9 Ways To Avoid Paying Taxes in 2024
Written by
Nicholas Morine
Edited by
Katie Wudel
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
In a world where taxes are a certainty, finding legal ways to minimize your tax bill is a smart financial strategy. “The Money Guy Show” hosts, Brian Preston and Bo Hanson, offered insightful tips on how to legally reduce your tax liability in 2024 via a recent YouTube video. Here’s an expanded look at their advice.
1. Maximize Retirement Plan Contributions
Contributing to retirement accounts like IRAs, HSAs, and Roth IRAs is a fundamental strategy. For high earners who exceed Roth IRA income limits, backdoor Roth conversions are a savvy workaround. This involves contributing to a traditional IRA and then converting those funds to a Roth IRA, thus benefiting from Roth’s tax-free growth.
2. Invest for Long-Term Gains
Investments held for more than a year are subject to lower long-term capital gains tax rates. This strategy encourages long-term investing in assets like stocks, which can benefit from these lower rates. Additionally, tax-loss harvesting allows investors to sell off losing investments to offset gains in other areas, optimizing their tax situation.
3. Leverage Real Estate Tax Benefits
Real estate offers multiple tax advantages. For instance, selling your primary residence can lead to significant tax breaks if you’ve lived there for at least two out of the past five years. Investment properties can also be part of a 1031 exchange, allowing you to defer capital gains taxes by reinvesting the proceeds into another property. Leveraging a 1031 can be tricky, however, so consult a professional before doing so.
4. Business Ownership and Structure
Owning a business opens up a variety of tax deductions and benefits. The structure of your business (LLC, S Corp, C Corp) can significantly impact your tax obligations. Each structure has its own set of rules and potential advantages, especially regarding how income and expenses are taxed.
5. Enhance Retirement Contributions as a Business Owner
Business owners have the unique opportunity to contribute significantly to retirement plans like 401(k)s and cash balance plans. These contributions not only provide for future retirement but also reduce current taxable income, offering a dual benefit.
6. Real Estate for Business Operations
If your business requires a physical location, owning the property and renting it to your business can be advantageous. This strategy not only builds your real estate portfolio but also shifts expenses from rent to a potentially appreciating asset.
7. Take advantage of qualified business income deduction
Certain businesses qualify for up to a 20% deduction on net profits, thanks to the Qualified Business Income Deduction. This can substantially reduce the tax burden for eligible business owners.
8. Residency in Tax-Favorable States
Your state of residence can significantly impact your tax obligations. States like Florida and Texas have no state income tax, which can lead to substantial savings, especially for high earners or retirees.
9. Consider Relocating to Puerto Rico
For those with the flexibility, relocating to Puerto Rico can offer unique tax benefits. The territory has special tax laws that can significantly reduce federal income tax obligations for residents, though this requires careful planning and consideration.
Bottom Line
While it’s important to minimize your tax burden, it’s equally crucial to stay within the bounds of the law. Tax evasion is illegal and carries severe penalties. Always consult with a tax professional to ensure your strategies are compliant and tailored to your specific financial situation. With the right approach, you can enjoy a more financially efficient year, keeping more of your hard-earned money in your pocket.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
More From GOBankingRates
