How to Make More Profits from Tax
Most people tend to think that paying taxes is a huge burden they have to carry on their backs. Little do they know that they can profit from it if they know the right tricks and apply an effective tax planning strategy.
Learning about your Marginal Tax Rate
Learning your marginal tax rate is the first step towards learning how to make more profits from tax. To put it simply, marginal tax rate works around this concept: “earning an extra dollar will determine the extra taxes you pay at work.” In other words, it’s the amount of tax paid for every additional dollar given to your income. The marginal tax rate rises as your income increases.
You can use an income tax calculator in order to determine the amount of marginal tax you get. The rates may vary depending on the year (if there are new tax bills passed or not) and your status (whether you got married or stayed single). Usually, an income of around $1 to $18,200 per year doesn’t have any marginal tax rate. However, an income of $18,201 to $37,000 will give you a marginal tax rate of 19c per $1 over $18,000. Those with over $37,000 have higher rates, usually with an added cent per $1.
Using Effective Tax Planning Strategy
If you don’t want to pay more than you should, then you must employ a tax planning strategy. Your tax plan must include ways on how to deduct, defer, and divide your payment.
· Deduct- It is a claim that will your reduce your taxable bill by an amount that is almost or exactly equal to your marginal tax rate. It includes interest expense, child care expenses, professional dues, pension plan contributions, etc.
· Defer- This strategy involves pushing to pay your tax this year into the next. In other words, you will be able to eliminate your tax now.
· Divide- Dividing tax involves taking your income and spreading it among different taxpayers. This is usually used by spouses.
Putting Your Money in the Right Place
In some countries, like Cyprus, where tax policies are more lenient and friendly to the citizens, it’s easy to find ways of reducing your tax. For example, if you know where to put your money, you might not be able to pay tax at all. Hence, you should consider investing in one or more of the following:
· Shares – Putting your money on shares can give you higher profits compared to when you put them in the bank. Moreover, in Cyprus, these profits are exempted from tax so you can fully enjoy them.
· Properties – Owning a real estate can come with great property tax. However, if you rent it out, you will have deductions in your tax bill and gain bigger profits.
· Investments – Higher marginal tax income earners tend to gain more profit for their investments. Also, if no withdrawals are made on your investment for 10 years, the tax you pay for your bonds will be reduced to zero.
· Super – ‘Super’ is what most experts use to refer to the government program that provides incentives through the use of the tax system. Super can help you boost profits as it can lessen the tax you need to pay. Also, it works well for those who want to retire – it lets them pay no taxes for their investments.