An unexpected tax bill, especially with the current cost of living, can ruin your financial budget, causing you to dig deep into your savings or even borrow money from friends. Unfortunately, taxes are inevitable bills, and we must attend to them every financial year. The good news, however, is that there are several tips you can use to cut your tax bills. Here are 5 ways to minimize your taxes, as shared by top financial advisor Sebastian Guerra.
Sebastian is the managing partner and president of Guerra Financial Group. He is an investment advisory representative, author, and widely known speaker. Sebastian has hosted over 500 speaking engagements and is a regular guest on NBC Money, ABC News, Univision, America TV, and Telemundo.
Sebastian runs a group of 30+ financial professionals who are dedicated to helping families get to the point where work becomes an option and not an obligation. Leading by example, he uses his journey to support others in reaching their financial goals as he speaks more on retirement income planning, investment management, tax planning, and healthcare asset protection, to name a few.
Here are the five ways you can minimize your taxes, according to Sebastian Guerra:
- Open a health savings account (HSA)
These special savings accounts offer a three-pronged tax benefit: tax-free withdrawals, contributions, and earnings.
Sebastian explains that a health savings account can help you minimize your tax bills by a higher percentage depending on how much you save. It is also an easier way to grow your income. This is because, with HSAs, money is deposited tax-free, grows tax-free, and is withdrawn tax-free, provided the funds are spent on medical and health expenses.
- Reduce your tax bill by saving for retirement
Having a retirement account can qualify you for different types of tax breaks, allowing you the opportunity to build your wealth. This is also one of the easiest ways to cut your tax bills, as anyone can use it.
Sebastian explains that with a retirement account, your contributions will be deducted directly from your income and are not subject to taxation. Like HSAs, these funds also grow tax-free until retirement.
- Adjusting your basis for capital gain tax
There are capital gain taxes in real estate or any other investment, especially if your property’s value has risen significantly. Sebastian notes that in such cases, adding in all the reinvested dividends will increase the cost basis and reduce your capital gain.
- Renting out your home for business meetings
“According to the Augusta rule, as a homeowner, you can rent out your space for up to 14 days and not report your income to the IRS,” explains Sebastian. This can help increase your revenue as the money earned is not subject to taxation. However, to become successful in this field, you must understand real estate and investment planning.
- Investing in qualified opportunity funds
Opportunity funds can help save you from high tax bills and give you a better way to grow your money. Sebastian explains that as an investor, you can move eligible gains into the qualified opportunity fund, which allows you to defer paying the capital gains tax on those funds for up to ten years.