Mohamad Bitar

13 Ways to Reduce Your Taxes Inadequate financial literacy often leads to paying too much tax on the income you do have. Use these tax-saving strategies 👇 1. File as an S Corp Take the S election,  and split income between salary & distributions. Both are taxed at ordinary income rates, but both are NOT subject to employment taxes. You are changing highly taxed employee income to slightly less highly taxed S corp distributions. 2. Max Out Retirement Accounts Defer taxes for decades, and usually an arbitrage between tax rate when contributed and withdrawn. Grows in tax & asset-protected way between contribution and withdrawal. 3. Seek Out Passive Income Passive income allows you to make money while you sleep, and it is taxed less than earned income. Tax varies by type of passive income, but passive income is never subject to payroll taxes. Eligible to be reduced by passive losses, too. 4. Earn Tax-free Interest Municipal money market funds and muni bond funds pay tax-free interest on a federal level. You can even get funds that are state income tax-free for many states. You generally get less total interest, but after tax, high earners come out ahead. 5. Ensure Dividends are Qualified Some dividends are ordinary dividends, taxable at your ordinary income tax rate. Other dividends are "qualified" with the IRS and taxed at lower qualified dividend tax rates ranging 0-20%. Try for as large % of dividends to be qualified. 6. Wait One Year Before Selling If you own a stock or mutual fund for at least 1 year before you sell it for a gain, you pay capital gains taxes at the lower long term capital gains rates (0-20%) rather than the higher ordinary income tax rates. 7. Tax Loss Harvest "Capture" a tax loss on an investment that has gone down temporarily without changing your overall asset allocation. That loss can then be used against ordinary income up to $3,000 per year and against an unlimited amount of capital gains each year. 8. Do Asset Location If you must invest in a taxable account, preferentially place your most tax-efficient asset classes into it. By placing your least tax-efficient assets into retirement accounts, you are reducing your tax bill. 9. Use Depreciation to Offset Rents Equity real estate generates both depreciation and rents. For a few years and with an appropriate amount of leverage, the depreciation will more than cover the rents. In this situation, you are turning ordinary income into tax-free income. 10. Use Qualified Charitable Distributions Over 70.5? Use QCDs to give instead of cash/appreciated shares. Reduces current (starting at age 72) and future RMD +  no itemizing for deduction. Eliminate ordinary income (RMDs) and essentially use pre-tax dollars for your gifting. 11. Borrow Not Sell Selling assets can subject you to capital gains, depreciation recapture, and even ordinary income taxes. Consider borrowing against a home, or cash value life insurance policy, rather than selling. Weigh tax costs against the interest costs of borrowing. 12. Sell Least Appreciated Shares First Then money from sale is untaxed basis rather than taxable gains. Anything not sold during your lifetime will be eligible for a step-up in basis for your heirs, and nobody will ever pay those long term capital gains. 13. 1031 Exchanges Do a tax-free exchange from one real estate property to another. Exchange into a more valuable property, and you will have additional basis to depreciate. You defer LTCG  & depreciation recapture taxes, & they may be avoided completely with step-up in basis at death.