Today, many Americans earn enough to qualify for the highest taxes.
Lately estimatesroughly one-fifth of households earn an annual income of greater than $250,000, making the majority of them 35% federal tax bracket. State and local fees take up one other large share, especially in high-tax locations like California and New York.
Of course, making enough money to face higher taxes is not the worst problem. But provided that the tax code also provides countless ways to reduce expenses, it is not surprising that as people climb the income ladder, they often change into more vigilant about employing these strategies.
Enter startups. Over the past few years, we have seen a regular influx of enterprise investments into corporations offering services aimed at reducing tax liabilities. Of particular interest are startups that use artificial intelligence to automate some of the historically more complex and cumbersome tax-saving strategies.
Several funded corporations focus on savings accounts and portfolio strategies. Others optimize tax planning for specific profession types, including solopreneurs, doctors and startup founders. Below are the 11 corporations funded in each categories.
Keep more of what you do
Generally speaking, startups promote the concept that with relatively low-cost and effortless modifications to your portfolio and record-keeping, it’s possible to keep more of your earnings out of presidency coffers.
“I want to remind our members that it’s not what you do that counts. This is what you keep,” said Samita Malik, the company’s chief insurance officer The art of financea wealth management startup focusing on tax-advantaged investing. This is a maxim that applies to each income and capital gains, he adds.
Over the last few years, with the rise of automation, we have seen the increasing availability of certain investment strategies that were previously available mainly to the very wealthy. Fees and minimum account sizes have also dropped, allowing more investors to participate.
Direct indexing
One area that startups struggle with is direct index investing. This is a strategy modeled after the ever-popular index fund, in which returns are tied to the performance of a major stock index reminiscent of the S&P 500.
However, a characteristic feature of direct indexing is that as a substitute of owning an index fund, investors actually own shares of each of the corporations included in it. This implies that for tax reasons, even if the overall index increases, investors have the opportunity to generate losses in their portfolio by selling underperforming corporations included in it. These losses can offset gains elsewhere, reducing your tax liability.
Based in San Francisco Frequencywhich raised $26 million in Series A funding a 12 months ago, is probably the closest thing to a startup operating exclusively in this field. The company offers direct index investments for several indices. Meanwhile, Arta and other asset and wealth management platforms offer direct indexes as one of their investment options.
Other goal areas
Other areas of tax savings that startups are targeting include:
HSA: For Americans with high-deductible health plans, health savings accounts allow you to contribute pre-tax money to the account, accumulate potential profits tax-free and make withdrawals to cover medical expenses without paying taxes. This is increasingly an option offered by wealth management start-ups.
Education Savings Accounts: Education savings accounts, otherwise referred to as 529 plans, offer a way to get monetary savings for education-related expenses with the opportunity to earn earnings and withdrawals on investments tax-free. One of the startups focused on this area is Followerwhich has so far raised over $18 million for a platform that creates funds for universities and encourages donations.
Other charitable funds: For people planning to make charitable contributions, one tax-saving method that is becoming more widely available is a charitable trust. These funds allow you to transfer precious assets reminiscent of shares. This allows the donor to avoid liquidation of the estate and potential tax on profits. Among the startups, one proposed it victim Is Valuea company focusing on tax saving strategies for investors and entrepreneurs.
Freelancers and professionals
In recent quarters, we have also seen startups raise funds with offers targeted at specific skilled categories reminiscent of freelancers, doctors and founders.
One of them is based in San Francisco Financial Lettucefocusing on sole proprietors, with the promise of tax automation and maximizing savings. In a similar vein, based in New York Done offers expense tracking and tax filing services for freelancers.
Meanwhile in medicine Acquired wealth raised $200 million this summer to expand its platform offering tax planning and investment advice to professionals.
There’s a big market for these things
As startups offering tax-mitigation services scale up, execution moderately than demand will likely determine who will likely be most successful.
After all, most of us would love to use easy-to-use and reasonably priced tools to reduce our legal tax burden. If startups and artificial intelligence can cope with this task, there will definitely be a large group of willing consumers.