How to make a $100k tax write-off on your investment fund
If you’re making $100,000 a year and you’ve inherited a large fund, then you can take advantage of the tax-free write-offs on the funds your parents and grandparents contributed to in order to reduce your tax bill.
But if you’re a student or in the middle of an investment journey, you may want to consider a different strategy.
You can write off your parents’ and grandparents’ investment contributions in the form of a tax-deferred annuity.
The IRS allows you to deduct the entire cost of the annuity up to $5,000, and it’s a tax shelter.
If you plan on investing for the rest of your life, this is the tax break you should consider, because the money is tax-deductible.
But even if you do choose to write off the money, you’ll still have to pay tax on it.
The tax-preferred way to do so is to deduct any amount over $5.00 from your taxes.
This method works because the annuitant will take the portion over $500.00 off your taxes if you have an adjusted gross income of $150,000 or more.
However, if you owe taxes on your first $150k of taxable income, you will still owe the remaining $50k in taxes.
So if you want to minimize your tax burden, you might want to take advantage for yourself by opting to write-up your contribution on a tax deferred annuity or annuity plan.
But the truth is, you don’t have to choose one or the other.
There are many tax-advantaged ways to offset your investment contributions.
In the first place, you can simply write off any unused investments you don´t need to pay taxes on, like stock investments and mutual funds.
You can also write-down any income that’s already taxed and defer all or part of your capital gains tax payments.
If you make $10,000 per year and own a $10k investment, you could write- off $2,500 in taxable income to offset the $5k of investment interest.
This way, your investment income is exempt from taxation.
The tax-exempt method is often the way to go.
If your tax bills are coming due, you have the option of deferring tax payments or deferring your income until you pay your bills.
You don’t need to write any checks or make any other payments, but you can defer payments for the next 5 years.
This option is also an option if your tax obligations are coming soon.
You could also write off unused investments for up to 10 years and have them taxed in perpetuity.
Lastly, you should check with your tax advisor before you make any investments to see if the tax deferral option is a good fit for you.
Tax advisors can also advise you on tax-saving strategies and how to choose the best method to offset investments you already have.
The more options you have, the better your chances of making the best decisions about what’s right for you, your family and your investments.