Hi, JJ Childers here. And today we are talking about steps to slash taxes!
The topic of tax reduction is a topic about which folks are quite curious, but also very nervous.
As an attorney, I’m very careful to assure people I only discuss completely legal strategies that our government itself has given us through tax law.
Using the law, let’s look at seven types of income and discuss why some are preferable to others.
Most people have EARNED INCOME. That’s what a paycheck is called. It’s taxed at regular income tax rates and is subject to FICA. In short, you’re
going to get hit hardest if all you have is earned income.
Now let’s talk about six other ways to earn income with lower tax consequences. Here they are in my preferred order:
Tax-free income: Yes, there are certain types of income that are totally tax free.
Deferred income: This is the same thing as an interest-free loan.
Long-term capital gains: Taxed at lower rates and not subject to FICA taxes. They are also not taxed until the investment is sold.
Rents and royalties: Taxed at regular income tax rates and not subject to FICA and expenses can be deducted from these before taxes
are figured.
Short-term capital gains: These are taxed at ordinary income rates and are not subject to FICA. You have the option of holding them for a long term period.
Interest and dividends: Taxed at regular income tax rates but not subject to FICA.
