Smart moves to make to increase your wealth

Smart moves to make to increase your wealthAt the start of this past week, a charity auction to have lunch with Warren Buffet was won by a bid of $ 3,300,100. This annual lunch with Mr. Buffet has helped the Glide Foundation for the past few years. The Glide Foundation is known for supplying necessities to the homeless in San Francisco.

Under normal circumstances, splashing $3 million on lunch may not be an indicator that you are looking to seek a tax break; but in this case, the highest bidder, who chose to remain anonymous, does qualify. This article highlights ways through which the new tax reform benefits those who make similar moves.

This article will also show you how you can earn more on your money via different investments. The changes in market conditions have brought about changes in expectations as well as different rates. Long-term rates have risen slightly, which is appealing to many investors, but at the same time devalue the older, lower-yielding bonds and securities. Inflation has also shown a rising potential, which could prove to be another threat.

Benefits from the Tax reform

  1. Bunching:

As per the new tax rules, bundling your year’s donations into one large donation is tax deductible. This means that if you pay $3000, $2000 and $5700 as charity at different time intervals, it is now better to give the total $10,700 at once in order to realize the new tax advantages.

  1. Increased Contribution Limits

As per the initial tax law, you could only count charitable deductions up to a limit of 50% of your taxable income. However, as per the new laws, this has been increased to 60%. Thus, the anonymous bidder has cleverly realized a huge tax advantage. For the rest of us, this can assure us that bundling is not a bad idea since the limit has also been increased.

  1. No more Pease Limits

Under the new tax laws, lots of deductions under schedule a, which were considered as very useful for most taxpayers have been removed, thus increasing the amount of tax required to be paid. Due to Pease limits however, charitable deductions were not removed. This means that via bundling more donations together, you can take advantage of tax deductions in order to compensate for the lack of deductions in other aspects.

  1. Record keeping rules remain intact

As per the tax rules, purchasing an item at a charity auction can be claimed for tax deduction as against the difference between the auction price, and its fair market value. Therefore, the anonymous lunch date that Mr. Buffet will meet can boast a significant tax deduction considering that the restaurant bill will not be anywhere near the $3 million.

Earn mobre via investments

  1. Short-Term Accounts

US Treasury bills and other short-term assets are showing the potential to be 1.25 points higher by 2019. As they are short term, there is little to no risk on such investments, but then of course, the returns aren’t very large either. Recommended short-term investments are money-market deposit accounts at banks, which can pay as high as 1.8%.

  1. Municipal bonds

The interest on these bonds is tax-exempt, and their yield according to Bloomberg is 2.5% this year, which is higher than what it was last September. Being government bonds, municipal bonds are considered default free, but according to one study, slowed US government revenues should be a worrying factor for municipal bond investors, who need to look for better quality investments.

  1. Investment Grade Bonds

These are high-quality bonds from a fixed income portfolio, generally issued by government agencies and financially stable companies. Thus they have low default risk. Since 2016, the 10 year Treasury note yield has risen to almost 3%. However, being a fixed income yield, its worth is very sensitive to inflation.

  1. Dividend Stocks

Let’s take a step out from the world of debt and let’s consider equity. This would help you generate regular income. You may choose between preferred stocks and common stock in this case. Preferred stockholders are liable to higher fixed dividends and profit share. On the other hand common stock is a more long-term investment giving you voting rights. The common stocks of gas, water and electricity companies have long been high yielding favorites of investors.

  1. Closed-End Funds

These have a set number of shares to be purchased at the start as opposed to open-ended funds. The Fund managers then use these funds to invest in stocks and bonds depending on the fund’s policies. The value of these shares would then depend on the performance of the Fund’s assets.

Conclusion

According to the tax reforms this year, you can save money by enabling yourself to have a right to tax deductions on account of large charities that you have made. This may be crucial especially considering the tax deductions in section a have been slashed out. Additionally, you can also increase your wealth by various investment methods explained above.