Earning a six-figure income is the goal for many in terms of financial success. But today, many high-income earners in the $100,000 to $200,000 range are finding that their Income don’t stretch as far as it once did. If you're in this income bracket and still feeling financial pressure, you're not alone. Here are 5 reasons on why and what you can do to be prepared for the upcoming tax season.
1. Inflation and Rising Costs
The cost of living, particularly in metropolitan areas, has soared over the past decade. Housing, healthcare, childcare, and education costs have all risen significantly, eroding the purchasing power of high incomes. What may have been a comfortable salary 5 years ago may now feel tight when facing today's higher expenses.
2. Lifestyle Inflation
As income increases, so do expectations. Many high earners fall into the trap of lifestyle inflation—upgrading homes, cars, and spending on luxury experiences. This leads to increased expenses that match or even exceed your income, leaving you feeling financially strapped despite a higher salary.
3. Taxation
According to the IRS for 2024 if your income is between $100,000 and $200,000 your Tax Rate for your 2024 Tax filing is 24% to 32%.
What Can You Do About It?
4. Reevaluate Your Expenses
Take a hard look at your spending habits. Are there areas where you can cut back? Trimming discretionary spending, such as dining out or subscription services, can free up funds for more goals, like investing or saving.
5. Maximize Tax Deductions
As a W-2 employee, you may want to make sure all your taxes are being properly withheld from your paycheck to avoid surprises during tax season. Also, get ahead by understanding what tax credits and deductions you qualify for. For example, child tax credits, education credits, and energy-efficient home improvements can provide relief, but you need to plan for them throughout the year.
If you are self-employed or own a business, working with a tax advisor can help you uncover all eligible deductions. From home office expenses to vehicle write-offs, there are numerous deductions you may be entitled to but unaware of. Additionally, you might consider timing certain purchases for the 2024 business cycle. Buying necessary equipment or supplies before the end of the year can help lower your taxable income for the year and set you up for growth in 2025.
Make your money work for you and get ready for the upcoming Tax Filing Season. Schedule an appointment and Speak with a Tax Advisor to create a long-term tax strategy to help lower future taxes owed and deep dive in what credits and deductions that can help you the most.
Michelle Williams, IRS Enrolled Agent, provides tax planning and financial consultation services. Visit chimeinconsults.com to learn more.
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