Are you tired of feeling frustrated every tax season, having to pay more and more each year as you make more money? Taxation is unavoidable, but you can reduce the amount you owe by investing in certain tax efficient opportunities.
Whether you’re new to tax efficient investing or you’re a seasoned Accredited Investor who’s reevaluating your investment strategy for the new year, here are three signs that your portfolio is primed for tax efficiency.
1. You Understand that Tax Efficiency is for Everyone
Many people ignore tax efficiency because they think it doesn’t apply to them, so if you understand this one key principle, you’re already on the right track.
The truth is, tax efficiency is not just for the ultra wealthy. And if you’re an Accredited Investor, then you most likely fall in one of the top three income tax brackets, where your federal income tax rate is somewhere between 32-37% in 2023.
Anyone who’s giving one-third or more of their income back to the government should absolutely focus on making their portfolio as tax efficient as possible. After all, don’t you want to keep more of your hard-earned money?
2. You’re Growing Your Wealth While Decreasing Your Taxable Income
This idea is one of the foundational things many people get wrong about tax efficient investing: While passive income is often taxed at a lower rate, generally speaking, it cannot decrease the amount of tax you owe on your earned (W-2) income.
Passive income generation can help you earn more money, but no matter how well your investments perform, you’ll still end up paying more in taxes as your total income increases.
People who truly understand tax efficiency focus instead on reducing the amount of their earned income that is subject to taxation. Accredited Investors can do this by investing in carbon capture technology, which allows you to deduct at least 80% of your investment for the first year against your earned (W-2) income.
That earned income would otherwise be taxed at the highest rate of 32% or more, so this opportunity can make a significant dent in the amount of taxes you owe.
3. You Understand the Difference Between Tax Deferred and Tax Free
Many people think the best way to reduce their tax burden is by making maximum contributions to qualified funds like an IRA or 401(k).
When you put money into one of these accounts, it is “tax deferred,” meaning you don’t have to pay income tax on it right away, and the money grows without being taxed for as long as it stays in the account.
While these accounts are helpful tools for saving for retirement, it’s important to remember that you will have to pay taxes when you withdraw the money later. In fact, the more your account grows through interest or investments, the more you’ll have to pay.
In the end, these accounts are not reducing your taxes, they’re just prolonging the time until you have to pay them. To build a truly tax efficient portfolio, it’s important to understand this distinction, and realize that while qualified accounts are a valuable opportunity for many investors, they should not be your only strategy for building wealth and reducing taxes.
Prioritize Tax Efficiency with a Partner Who Understands Your Needs
At FGCPTM, we know what it’s like to grow increasingly frustrated with the high tax rates that require you to pay more and more money as you grow in your career and earn a higher salary. It’s the reason why I started focusing on investing, and the reason why I created this company to help other high-wage earners like me access true financial freedom.
If you’re an Accredited Investor who’s ready to take the next step toward building a tax efficient portfolio in 2023, I would love to work with you. Simply fill out this brief form to get in touch.