When it comes to taxes, most Americans are actively seeking ways to reduce the amount they pay. While it's virtually impossible, not to mention illegal, for a working individual to completely avoid paying taxes; there are ways to reduce tax burdens. Some of the most effective tax savings strategies can be gleaned by examining the 2013 and 2014 tax returns of those taxpayers who reported earning $200,000 or more.
For example, wealthy individuals appear to do a better job of taking advantage of tax deductions. While many taxpayers opt to take the standard deductions of $6,300 for an individual or $12,600 for a married couple, a whopping 93 percent of high-income earners chose to itemize deductions on their 2014 returns.
For example, some people may wrongly believe that high-income earners who deduct charitable donations are deducting hundreds or even thousands of dollars in cash donations. The truth, however, is that "57% of high earners who itemized their deductions for 2013 reported other-than-cash contributions." These non-cash donations may include furniture, clothing and general household goods. To really take advantage of these deductions, it's important to itemize each item and provide a cash value. There are, however, tax programs out there that will provide guidance on how to value items which makes the process much easier.
According to 2014 tax return data, 71 percent of high-income earners took real estate deductions to the tune of $61 billion. In addition to mortgage interest property taxes are also deductable, a tax-savings strategy of which, according to 2013 IRS data, 93 percent of wealthy taxpayers took advantage.
Yes, it takes more work to itemize deductions, but, if it equates to a bigger deduction, it may be worth it. Individuals, who have questions or concerns about tax deductions, should reach out to a tax professional.
Source: Nasdaq, "4 High-Earner Tax Tips That May Help Middle-Class Filers, Too," Tina Orem, March 10, 2016