It is time to check your 1040 tax statement from the previous year and find out how much taxes you paid to the IRS.
If you are filing your taxes under married filing jointly, your top-level tax rate will be 22% for taxable income above $80,000.
On average, working families pay a lot of taxes to the IRS due to poor tax planning and lack of knowledge.
Please spend some time and implement a few ideas to reduce your tax liability for the coming year.
For the tax year 2022, you can increase your 401k pre-tax employee contribution (up to $20,500), traditional IRA contribution (up to $6,000), or HSA contribution (up to $7,300) to reduce your taxable income as much as possible, which save a lot of money. If you get paid through 1099 or Corp-to-Corp through LLC, please consider SEPIRA or Self-employed 401k which you can contribute up to $61,000 and reduce your tax liability a lot. Also, consider depreciation expenses from your investment properties and try to hold your brokerage stocks for at least more than a year to take advantage of the long-term capital gain tax rate. If your taxable income is less than $80,000 under married filing jointly, I recommend you go for ROTH 401k / ROTH IRA contribution (since your current tax rate will be less than 12%) and it will save lot of taxes after your retirement.
If you trade too much (with a short-term focus), your taxes will be extremely high even if you make a lot of money from the stock market. Please calculate your after-tax stock market returns and make proper decisions.
Review the posted spreadsheet and you can see the impact of savings of $5,000 per year from your taxes. If you could save $5,000 per year from your taxes and invest in an index fund, you can accumulate around $400,000 over 30 years even with a 6% annual return.
It does not matter if you are under H1B, GC, or US Citizen or if you are planning to stay in the USA or go back to your native country, please implement these ideas to save money from IRS taxes.
Please reach out to me if you need any help or have any questions.