Every time tax day comes, most people groan about how much they are paying in taxes. Though these are used to keep the government running, it’s hard to argue that sometimes the tax burden and its computations can be a bit too much.
Fortunately, there are ways to lower the tax burden; you can actually defer paying them so you can pay them later or at a time you can comfortably afford making the payment. Here are some examples of tax deferment strategies that you can use.
Traditional IRAs
One of the oldest tricks in the book to defer your taxes on money that you earn is by putting them in IRAs. Individual retirement accounts allow you to deduct the money you put into them from your taxes. This is a good move since this means you will pay lower taxes in the long run as you keep on contributing to the IRA.
This can be a sizable chunk of money if you pay maximum contributions. However, when it is time to withdraw the IRA, then it is time to pay taxes. Fortunately, if properly managed, your IRA will have grown quite a sizable dividend.
You can use this money to pay the taxes that are supposed to be on the IRA and on the money it earned. It will reduce the money you got out of the IRA, but, in the long run, you saved a lot more from the deductions.
1031 Exchanges
Selling property is a great way to earn money. However, any real estate sale has a capital gains tax imposed on it. This will cut into your profits and also reduce your purchasing power. This is where 1031 exchanges come in.
Under the law, you can sell your property and use the proceeds of the sale to buy a similar property without paying any taxes. This means that you can buy real estate without any fees hurting your capital.
However, when you don’t make the trade, you’ll be forced to pay the capital gains tax.
But if you’ve been doing multiple exchanges, you will most likely profit compared to someone not using the trades. Considering how complicated these exchanges are, it is best to contact 1031 exchange companies here in Nevada to help in ensuring that your transfers are all legal and above board.
Insurance Plans
Insurance plans work similarly to IRAs. The cash premiums you pay into the insurance plan are allowed to grow tax-free until it is time to collect it. This is a good thing. For example, annuities only release their money when you’ve retired and are in a notably lower cash bracket.
This can mean that you will still be paying taxes, albeit on a reduced value compared to when you are in your prime.
Taxes are an unavoidable fact of civilized society. Note that the above strategies are just some of the ways people can defer taxes. They are not meant to be used to evade paying your due to the government. Deferment means that you’ll end up paying them eventually.
The difference is that with deferment, you control when you pay them. Combine your tax deferment strategies with a reasonable payment plan, and you can be sure that when it’s time to pay, you won’t be paying too much every single time.
