It’s tax season. The odds are, not to hurt your feelings, you’ve missed some easy opportunities to pile less cash into Uncle Sam’s sticky hands.
The tax code is complicated and filled with rules that, to everybody but the legislators who write the stuff, feel downright silly.[ad#Google Adsense 336×280-IA]Worse, this overly complicated tax code is easy to cheat.
Take, for example, the fact that members of the clergy can get a significant tax break for living in a church parsonage. The housing allowance isn’t considered income.
Sounds fair enough, right?
It is… until the rule is taken advantage of.
Several years ago, a savvy company got wind of the tax break and immediately “ordained” some of its top employees.
They aren’t real pastors, but thanks to the move, they got a big tax break.
At The Oxford Club (the publisher behind Investment U), we believe one of the most important ways to grow and protect wealth is to constantly strive to slash financial fees and minimize our tax burdens.
What most casual investors fail to understand is the absolutely destructive power of taxes. Managed improperly, taxes can hack away at more than a quarter of your profits.
It can be a devastating obstacle on your way to financial liberty.
We must do everything we can to keep Uncle Sam where he belongs… out of our pockets. We owe Washington our fair share, but not a penny more.
While calling yourself a member of the clergy is taking things a bit far, there are plenty of simple and legal things you can do to cut your tax burden.
Often, your kids and grandkids are a great source of potential deductions.
Most serious investors have heard of 529 plans. But few realize their true power.
They are not just for young parents. Far from it. They are a fantastic tool for grandparents looking to cut their tax burden and help relieve a grandchild’s future education burden.
Congress created the plans in 1996 as a way to spark interest in saving for college education. Simply put, 529s are a highly sheltered investment account. Earnings generated through the plans are not subject to federal tax and, in most cases, are not subject to state tax when the money is used to pay for necessary college expenses (the list of qualified expenditures is actually quite expansive).
Right off the top, that could boost your profits by as much as 20%.
But in most states, the tale gets even better. You can deduct 529 contributions from your state income tax each year. Because I live in Pennsylvania, that means my wife and I can remove as much as $28,000 worth of income… per beneficiary.
Feeding the plan could not be simpler. Funds are automatically deducted from our checking account each month.
And what’s really powerful is the law allows you to transfer funds from one beneficiary to another without triggering a taxable event.
That’s an important feature that many investors overlook. It means, in many instances, it makes sense for high-income earners to open their own 529 plans just for the annual deduction on their state income taxes. They may never use the money, but it can easily be transferred to their children or grandchildren… or even the helpful young neighbor down the street. (Many 529 plans also provide appealing inheritance and gift provisions as well.)
Another unknown benefit of the plans for folks looking to slash their tax burden is that you can open an account in any state. You’re not locked into your home state’s plan.
Utah’s plan is worth your attention. It allows savers to invest in an Oxford Club favorite… ultra-cheap Vanguard funds.
The bottom line is that there are simple, highly effective ways to cut your tax burden. With a 529 plan, not only can you slash what you pay Uncle Sam each year, but you can help a loved one overcome the dangerous burden of entering the working world overwhelmed with debt.
It’s either that or you can join a seminary.
Source: Investment U