It’s tax season, and I went to my accountant last week to see the tax damage for last year. The owner of the company and head accountant was across the hall and I could hear her client asking her what he should do financially. She asked him, “Why don’t you start paying off your mortgage early?” Good advice from an accountant!
Meanwhile, my accountant was inputting my numbers and was grimacing and groaning as he was looking at the screen. Obviously, it wasn’t good news. I asked him if he was OK and if he was going to show me the damage. “I’m going to have to print it on a barf bag for you when you see how much you’ll owe.”
It was the truth. I ended up paying a lot. That’s the life of the self-employed. Then he looked at me and said, “Thank goodness you’re paying off your mortgage early and have a comfortable safety fund.” It’s true. Love my HELOC. But I wanted to learn more about saving money, so rather than just sit there and try to swallow the bad tax news, I figured that I was paying him professional money and I deserved some advice. So I asked him for 5 tips for saving money that he would have for me, or any tax payer. Without digging into his books, and without specific research, here are the 5 money saving tips that he gave me off the top of his head.
- Invest in rental properties. He said that his most comfortably retired clients all have rental properties. I asked what kind of rental properties and he said “Slums! Well, not really slums but the cheaper the better.” Now again, I asked him for general advice, and not to me specifically. I’m a real estate professional, though, and I liked what he was saying. Rental properties can be a pain for a week or so out of every year. But rental properties pay for themselves, and then they more than pay you back for your investment.
- Maximize retirement benefits. Especially for W2 tax payers, defer as much income as possible by taking advantage of 401Ks, IRAs, or other retirement options. By doing so, tax payers could save/defer 30% in taxes.
- Pay your kids a salary. This has to be reasonable, and documented. But you can basically pay your kids up to $6,000 per year and deduct that from your income.
- Have more kids — or claim your parents as dependents is they are not filing a return of their own. The approximate tax benefit for each child (or dependent) is about $1,700.
- Start a business. If your only income is W2 income, then start a side business. Form an LLC such as a rental income business with a rental property. You’ll be able to deduct interest and repairs.