Tax shelter is a simple way in which
you can minimize the amount of tax you are liable to pay on your taxable income
so that you can save it for the rainy day and build up your emergency fund.
This is definitely regardless of the amount you are earning annually.
Tax shelters have gained prominence
across the globe and people have unanimously accepted the avenue for lowering
their taxes. However, not many are aware of the manner in which they must go
about for optimum benefits.
across the globe and people have unanimously accepted the avenue for lowering
their taxes. However, not many are aware of the manner in which they must go
about for optimum benefits.
In this write-up, the various tax
shelters have been discussed that you can avail. Read on for better insight.
shelters have been discussed that you can avail. Read on for better insight.
5 avenues for saving in tax shelters
Tax shelter avenues have earned a bad
reputation the world over. While few are illegal, others are too good to be
true and operated by banks that try to manipulate income slabs and save your money. However, given below are 5 ways in which, you can save your hard earned
money and also be a responsible citizen of your country.
reputation the world over. While few are illegal, others are too good to be
true and operated by banks that try to manipulate income slabs and save your money. However, given below are 5 ways in which, you can save your hard earned
money and also be a responsible citizen of your country.
- Retirement accounts
This is
perhaps one of the best avenues of tax shelter available. You can opt to save
in the account that you feel is suitable for you and will meet your
requirement. You have 2 options to choose from, namely, IRA or IndividualRetirement Account that is meant for individuals as the name suggests and the
one that is available to workers at your workplace and are referred to as
401(k) and 403(b). Alternatively, if you have your own occupation, you can save
in SEP-IRA or 401(k).
perhaps one of the best avenues of tax shelter available. You can opt to save
in the account that you feel is suitable for you and will meet your
requirement. You have 2 options to choose from, namely, IRA or IndividualRetirement Account that is meant for individuals as the name suggests and the
one that is available to workers at your workplace and are referred to as
401(k) and 403(b). Alternatively, if you have your own occupation, you can save
in SEP-IRA or 401(k).
- Business
Starting a
business is one way to save your money, regardless of whether you are doing
full time or as part time occupation. One of the best ways to accumulate wealth
is by diverting your personal expenses into allowable deductions related to
your business. This can be better explained with the help of an example. For
instance, if you are operating from home, you are entitled to deduct expenses
that are related to utilities, maintenance, and overhead operating costs
related to your business.
business is one way to save your money, regardless of whether you are doing
full time or as part time occupation. One of the best ways to accumulate wealth
is by diverting your personal expenses into allowable deductions related to
your business. This can be better explained with the help of an example. For
instance, if you are operating from home, you are entitled to deduct expenses
that are related to utilities, maintenance, and overhead operating costs
related to your business.
- Medical savings accounts
Health savings account (HSA) and Flexible spending accounts (FSA) are 2 types of accounts that
are offered by many employers. This allows employees to manage expenses related
to healthcare.
are offered by many employers. This allows employees to manage expenses related
to healthcare.
Your employer
can make tax free contributions towards these accounts and a portion of your
income can be pooled in too. However, there are few norms that you must adhere
to pertaining to the FSA balance amount you must spend by the annual deadline
date. Funds that you do not use in HSA get rolled over again for the next financial year.
can make tax free contributions towards these accounts and a portion of your
income can be pooled in too. However, there are few norms that you must adhere
to pertaining to the FSA balance amount you must spend by the annual deadline
date. Funds that you do not use in HSA get rolled over again for the next financial year.
- Own a property
Experts always
say that real estate can be a good tax shelter. The year you buy your property,
you get to enjoy a tax benefit, and also the subsequent years till the time you
own the property and also when you decide to sell off your property.
say that real estate can be a good tax shelter. The year you buy your property,
you get to enjoy a tax benefit, and also the subsequent years till the time you
own the property and also when you decide to sell off your property.
Two very prominent
tax deduction avenues for homeowners include mortgage interest and property
taxes.
tax deduction avenues for homeowners include mortgage interest and property
taxes.
- Avail benefits at workplace
If your
company offers benefits like disability insurance and health insurance, the
cost that will be incurred is deducted from your wage before you shell out any
amount as taxes. So, you don’t have to pay that deducted amount as tax. Car
allowance and education expenses if borne by your employer are non taxable too.
company offers benefits like disability insurance and health insurance, the
cost that will be incurred is deducted from your wage before you shell out any
amount as taxes. So, you don’t have to pay that deducted amount as tax. Car
allowance and education expenses if borne by your employer are non taxable too.
The
5 tax saving avenues mentioned above are legal so you can avoid operating in
offshore accounts that may not be reliable and you might end up losing all your
hard earned money in the long run.
5 tax saving avenues mentioned above are legal so you can avoid operating in
offshore accounts that may not be reliable and you might end up losing all your
hard earned money in the long run.