There are actually 2 tax strategies in this blog. Which is right for you? It depends a little bit on where you are right now.
#1: You are a W-2 wage earner. You don’t have a business or real estate investments.
Note that I said REAL ESTATE investments. You could investment in cryptocurrencies, but you’ll find there aren’t any tax advantages unless you have a business mining them. If you do, then you have a business.
If we had a conversation about what you could do right now to pay less tax, I’d tell you to start a business. I’ve been talking about this for years, but it’s never been more important. 2018 will be known as the year that employees got hosed. If you don’t make a change in how you make your income (going from employee to owner), you will pay a lot more taxes.
#2: You have a business, but are just getting going. Watch your total taxable income, the definition of your business (service based or product based) and the requirements for paid wage limitations under the new Tax Cuts and Job Act.
If your income is under the 2018 taxable income threshold, you can get a 20% income reduction. If you’re over the threshold, you need to look at whether you have a service business or a product based business. If you have a service based business, increase the limit $100K if you’re married filing jointly or $50K if you’re single to come up with a second income threshold of $415K or $207.5K. Between the first threshold ($315K/$157.5K) and the second ($415K/$207.5K), the amount you can write off is phased out. You’re also subject to a limitation of 50% of W-2 wages paid or 25% of W-2 wages paid plus 2.5% of depreciable assets. Over the second threshold, and your service business doesn’t get any deduction.
Your product business has just the first income threshold to watch. After that you’re subject to the wage limitation (50% of W-2 wages paid or 25% of W-2 wagespaid + 2.5% of depreciable assets.). It never phases out, though.
The best strategy, if at all possible, is to get your income below the income threshold
Track how much your taxable income you will have before the end of the year, so you have time to plan on how to reduce it if you need to get below the threshold.