This video explains how understanding tax laws can lead to significant tax savings. Using the example of two individuals earning the same income but paying different taxes, the video details five tax strategies that the wealthy frequently utilize to minimize their tax burden. The speaker emphasizes the importance of consulting with financial and tax professionals.
Tax Code Understanding: Knowledge of the tax code is crucial for minimizing tax liability. The same income can result in significantly different tax burdens depending on how it is earned and structured.
Ordinary and Necessary Expenses: Businesses can deduct ordinary and necessary expenses from their revenue before paying taxes. Accountants play a key role in determining what constitutes "ordinary and necessary" expenses. This can include a wide variety of business-related costs, potentially impacting even side hustles.
Investment Tax Breaks: Investors generally pay lower tax rates than employees. The video highlights the lower tax rates for long-term capital gains compared to ordinary income. Investing in Treasury bonds offers tax advantages at the state level.
Depreciation Deduction: Real estate investors can deduct depreciation, a tax break that considers the property's age. Accelerated depreciation strategies allow for larger deductions upfront, potentially significantly reducing taxable income. Cost segregation studies can further optimize these deductions.
Like-Kind Exchange (1031 Exchange): Real estate investors can defer capital gains taxes by exchanging one property for another. This strategy allows wealth to compound tax-free and is a significant advantage for real estate investors.
