Understanding tax-deductible investments is crucial for building wealth and reducing taxes. Sherman the CPA shares the top seven tax-deductible investments that have helped people save over six figures in taxes. These investments include setting up a traditional IRA, maximizing contributions to a 401k, utilizing a Health Savings Account (HSA), using a Donor Advised Fund for charitable contributions, taking advantage of tax benefits for business owners, investing in real estate, and investing in oil and gas companies. Each investment offers different tax deductions and benefits, such as tax-free growth, lower reported income, and immediate tax deductions. By utilizing these investments, individuals can reduce their tax liability and increase their wealth.
How Taxes Disrupt Wealth
Building lasting wealth while paying a significant portion of income in taxes is a challenge. Understanding tax-deductible investments is crucial for both wealth building and tax reduction. Sherman the CPA shares the top seven tax-deductible investments that have helped people save over six figures in taxes. Viewers are encouraged to save the video, ask questions, and subscribe for more guidance on reducing stress and lowering taxes.
Key points:
- Building wealth while paying taxes is difficult
- Understanding tax-deductible investments is important for wealth building and tax reduction
- Sherman the CPA shares the top seven tax-deductible investments
- These investments have helped people save over six figures in taxes
- Viewers are encouraged to save the video, ask questions, and subscribe for more guidance on reducing stress and lowering taxes.
Tax-Deductible Investments
Tax-deductible investments can lower your tax bill by shifting income off your tax return. They encourage specific investments and can be in the form of investment accounts or certain assets. For instance, traditional IRAs enable you to transfer money and receive a tax deduction.
Key points:
- Tax-deductible investments reduce tax liability by moving income off the tax return.
- They incentivize specific investments and can be investment accounts or specific assets.
- Traditional IRAs are an example of tax-deductible investments, offering tax deductions for money transfers.
Investment #1
Investment #1: Setting up a traditional IRA at a brokerage
- Contributions of up to $7,000 per person, with an additional $7,000 for a spouse and for each child
- Tax deduction on contributions to a traditional IRA
- Investments in stocks, bonds, and CDs within the account
- Tax-free growth of investments
- Taxes paid only on withdrawals starting at around age 59 ½
- Beneficial for individuals in high tax brackets expecting lower tax bracket during retirement.
Investment #2
The most profound aspect of Investment #2 is setting up a 401k plan through your business or side gig, which allows for higher contribution limits, resulting in greater tax deductions and lower taxes.
Key points:
- Employees can contribute around $23,000 to a traditional 401k, creating a $233,000 tax deduction.
- Self-employed individuals can make an additional tax-deductible contribution of up to $69,000.
- By maximizing both a traditional IRA and a 401k, a $77,000 tax deduction can be created.
- The money saved from tax deductions can be invested to grow wealth at a faster rate.
Investment #3
The Health Savings Account (HSA) is an investment discussed in Investment #3. It allows individuals to contribute money and receive a tax deduction in exchange. The money in an HSA can be spent on various health expenses. Contributions can range from $4,000 to $8,000 depending on filing status. The benefits of an HSA include tax deductions, investment options, and the ability to spend funds on qualified health expenses. Using an HSA correctly can effectively avoid paying taxes on contributed money.
Investment #4
- Using a Donor Advised Fund allows individuals to receive immediate tax deductions for charitable contributions.
- The funds in the account can be invested to grow the balance over time.
- Eventually, the money must be used for charitable purposes.
Investment #5
The tax benefits of owning a business are discussed in Investment #5. Business owners can deduct their expenses before paying taxes, resulting in lower reported income and tax payments. The tax law allows for a wide range of deductible expenses, including mortgage, rent, utilities, vehicles, food, health expenses, travel, and more. Startup costs and advertising expenses can also be deducted. These deductions can lead to significant tax savings.
Investment #6
Investment #6 is about investing in real estate, which is considered one of the best tax shelters. It allows individuals to write off most of their expenses, including depreciation, which is a non-cash expense. This deduction often eliminates most of the rental income reported on a tax return, resulting in little to no taxes paid on rental income. Real estate investors can also deduct mortgage interest, property taxes, insurance premiums, utility expenses, repairs, and other expenses related to their real estate business. High-income individuals commonly incorporate real estate into their long-term wealth strategy.
Investment #7
Investing in oil and gas companies offers significant tax benefits, allowing for a deduction of 65 to 85% of the investment in the first year. This deduction can be used to offset other income on the tax return. No need for high involvement in operations or specific requirements to use these deductions.
- Investing in oil and gas companies provides substantial tax benefits
- Deduct 65 to 85% of the investment in the first year
- Use the deduction to offset other income on the tax return
- No need for high involvement in operations or specific requirements