If you earn a lot of money on a regular basis, you don't want all that money eaten up by taxes. Luckily, there are more than a few ways that you can reduce your tax obligation when you are bringing in a lot of cash.
Max Out Your Retirement Contributions
First, you should try to max out your retirement contributions every year. You can set-up a traditional IRA or a 401(k) and max out your contributions. As you are self-employed, you can save up to $56,000 of your income.
You can also open up tax-free retirement accounts, where you make contributions with money that is already taxed. You will not save on your taxes right now, but you will be building tax-free money into your future by doing this. Building tax-free money into your future is always a smart move and will give you a more diverse retirement portfolio.
Great a Plan for Donating to Charity
Next, you need to have a plan for donating to charity. Sit down and think about the causes that you believe in, and find organizations to donate your money to. Research the organizations, and try to find ones that put most of the money you donate towards the cause they support and don't absorb most of the money into just running the organization.
If you donate to charity, and you want it to really impact your taxes, you are going to need to donate a substantial amount, such as 10% of your income, so you really see a difference on your taxes. Donating to charity reduces your tax burden, and allows you to have greater control over just how your money is spent.
Open A Health Savings Account
Finally, open up a health savings account. A health savings account, or HSA, will allow you to put aside money to pay for your health-related expenses tax-free. With an HSA, the money that you build up and don't use can actually be withdrawn when you reach retirement age, so this is a great vehicle for reducing your tax burden and savings up for the future at the same time. You will have to have a high-deductible insurance plan in order to have an HSA.
When it comes to savings on taxes as a high-earning self-employed individual, you can do it by maxing out your retirement contributions, opening a health savings account, and having a plan for donating to charity. These moves will allow you to save for your future and make contributions to society, while also helping to lower your tax rate. For more information, check out tax companies like Hough & Co CPA.Share