As the middle-class embarks on its journey towards building a solid financial foundation, one of the initial hurdles encountered is minimizing tax burdens. While relocating may be a viable solution for some by opting for areas with more affordable cost of living and taxes, there are many other innovative ways to reduce your tax obligations.

This article aims to shed light on five intelligent tax shelters that can help you save money and pave the way towards financial prosperity, regardless of whether you’re a 20-something just entering the workforce or an experienced worker approaching retirement.

Avoid Personal Income Tax in Select States:

To escape personal state income tax, consider relocating to one of these nine U.S. states that do not impose such taxes: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Additionally, for businesses, you can steer clear of corporate income tax in the following four states: Nevada, South Dakota, Texas, or Wyoming.

Capitalize on Retirement Plans:

Starting to save for retirement might seem daunting, but it begins with contributing to employer-sponsored plans like 401(k)s. In many cases, your employer may match a percentage of your contributions. This means that if you contribute $3,500, your company could match that amount, resulting in a guaranteed 100% return on your investment.

On top of the matching benefit, these funds also grow at an average rate of 8%–12% per year without being taxed, or deferred for taxation. This not only reduces your annual income and possibly your tax bracket but also lowers your overall tax burden.

Invest in Qualified Tuition Programs (QTPs) a.k.a. 529 Plans:

These programs function as a means to save for higher education expenses, similar to retirement plans. They offer tax-deferred growth on your contributions and have varying lifetime contribution limits — typically around $200,000. No federal taxes are levied on the plan’s earnings, and in most cases, no state taxes apply if the beneficiary attends an in-state college.

Steer Clear of Estate and Inheritance Tax:

Although the estate and inheritance tax might not be a significant concern for many individuals, it is essential to note that you only have to file an estate tax return if your estate is valued at $5,430,000 or more as of 2015. Additionally, only six states impose their own inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

Fortunately, unless you have a particularly sizable estate, your heirs will be spared this financial burden.

Buy a Home and Reap the Tax Benefits:

Homeownership offers several tax advantages. You can deduct interest paid on your mortgage, a percentage of your real estate taxes, and claim credits for specific home improvements. If you are involved in real estate flipping, you may find this endeavor even more rewarding because profits under $250,000 (for single filers) or $500,000 (married and filing jointly) are tax-free.

The IRS requires that you occupy the home as your principal residence for at least two years before selling to qualify for this exemption.

Remember, there are additional options beyond these five such as Health Savings Accounts (HSAs), which also present great opportunities for tax savings. Keep in mind the mistake previously mentioned regarding employer match percentages and ensure that you understand how they work in relation to your specific situation.

These tax shelters are not exclusive to the wealthy but can be utilized by anyone looking to build a robust financial foundation and secure their future. By leveraging these strategies, you’ll be well on your way to creating a prosperous path towards wealth.

Disclaimer

While we endeavor to keep information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Please note that Bullsevevergreen.com an all its pages and content is intended primarily as an informational platform and not a financial advisor, planner or brokerage firm. The content on our website should not be considered as personalized investment advice for any individual's specific circumstances. Any information provided by us does not constitute professional advice, nor does it take into account your personal financial situation, goals, and needs.

Investing in the market involves risks including potential loss of principal invested. The strategies discussed on our site are based on historical data; past performance is no guarantee of future results. Before making any investment decisions, we encourage you to seek independent professional advice tailored to your financial needs and objectives.

By using Bullsevevergreen.com and its resources, you agree that the information provided does not create a client-broker relationship between us or our affiliates and yourself. We do not provide investment recommendations nor endorse any particular securities, funds, or strategies. Always conduct your due diligence before making investment decisions based on content from Bullsevevergreen.com.