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Let’s get into it and talk about the ‘T’ word–these taxes:
As an employee or contractor, the most common taxes you have to pay are federal taxes, state taxes, social security and medicare. As an employee you typically don’t have to worry about sending a paycheck for these taxes because as a W2 employee your employer deducts these taxes from your paycheck and pays them on your behalf.
*I remember as a intern, I got my first big check and was wondering who is FICA, and why is she taking my money? Oh it’s the Federal Insurance Contributions Act, for SS & Medicare. Oh, ok well SS better be here when I retire.*
Now let’s talk about how to *legally* pay less of these taxes:
Contributing to a traditional retirement account such as a 401(k) will reduce your overall tax liability.
If you’re self-employed, I didn’t forget about you. There are special retirement accounts just for you that reduce the tax bill like SEP IRA, SIMPLE IRA, or a Solo 401(k).
A final tip– make sure you withhold enough taxes via your W4 or a tax bill awaits you come tax time.
You’re at the early stages of your career, so you have a headstart on your finances and a chance to do it right. If you’re not sure what to do next, consider hitting up a tax professional for help. The future you will thank you for it!
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Rianka R. Dorsainvil, CFP®️ is the Co-Founder and Co-CEO of 2050 Wealth Partners a virtual, fee-only comprehensive financial planning firm dedicated to serving first-generation wealth-builders, entrepreneurs, and thriving professionals. Rianka also hosts 2050 TrailBlazers, a podcast aimed to address the lack of diversity in the financial planning profession by engaging industry experts and leaders in conversation.
As an award winning successful, millennial Certified Financial Planner professional, Rianka offers a unique perspective not only on the current state of the financial service industry, but on how to stay relevant in an ever-changing world.
Rianka serves as a member of CNBC’s Digital Financial Advisor Council and CFP Board’s Diversity Advisory Group, is a Forbes Personal Finance Contributor, and has been recognized for her accomplishments and leadership within the industry by leading publications and organizations such as Investment News’ inaugural 2017 Women to Watch Rising Star and Wealth Management’s Ten to Watch in 2018. She has been published in PBS NewsHour, Forbes, USA Today, Black Enterprise, CNBC, Women’s Health, and more.