Shielding Your Income

January 20, 1961 John F. Kennedy said, “Ask not what your country can do for you, but what you can do for your country.  As I sat and watched his speech with my parents, this statement really resonated with me and has stuck with me over the years.  The median average age in America is 35 and they don’t remember this speech, but the baby boomers should remember.  What we all should remember is the financial crisis.  I think a lot of us began to wake up in 2009-2010 during the financial crisis.  Corporate America got it’s cover blown and our government became very transparent.  People really began to realize that John F. Kennedy’s statement was a true fact.  The government is not going to be there for you and it is time to make your own future.

Making investments for yourself and saving on your taxes is crucial these days.  We need to be working toward ownership of some assets and home based businesses to have deductions on our return every year.  Buying a home is an asset that can truly take you a long way.  Not only is the mortgage interest tax deductible, but you can use it a a business deduction even if you have paid your home off.  Starting your own business is another avenue that will yield you a lot of benefits.  Your home based business will allow you to deduct mortgage interest, cellphone and internet expenses, part of your utilities (if you have a bathroom in your home office you can also include part of your water bill), meals & entertainment and travel. If you can make your monthly expenses in a home based business, start paying off your debt, protect yourself and your family through insurance and save 3 to 6 months emergency money you are ready to start investing.

For beginners I suggest starting with a Certificate of Deposit (CD) account.  A CD account pays a higher interest rate than a regular savings account.  After you have got 3 to 6 months emergency money saved you can graduate to building interest.  I recommend CD’s in the beginning because you and your bank can choose your investment time and what to do with the interest.  If you can or when you can, set your CD’s in different month cycles (3 months, 6 months, 9 months & 12 months)  if for some reason you need extra money you have money that is coming available.  Withdrawing a CD before maturity will be penalized by your bank.  So try your best to wait it out.  Defer the interest on your CD’s with a pre-tax retirement arrangement.  If you are in the median age range you can transfer up to $5,000 a year in a a Traditional IRA and use the interest as an adjustment to your income which lowers the amount of income you pay taxes on.  If you accumulate more than $5,000 in interest in a year then start building a Roth IRA.  If you are 50 years of age or older it is best to start with a Roth IRA.  What is the difference?  With the Traditional IRA your interest makes compounded interest that you don’t pay taxes on until you withdraw money.  With the Roth IRA there are no immediate tax benefits, but you can withdraw your interest without a tax penalty.  It is counted as income though.  There are a number of ways to shield your income from being taxed in a higher tax bracket.  I will be writing more about other ways as time goes by.  I invite you to leave a comment or a question.  This helps me write about what you really want to read.



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s