Speaker 1: It is very hard to build lasting wealth when you are giving literally half of your income away to Uncle Sam every single year. Like, you literally have to fight to keep your hard-earned money. It's like when you have low income, you have to fight to earn more money to build wealth. And then when you finally earn more income, you have to fight taxes to keep more of what you earn. It's a never-ending battle. But fortunately, there is a way you can do both. You can build wealth and reduce your taxes at the same time. The ultra-wealthy understand this and are able to pay almost 0% of their income in taxes. But you don't have to be ultra-wealthy to actually accomplish this. You just need to understand tax-deductible investments. Or in other words, investments that can reduce your taxes. That's what this episode is all about. I am going to give you the top 7 tax-deductible investments that you can make to reduce your taxes while building your wealth. My name is Sherman, the CPA, and I coach people on the best ways to do this every single day at MyCPACoach.com. I have helped people reduce their taxes by over 6 figures by simply moving their money to some of the investments you are going to learn in this video. So go ahead and save this video, comment below if you have any questions, and make sure you subscribe for more guidance to less stress and lower taxes. All right, so as we go through this, remember, your tax is based on your income. But when you make tax-deductible investments, you are pushing income off of your tax return. Tax deductions reduce the income reported on your return, which in turn reduces your tax bill. These tax deductions exist to incentivize people to make certain investments, and all you need to know is what those investments are. So we are going to start with various investment accounts that you can simply transfer money to and receive a tax deduction in return. Then we will take it a step further and talk about specific types of assets you can invest in to receive very large tax deductions, which we'll cover in detail later in this video. So let's go ahead and jump in. Number one, the traditional IRA. An IRA simply stands for Individual Retirement Account. Literally anyone can set this up at a brokerage like Fidelity, Vanguard, TD Ameritrade, and so on. This does not have to be done through a job, employer, or your business. So here's how it works. You can contribute up to about $7,000 to a traditional IRA, and when you do this, you will receive a tax deduction in return. And this is per person. If you have a spouse, you can get another $7,000 in. And you can even set this up for your kids and get another $7,000 in per child. So if you're paying 40% of your income in taxes, you would save 40% of your IRA contributions in taxes. Then inside this account, you can invest in various assets like stocks, bonds, CDs, and other assets to build wealth up, up until you retire. And as those investments grow in value, you pay no tax on it. You only pay tax on withdrawals from this account, which you can start taking once you turn about 59 and a half. But if you are in a very high tax bracket today and expect to be in a low tax bracket at retirement, you will typically end up paying much less in taxes as a result of using this account. Number two, traditional 401k. Now, a 401k is very similar to an IRA, except a 401k is set up through a business and have much higher contribution limits, which also means greater tax deductions and lower taxes. You can take advantage of a 401k plan through your employer or even better, you can set this up through your business or side gig for even more tax benefits. So here's how a traditional 401k works. As an employee, you can contribute about $23,000 of your wages to a traditional 401k account. And when you do this, you create a $23,000 tax deduction. And if you are self-employed, you can make another tax deductible contribution from your business, which can be up to $69,000. That's a $69,000 tax write off, which is almost 10 times the contribution limit of a traditional IRA. Also, keep in mind that you can take advantage of both a traditional IRA and a 401k at the same time. So if you maximize both of these accounts, you would create a $77,000 tax deduction. Don't forget, you can also do the same thing for your spouse and get twice as much in, which would be $154,000 in one tax year. This is money that you are not being taxed on. And then you can invest it to grow your wealth at a much faster rate than you would with after tax dollars. Now, there are rules to how these contributions work, and I have a separate video that addresses this. So be sure to subscribe to learn more. Number three, health savings accounts. A health savings account is another account where you receive a tax deduction in exchange for your contributions. But unlike retirement accounts, you can actually spend the money in this account on health expenses you already pay for, like gym memberships, massages, chiropractic care, doctor visits, and so much more. So this is how it works. You can contribute anywhere from $4,000 to $8,000 to an HSA depending on your filing status. When you do this, three things happen. Number one, you will get a tax deduction for the amount you contribute to your HSA. Number two, you can invest your HSA funds into assets like stocks or bonds. And number three, you can spend your HSA funds on