The idea of having a Swiss bank account to hide your assets from Uncle Sam is no more. Wegelin & Co., Switzerland’s oldest bank, plead guilty to helping more than 100 U.S. taxpayers hide assets from the IRS. Wegelin will pay $74 million in fines, while three of their bankers remain at large after being charged criminally. UBS, Switzerland’s other global banking giant, paid $780 million in fines and restitution in 2009 after a similar investigation by the U.S. Justice Department. Americans must find new ways to lower their tax burdens, as rates soared for just about everyone in 2013. Here are three ways Americans of every income level can significantly reduce their tax bill legally, and secure their futures at the same time.
Buy Gold and Silver
The first thing many people do when they decide to buy gold or silver is call a broker and invest in exchange-traded funds (stocks). However, there are about 100 “paper ounces” of gold and silver for every existing physical ounce, suggests the CPM Group, a commodities research company. The best way to invest in precious metals is to buy the physical bullion. US Money Reserve and other dealers sell gold and silver bars and coins at real-time prices based on market fluctuations. The prices of both metals have skyrocketed over the past decade, with silver’s value growing tenfold. Not only does buying the physical bullion give you complete control of your investment, but precious metals are exempt from any and all capital gain taxes. 26 U.S.C. 408(m)(B) grants this exception only if the metals are in your physical possession; thus one more reason to buy bullion as opposed to stocks.
Utilize Your 401K or IRA
These accounts are not only great for retirement planning, but can save you thousands in taxes. Most medium and large companies offer employees the option to contribute to a 401(K) or 403(b) plan. All dollars you contribute are pre-taxed, or deposited before any taxes are deducted. Thus, the amount of total taxes you pay is ultimately reduced because your total taxable income for the year you make, the contributions are reduced. Further, any gains made on your contributions due to positive market conditions are also tax-deferred. No taxes become due on these accounts until you retire or you make a withdrawal. Many companies offer matching contributions up to a certain percentage, which grows each year you remain employed. A Roth 401(k) plan has a front-loaded tax liability, meaning you pay no taxes upon retirement or when withdrawals are made. The fiscal cliff deal brokered by Congress and the White House allows investors to convert their regular 401(k) to a Roth 401(k). All future gains are exempt from taxes.
Keep Receipts for Gains and Losses
Though gamblers are notoriously bad with money, most do not realize their big win could be tax-free if they had simply kept receipts throughout the year. Everything that can potentially be taxed in America can be offset by losses. For instance, if you had a stock that has gained several points, you can sell it and obtain the profits. At the same time, you can sell an investment property that has lost value and offset the gains you made from your stocks. There are, however, wash sale rules that you should familiarize yourself with, especially when trying to buy the same stocks you just sold at a loss.
