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As the Obama administration continues to seal tax loopholes for the high income earners and seek higher taxation for the same group, it is becoming more important for those in high income earning brackets to seek more subtle ways of avoiding to pay taxes legally. The good news is that even as the ropes get tighter for the rich, there are still plenty of ways that these taxpayers can still use to pay much less taxes. Some of these options are discussed below:

Save Taxes through a Small Business

One of the best ways that those in high income earning group can avoid paying taxes is by staring consultancies or small businesses and using the entities to deduct various expenses. Even employees in the high income bracket can start small businesses or run consultancies on the side and take advantages of tax opportunities availed to business owners. However, the small business will need to make profits at least in the first 3 years to avoid raising the attention of the IRS auditors. With the small business entity, the high income earner can take deductions and credits such as saving in small business retirement plans with tax breaks, deducting the tax deduction maximum on small business healthcare plans and health savings accounts, and deducting various other business expenses include home business rent and expense portions.

Employ your Children in the Small Business

Another way of saving further on taxes is by employing your children in your small business. By employing your child, you will not be required to pay unemployment taxes or FICA thereby, saving on taxes. Furthermore, your child can make contribution to an IRA from the income he or she earns and get the regular tax breaks.

Saving through IRAs

Another way that those in high income brackets can avoid taxes legally is by saving for their retirement through Traditional IRA. Since Roth IRAs have a ceiling on income earners, most taxpayers in high income groups may not qualify for a tax deduction. However, with a non deductible traditional IRA, one can defer tax on the appreciation on the fund.

Stock Matching Option to reduce Capital Gain Taxes

A high income earning investor can also reduce taxes by selling off loss making stocks to net off capital gains made from sale of other assets. The investor can also use the elective option of determining stock sales to reduce on taxes. The tax code allows investors to select the shares that are being sold in a transaction as opposed to using first-in-first-out (FIFO) method. With this option, an investor can select high value stocks as the ones to be considered in a sale so as to reduce on the capital gains for tax purposes.

Other options that those in high income earning brackets can use to reduce on taxes is by donating highly appreciated assets and converting or re-characterizing IRA funds.

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA. http://www.limonwhitaker.com / Tel:888.321.6188

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By Rob L Daniel
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