qualified health expenses. If you use your HSA correctly, you can effectively never pay tax on the money you contribute to the account. So if you already pay for health expenses, this is a no-brainer. You would effectively be getting a tax deduction for those expenses if you simply use your HSA to pay for it. All right, let's talk about one more type of account. Number four, donor-advised funds. So if you already give money to charities, then you can supercharge your charitable tax deductions by investing money into a donor-advised fund. Now, a donor-advised fund is basically like a savings account to fund your future charitable giving. And you can easily set something like this up at Fidelity. So here is how it works. In general, when you give money to any charity, you receive a tax deduction in the year the charity actually received your donation. But when you move money to a donor-advised fund, you receive an immediate tax deduction based on your contribution, not necessarily when the charity receives it. So in essence, you could contribute a large lump sum of money into a donor-advised fund to create a massive tax deduction in one given year. And then you could give the money to charities over whichever period of time you would like, whether that be five years, 10 years, 15 years, or however many years. But in addition to that, you can invest the funds in the account to grow the balance over that period of time. But keep in mind that because this is a charitable account, the money must eventually go to charities. You cannot use the funds for any other purpose. All right, so the easy stuff is out of the way now. We've covered some account structures that will give you a deduction for simply contributing money to it. Now let's get into some specific assets that provide very large tax deductions. Number five, small business. So not only is owning a small business one of the fastest ways to build wealth, but it is also one of the best ways to reduce your taxes. This is because business owners pay taxes after deducting all of their expenses, whereas most people pay taxes first and use the remaining money to pay the rest of their expenses. But by deducting expenses first, business owners are able to report less income and consequently pay much less in taxes. The tax law allows business owners to write off almost anything as long as the expense has a business purpose. You can write off a portion of your mortgage, your rent, utilities, vehicles, food, health expenses, travel, and so many other expenses as long as there is a business purpose associated with it. Plus, the tax law allows you to write off expenses incurred to start and grow your business. The IRS allows you to write off startup costs, advertising expenses, research and development costs, and so much more. These tax deductions alone can result in tens of thousands of dollars in tax savings. Number six, real estate investments. Real estate is widely known as one of the best tax shelters in the world. So first of all, when you purchase investment property, you are effectively creating a business which gives you the ability to write off most of your expenses. But not only that, you can also write off depreciation, which is a non-cash expense that does not cost you any money out of your pocket. Now, this deduction is so valuable that it typically wipes out most of the rental income reported on a tax return, resulting in little to no taxes paid on rental income. But in addition to that, you can accelerate depreciation to trigger a deduction so large that it offsets other income on your tax return if you meet certain criteria. And that's just one deduction. Real estate investors can also deduct their mortgage interest, property taxes, insurance premiums, utility expenses, repairs, and virtually any other expense incurred to conduct their real estate business. Because of this, it is very common for high income individuals to incorporate real estate into their long term wealth strategy. Number seven, oil and gas investments. This is one that has very large tax benefits that is not talked about enough. You can invest money into an oil and gas company and deduct 65 to 85 percent of your investment in year one. Oil and gas is used in so many ways on a daily basis, from fueling our vehicles to heating our homes. And when you make an investment into an oil and gas company, you get two huge tax benefits. Number one, similar to real estate, oil and gas companies are able to take very large amounts of depreciation, which in turn creates a massive tax deduction. And then number two, this tax deduction can be used to offset other income on your tax return. And in some ways, the tax benefits of oil and gas are better than real estate. In order for you to use real estate losses to offset other income on your tax return, you have to be highly involved in the day to day operations and then meet very specific requirements. Whereas with oil and gas investments, you do not have to be involved in the day to day operations and you do not have to meet specific requirements in order for those losses to offset other income on your tax return. Anyway, be sure to subscribe to our channel to learn more ways to reduce your taxes. And if you want a tax plan that is guaranteed to reduce your taxes by thousands of dollars, go to my CPA coach dot com right now to talk to a tax professional ASAP. Transcribed by https://otter.ai