Tax Credits & Deductions: How to Get a Lot of Them on Your Income Tax Return
It’s tax-time, and the big question on everyone’s mind is: “How can I pay less?” Or, maybe your question is, “How can I get back more?” In either case, the answer is the same.
To the IRS, not all incomes are treated equally. Some types of income are given lots of generous tax credits and deductions, while others are given almost none. Luckily, the types of income with generous benefits are available to all who wish to put a little effort in to get them. There are three main types of income which people fall into: working income, paper income, and real estate income.
Working income is income you get from working. This includes all employees, self-employed persons, or small business owners, regardless whether they are paid commissions, salaries, or wages. This type of income has few (sometimes none) tax credits or deductions. Consequently, roughly half of this income is lost, by the end of the day, to taxes.
Paper income is income you get from things like stock, mutual funds, index funds, ETFs, REITs, or retirement plans that invest in any of these things. This type of income has more tax-advantages than working income. About 20% of this income is lost to taxes.
Real estate income is income you get from owning income-producing real estate. This type of income has the most tax-advantages of any, and, as a result, none of this income is lost to taxes (if, of course, the proper steps are taken).
So, if you find yourself a person who has mostly working income, there isn’t a whole lot you can do to keep your money right away. But, over the next year, two, three, four, or five, you can work on transforming your working income into real-estate and/or paper income, and then you can enjoy numerous tax advantages on your income tax returns.
Stay tuned for more.
(*tax time image via Shutterstock)