Tax-Free Income Opportunities Can Help Cache Valley Residents with Financial Burdens
You might have noticed that now isn’t exactly the best time for people’s finances. We’re all feeling the pinch due to inflation, shrinking job markets, and other issues that our elected leaders don’t seem to care about. No matter how much you try to stretch your cash, there’s always expenses you can’t avoid. Taxes especially can hit us in ways that hurt, so how about some tax-free income opportunities. According to Stapley Advisory and Accounting Services, there are a few options to try.
Six Sources of Tax-Free Income
Photo by Andrea Piacquadio
1. Roth IRA
IRAs, or Individual Retirement Arrangements are plans that let you make tax deferred investments that can give you some extra financial stability when you retire. Of the two most common IRA types, Roth and Traditional, Roth is the one that gives you the best outcomes, which naturally means the fact that the government puts bigger limits on how much you can invest in them. Take what you can get, though; tax-free income is tax-free income
What makes Roth IRAs so good is that your withdrawals from them are not taxed. It does require you to put money into them in the first place, but if you actually have the cash to spare, it’s a good investment for the future. Some employers will even offer to match your investments as a workplace benefit.
2. Profit From Home Sales
Did you know that a large chunk of the profit from selling your home can be excluded from your federal income taxes? There are some requirements to meet, such as it having been used as your primary residence, and owned it for at least two years during a five-year period prior to the sale date, but it’s not too onerous. As an unmarried resident, up to $250K, or $500K for a married couple, can be excluded from your federal taxes when you sell the home.
If you’re looking to sell a house in the future, check with an accountant to help set up plans to qualify for these tax-savings.
3. Capital Gains and Dividends
Again, there’s some eligibility requirements here, namely that your income has to be bellow a certain threshold. For single persons, that’s under around 47K per year, or married couples at 97K. If your income is below this, however, long-term capital gains taxes and dividend income can be taxed at 0%. It’s a surprisingly decent income level to be at and still be able to get 0% on any part of your taxes!
4. Small Business Stocks
Playing the stock market is always a bit of a gamble, especially if you’re the type to let the constant ups and downs scare you into jumping ship. That said, some stocks can qualify for tax-free income when sold at a profit. Keep in mind, this only applies to certain companies. They are classified as QSBC (Qualified Small Business Corporation) and you have to hold stock in them for at least 5 years. If you do, profits from the sale can be excluded from your federal income taxes.
5. Gifts and Inheritance
Under most circumstances, gifts or inheritance that you receive is tax-free income. Before you get too excited, though, keep in mind that this only applies to the value of the inheritance at the time you receive it. If it appreciates in value, such as improving real estate, earning rent from a property, or stock value increasing over time, you are taxed on the new value as a part of capital gains. Still, there can be a good amount of money in gifts and inheritance. When it comes to estate planning, an accountant can help you take advantage of this for your children.
6. Tax-Free Income from College Saving Accounts
You can also gain tax-free income from a college saving account. Certain sections of the current tax code allow earnings in such accounts to accumulate without being taxed. When the beneficiary of the account (usually your child or grandchild) reaches college age, they can withdraw that income without paying taxes on it to cover college expenses. Considering the massive costs of college tuition these days, that can be very helpful.
Tax-Free Income Takes Planning
You may have noticed the running theme of these options. The government doesn’t just give you tax-free income easily. It takes planning, often setting things up for your children rather than yourself. That said, all these options can be worth pursuing. They can give your or your family better financial stability in the future if you’re willing to sacrifice a little for yourself in the present. It may not take as much as you think, either.
All it takes is a little smart planning. Navigating the tax code can be difficult, but fortunately there are many accountants who specialize in this. If you want to get ahead, you should arrange a meeting with a financial planner to help you make use of the money you have now to benefit you more in the future. You’ll be glad you did.
