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What's the best way to retain your hard-earned dollars?
March 1, 2013
As a high-income earner or self-employed person, particularly in agriculture, the end of each tax year may have you reviewing your income sheet and trying to determine next steps. Tax implications may have created a habit of making capital investments each year to offset income gains whether that is new equipment or additional infrastructure investments. Some alternative ways to reduce that income may include:
- Tax-Free Municipal Bonds: This investment option pays income distributions at a fixed rate that are free from federal income tax. Some bonds issued within your state of residence can be free from both state and federal income tax, making them “double tax-free” municipal bonds
- IRA plans tailored to business owners: Simplified Employee Pension Plan (SEP), SIMPLE (Savings Incentive Match Plan for Employees) Individual Retirement Plan, Individual 401k, KEOGH and other retirement plans can cater to business owners and high-income earners. These investments can allow a person to contribute more tax-deferred compensation than a Traditional or Roth IRA each year.
- College Savings Plans: These can be set up for your own children, grandchildren or even friends. They allow contributed dollars to grow tax-deferred in order to be used for educational purposes at a later date. These contributions can be deducted up to a certain dollar amount per year from your taxes.
- Life Insurance Retirement Plans (LIRP): LIRP’s can provide a dual benefit as they act as a long-term investment for supplemental retirement income as well as delivering income to your beneficiaries in the event of your death. This type of investment is ideal for high-income earners who may not be able to utilize limited investment retirement accounts.
For more information, contact GCSB Investment Center to determine what alternatives exist to reduce taxable income.