Concerned about taxes in the future? Taxes are a huge eroder of wealth. While you do not have control over tax rates, you can strategically position yourself to maintain control of as much of your money as possible. Taxes are at a historic low, so it is time to learn how to pay less tax legally.
https://www.youtube.com/watch?v=SB4IoCq9Y-8
So, if you want to find out how to protect your wealth from likely tax rate hikes and minimize your tax rate ... tune in now!
*Disclaimer: This is not tax advice.
Table of contentsTaxes Are Paid on the MarginReducing Your Taxable IncomeActive Tax PlanningWhat is Tax Deferral?Are There Tax “Loopholes”? Book A Strategy Call
Taxes Are Paid on the Margin
A common misconception about taxation is that your tax bracket is the percentage of tax you pay for your entire ordinary income. In reality, everyone is taxed the same way, on the same dollars. Income is taxed on the margin. So for married couples, everyone’s first $20,550 is taxed the same exact way, at 10%. The next margin is taxed at 12%. So everyone’s income from $20,551 to $83,000 is taxed at 12%. Any income you make past $83k is taxed at the next bracket, which is 22%. The highest bracket is 37%.
You may be able to reduce your taxable income through deductions, and that comes off the top. So if you make $100,000 in a year, only 10,550 of those dollars are being taxed at 22%. If you can reduce your taxable income by $10,000 then only $550 gets taxed at 22%.
In other words, just because you’re in the 22% tax bracket does not mean that 22% of your income is going to taxes. It represents which margin you’re in. This also means that everyone is being taxed the same on the same dollars. If you reduce your taxable income, you’re not being taxed unfairly because you’re still being taxed in the same way as everyone else.
Source: Truth Concepts
It’s also important to note that the above pertains to ordinary income, which is W-2 income and many investments. Capital gains—income from the sale of investments—have a different tax structure.
Reducing Your Taxable Income
[7:13] “Your taxable income is all your [ordinary income], minus your deductions, which is either because you itemize… or the standard deduction. And then if you own a business, you also get what’s called a qualified business deduction. And then you come up with the taxable income after that.”
The standard deduction is $12,950 if you’re single, and $25,900 if you’re married and filing jointly. If your own a business it is worth itemizing your expenses and seeing if they exceed the standard deduction, to get the most benefit with your taxable income.
It’s also wise to be mindful of how you access different accounts that you own. Many people love their tax-deferred 401k because they can defer paying taxes on their contributions. They see this as a tax credit when really it just means you don’t have to pay taxes yet. But if you need access to those dollars, you can bet you’ll be paying income tax. That’s why it’s powerful to have other sources of liquid cash that won’t increase your taxable income. A policy loan from your whole life insurance or a Roth IRA, for example.
Active Tax Planning
By 2026, the tax brackets will shift in a way that may necessitate some active tax planning. This means working with your trusted tax advisor to come up with a plan. The reason is that in 2026, the 22% margin will return to 25%. The top threshold of the margin is also decreasing from $178,000 to $153,000.
What this means is that if your income is around $153,000 to $178,000, you could make less money in 2026 and still be in a higher tax bracket. This also means that any money you make from $83,550 to $153,000 will be taxed at 25% instead of 22%.
If you are close to that upper threshold, work with a trusted tax advisor to reduce your taxable income. And if you have tax-deferred assets, you think you’ll want to access or liquidate; doing i...