Susi is a highly compensated executive in a very well-known national organization. In a recent meeting she asked me what she could do to reduce her tax liability.
We get this question A LOT. And there are a couple of very easy answers. Number One is make less money. Number Two is give a lot of your money away. However, neither of these options is an attractive tradeoff for most people. What folks really want to know is how can I keep MORE of what I make?
Here’s the deal: If you are a W-2 employee already maxing out your company’s retirement plan and deductible IRA options, there’s not a lot left. That’s why it’s important to make sure that you are taking advantage of other, smaller ways to reduce your taxable income.
Make sure you are maxing your FSA and HSA at work. Use tax-smart investing strategies. Use tax-smart giving strategies like bunching, qualified charitable distributions, and donating stock rather than cash. If you have a side-hustle, make sure you are deducting your expenses as allowed by the tax code.
Finally, a word of caution: Often people with high incomes are pitched certain types of investment partnerships for their up-front tax benefits. I’ve been doing this a while and I’ve seen a number of these, though not all. And in my admittedly limited sample size, a few have worked out just fine, a few have imploded, a few have become a huge administrative hassle, and a few have become an entanglement with the IRS. Caveat emptor, as the saying goes, and always consult your tax advisor before using any of these.
Securities and advisory services offered through LPL Financial, a registered investment adviser. Member FINRA / SIPC.