Be Smart About Taxes and Keep More of Your Hard-Earned Cash

As seen in Entrepreneur on January 21, 2022

Taxes can be costly. These costs cut into your income and can have devastating effects on your quality of life, especially in times of transition. Although marketing is my main business, I wear many hats as an entrepreneur. Learning some accounting and ways to save on taxes are valuable tools to have on hand. When families find themselves facing a new season of life, I’ve discovered ways to avoid or lessen the strain taxes can put on their financial situation.

Just starting out: FIRPTA withholding

One of the first major investments a family usually makes is purchasing a first house.

Real estate can be a solid investment. Traditionally, homes appreciate in value. When it’s time to sell your primary residence, a capital-gains tax is calculated on the profit. Most homeowners will be exempt from this tax: Single owners pay no capital-gains tax on the first $250,000 of profit. Married couples filing jointly are exempt from the first $500,000 of profit.

Real estate, such as your home, is a type of real property. If your home, or any other real-property investment, is purchased from a foreign person who is a nonresident alien, then the Foreign Investment in Real Property Tax Act (FIRPTA) requires withholding a certain percentage from the real-estate transaction at the time of purchase. The IRS will expect this to be remitted to them within 20 days of the transaction.

A common exemption that applies in this situation is if the property is purchased for under a certain price and if it will be used by the family as a residence. Other exemptions enable investors to reduce or eliminate the withholding amount.  

Preparing for retirement 

Sooner or later, your family grows up. Braces, college and weddings will be expenses of the past. 

You’ll need to start preparing for retirement long before these milestone events. In a recent Barron’s  article, Gabriel Shahin, CFP, identifies the two most important things to do for your long-term financial health: cutting down your debt and investing for growth. Become strategic with your investments by understanding the ups and downs of the stock market. Invest in suitable mutual and exchange-traded funds, and you could get higher returns during market drops. 

Consider ways to minimize taxes you’ll pay when you’re retired. Distributions from Roth 401(k) and Roth IRA accounts aren’t taxable. Treasury bonds are exempt from state taxes. If you think through your retirement today, you could greatly benefit from tax-free income.

Read the full article here!