.45% on the total annual income of an individual. You can easily save your income from this tax because it is charged on taxable income only. It means you can save your income by reducing the taxable income. You can even eliminate Medicare tax deduction by investing your income in a profitable business, shares, bonds, mutual funds, etc. Meanwhile, do not try to hide your income to prevent it from taxes as it is an illegal activity, and you will be punished for the same.
2. Retirement Plan Contribution:
Retirement plan contribution is one of the best tax planning strategies. Similar to Medicare tax, most of the taxes are imposed on your taxable income. You can contribute funds to retirement plans for saving your income from the tax. Also, contribution to retirement plans is deductible under section 401(k). You can contribute up to $140000 every year and save your income from the taxes. I suggest you should contribute as much as you can to retirement plans. It will save your tax expenses in the present time and improve your old age in the future.
3. Tax-Free Exchange Under Section 1031:
Sale and purchase are the primary activities of a business. Entrepreneurs purchase raw materials and sell final products to their customers. Both of them are taxable under the US taxation policies. Besides these, income from other sources such as the sale of assets, plants, machinery, etc., is also taxable. Here tax-free exchange under section 1031 comes into play. The US government offers tax deductions on these activities to all entrepreneurs. Mainly, entrepreneurs are unaware of these deductions and keep on paying the whole amount of taxes. You can utilize this deduction and a lot of your tax expenses. All you need to do is file a tax-free exchange file filing a tax return at the end of the assessment year.
4. Traveling Expenses:
As we all know, the government imposes a tax on traveling expenses such as ticket bookings, lodging, etc. We pay all the expenses in the excitement of traveling to the desired destination. Meanwhile, we can save a part of these expenses by utilizing tax deductions under section 274(n). It facilitates you in saving 50% of the total tax imposed on the traveling expenses. Along with that, you can also claim deductions on fuel expenses incurred while using a vehicle for professional purposes. US government exempts tax at the rate of $0.0565 per mile. So, being a businessman, you must consider these kinds of deductions to reduce tax expenses.
5. Tax Credit:
The tax credit is amongst the most productive tax planning strategies on the list. The US government facilitate residents with IRS tax credits to reduce overall tax payable. You can claim a credit of up to $6700 in the year 2021. If you are a student who is pursuing higher education, the American Opportunity Tax Credit provides you $2500 every year for four years. Adding tax credit to tax planning strategies will be highly beneficial for you. You can avail of a good amount of funds for your business operations based on the tax you had paid earlier.
6. Negative Gearing:
Last but not the least, Negative gearing is the best tax planning strategy on this list. Negative gearing means deducting additional expenses from your taxable income. Suppose you are earning $25000 rent every year, but your expenses are $30000. You can deduct $5000 from your total taxable income. Claiming negative gearing is very easy. All you need to do is to justify the accurate loss you had incurred from the taxable property. However, make sure the value of your property is increasing by not less than $5000 every year to be eligible for negative gearing.
Taxes are one of the main sources of income for a nation’s treasure. The US government use this income in the nation’s development, maintaining financial stability, and providing essential facilities to the residents. Taxes may be a responsibility of every resident, but it takes a good part of his income. There is a wealth of tax planning strategies that can help you to generate more productivity out of your income. The US government offers various ways to increase disposable income to the country’s residents. You opt from some of the best tax planning strategies discussed above. Also, all the above-discussed tax strategies are legal ways to make tax planning more efficient. I suggest you should never opt for any illegal trick to save your income from taxes.