My Journey to Financial Independence and Retiring Early

How to (Not) Pay Taxes Like Trump

How to (Not) Pay Taxes Like Trump - How to minimize your tax burden on an average salary. | www.thefiredrill.comFirst and foremost, this is not an endorsement for Donald Trump whatsoever. In case you are unaware, last week the New York Times published some pages from Donald Trump’s 1995 tax filings showing an epic $916 million dollar loss, which could have allowed him to not pay taxes for up to 18 years.I don’t know of any resources on real estate investing and taxes, so as to Trump’s specific tax avoidance strategy I cannot comment on at this time. However, while not on the same level, there are various strategies that an average worker can utilize to legally not pay taxes on income as well.

Tax-Deferred Accounts

One of those ways is making the most of tax-deferred accounts while working such as your 401k, a traditional IRA, and HSA. In 2016, a married couple filing jointly can earn $20,700 before they have to pay taxes ($12,600 standard deduction and $4,050 each for personal exemptions). If available, each can also contribute $18,000 to a 401k raising that limit to $56,700. Add in traditional IRAs and that raises to $67,700 at $5,500 contributes each. And an HSA contribution of $6,750 brings it to $74,450. Wow! And if you have kids, there are some tax credits that are available to you as well that could allow even more tax-free income.

I know you still need money to live on, so try banking the equivalent of one spouse’s income and living off of the other.

One of the advantages of retiring early is that you no longer have earned income, which means no more Social Security and Medicare taxes. Once you’re living off of investments, you can earn $20,700, plus $75,300 in qualified dividends or long-term capital gains before you have to pay taxes. Yes, almost $100,000 in tax-free income! By keeping your needs/wants few and staying in the 15% tax bracket during retirement, you can save a whole lot on your tax bill.

Other Strategies

Here is some additional information on tax avoidance strategies from around the blogosphere.

Go Curry Cracker:

Root of Good:

MadFientist:

  • Traditional IRA vs. Roth IRA – introducing the Roth IRA conversion ladder and why saving in tax-deferred accounts are better in the long run.
  • Tax Loss Harvesting – selling taxable investments that have decreased in value and using the losses to decrease income taxes.
  • Tax Gain Harvesting – selling taxable investments that have increased in value to increase your cost basis.

Is all of this legal? Yes. Is it moral or unpatriotic? That’s up to you. Perhaps it is time for tax reform, but until then all of these strategies are available to the average earner to minimize their tax burden.

 

Are you utilizing some of these strategies? Are there other ways to reduce taxes that I haven’t mentioned?


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