Yesterday, I mentioned a few legal tax havens. Of course, I’m not telling you names of countries where you can stash your cash overseas to avoid paying taxes. That would not be legal. I’m telling you about legal tax havens right here in the United States. These are ways to save on your taxes the legal way, without opening an offshore bank account. So here’s what we covered yesterday:
1. Your own home
2. Investment real estate
3. Exchange advantages
Today, I’m going to give you a few more legal tax havens you can tap into.
4. Business tax shelters
As long as you own a business whether full-time or part-time you can take advantage of some IRS-approved tax shelters. For example, you can deduct the cost of acquiring business assets in the tax year they are made, according to Section 179 of the tax code. If you don’t take advantage of this provision, the cost of assets like furniture, fixtures and fittings you buy for your business would have to be recovered through depreciation over several years.
If you work your business from home, you could take advantage of certain home office deductions. With this tax break, you can convert some of the maintenance cost of your home (like house repairs, householders insurance, cleaning bills etc) to tax deductions. But you have to comply with the conditions of this tax break set by the IRS. In fact, you can also hire your own family members in your business and by doing so, further save on your taxes by providing more deductions to the business.
5. Municipal bonds
Yesterday, we talked about investments in real estate. Maybe you’re not into real estate due to shortage of funds but you still want to take advantage of tax shelters through investments. I suggest municipal bonds, which are issued by state or local governments. Why? The reason is simple – some states do not tax interest on bonds issued by their municipalities. And as icing to the cake, the IRS does not tax municipal bond income at federal level.
6. Workplace tax benefits
Like most of the American tax-paying public, you are likely a wage earner. But that does not mean there are no tax havens for you. As a wage earner you can take advantage of workplace tax benefits. You can start a flexible spending account to help pay child care costs and out-of-pocket medical expenses. This pre-tax break can allow you to contribute money to your account before payroll taxes are figured. In addition this same tax benefit is also available for workplace 401(k) retirement plans.
7. Retirement plans
Other outside-the-office retirement savings can also you provide you with a tax haven. Some traditional IRA owners might get an immediate tax deduction on their returns, along with a deferral of taxes on the IRA earnings. Even your Roth IRA can help you reduce your taxes. You are not allowed to deduct your Roth contributions, but when you eventually take money out of the account, you don’t have to pay taxes on it.
If you are a business owner, you have a few retirement plans (like SEP and SIMPLE IRAs, Keoghs, Solo 401(k)s) that can help reduce your taxable business income and make life easier after you retire.
So there you have it. Various tax havens you can take advantage of right here and now. Do these and you will have more cash in your pocket at the end of the day.