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Everyone wants to pay less in taxes — including the rich.
Steven M. Piascik, CPA, MT, founder and president of boutique CPA firm PIASCIK, says that the best way to minimize taxes is something anyone can do, no matter their net worth. "Tax minimization means documenting all your expenses that can be classified into deductible categories," he explains. "Everyone asks, 'How do you save? You document, document, document.'"
This is much easier when you employ the services of a qualified CPA, who keeps up with changes in the tax code and knows which might apply to you. "A lot of the responsibility falls on the behalf of the CPA," says Piascik, who specializes in tax minimization and complex tax strategies for high-net-worth individuals and corporations.
Below, he outlines seven strategies the accountants of high-net-worth individuals use to minimize tax bills — some common, some less so.
Be aware that not every strategy listed below works for everyone, and that it's smart to consult a professional to find out which might work for you, and how.
SEE ALSO: The 2 biggest financial planning mistakes rich people make are the same ones that plague us all
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They max out retirement accounts
One of the most common tax-minimization strategies high-net-worth people use is one to which people of all income levels have access: contributing the maximum amount to their retirement accounts.
In fact, it's so simple that Piascik says people miss it all the time. "Why aren't high-net-worth individuals maxing out a 401(k) from their employer? If they're self-employed, does the situation leave them open to defined-benefit or defined-contribution plans? Both are qualified retirement plans."
With qualified retirement plans come tax benefits. Plans like the employer-sponsored 401(k) (limit $18,000 for 2015/2016) are funded with "pre-tax" dollars that decrease your taxable income. Contributions to plans like the SEP IRA — for self-employed workers and small-business owners, limit $53,000 or 25% of compensation — and the traditional IRA, limit $5,500, are tax-deductible.
The more you can save for retirement in qualified retirement plans, the bigger tax benefit you'll see.
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They use cost-segregation studies to accelerate depreciation on assets
On the IRS website, depreciation is explained as following:
Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property.
Most types of tangible property (except, land), such as buildings, machinery, vehicles, furniture, and equipment are depreciable. Likewise, certain intangible property, such as patents, copyrights, and computer software is depreciable.
To determine, and accelerate, depreciation so taxpayers can get the deductions today instead of 20 years down the road, taxpayers can undergo what's called a "cost-segregation study," which divides assets into their respective categories and assigns the appropriate deductions.
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They take advantage of major tax deductions for their businesses
According to the Rich Habits Institute, 85%-88% of American millionaires are self-made. One way they earn their fortunes? Owning their own businesses.
Business owners may be able to take advantage of Section 179 of the tax code, which allows companies to deduct up to $500,000 in assets for the fiscal year. Plus, a measure called "bonus depreciation" allows business owners to depreciate 50% of the cost of equipment purchased and used. It will apply through 2017, and then depreciate 40% of that cost in 2018 and 30% in 2019.
"That's a big plus because you're lowering taxable income by picking up big deductions," Piascik says. "But be careful: They have new tangible-property regulations that are in effect, and they're very detailed. But boom, there's a half-million we can save right now, plus more with the 50% bonus depreciation."
Another one that applies to small and midsize business owners who export goods outside the US is called the Interest-Charge Domestic International Sales Corporation (IC-DISC). This measure allows those who qualify to have the tax on half the money they earn from exports reduced by more than 50%, meaning the company isn't taxed on a large part of its profits.
See the rest of the story at Business Insider