As an investor, you need to realize that your options for tax relief are limited to your income level and tax bracket.
The suitability of tax relief vehicles varies with the income level of each individual investor.
What may be appropriate for a high net worth individual may not be the right option for a person with an average income. With that being said, there are some general investment options to provide tax relief for the average investor.
Individual Retirement Account – An IRA is funded on a pretax basis, which is extremely beneficial while planning retirement savings. When investing through an IRA, you will be saving approximately 15%-35% of your income just by participating.
The money will not be taxed until distribution at retirement when most people will be at a significantly lower tax bracket. The owner of the IRA will also be able to enjoy years of tax free growth in the account in which their money can be compounded over and over again.
Municipal Bonds – This type of bond is issued by a city, local government, or their agencies. They are normally exempt from being taxed by the federal government as well as from the income tax of the state they are being issued in.
Additionally, they are often exempt from local taxes as well. To achieve this “triple tax exempt” status, you will need to be a resident of the state and local government where the bond is being issue.
These are just two examples of tax relief options for the average investor. It is highly recommended that you complete your due diligence to find out what options are best for you and your income level.
Visiting a licensed tax professional is recommended.
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