More Startups Are Working On Lowering Your Taxes

Today, many Americans earn enough to qualify for the highest taxes.

every recent estimateabout one in five households earns more than $250,000 a year, with most households in the 35th percentile federal tax bracket. State and local taxes again account for a large portion, especially in high-tax areas like California and New York.

Of course, making enough money to cope with higher taxes isn’t the worst problem. But given that the tax code also provides a variety of ways to spend less, it’s not surprising that as people move up the income ladder, they tend to be more wary of using these strategies.

Enter startups. Over the past few years, we have seen a steady flow of venture capital investment into companies that provide services designed to reduce tax liability. There is particular interest in startups using artificial intelligence to automate some of the more historically complex and cumbersome tax-saving strategies.

Several funded companies specialize in tax-efficient accounts and portfolio strategies. Others are optimizing tax planning for specific types of professions, including solopreneurs, doctors and startup founders. Below, we focus on the 11 funded companies in these two categories.

Keep more of what you do

Overall, the idea promoted by startups is that by making some relatively low-cost, low-effort tweaks to investment portfolios and record-keeping, it might be possible to keep more revenue in government coffers.

“One thing I like to remind our members is that it’s not what you create. It’s what you keep,” said Samita Malik, director of insurance at the insurance company. The Art of Financea wealth management startup focused on tax-advantaged investments. This is a maxim that applies to both income and capital gains, she adds.

Over the past few years, with the rise of automation, we have seen the wider adoption of some investment strategies that were previously primarily the purview of the wealthy. Fees and minimum account sizes have also been reduced, allowing more investors to participate.

direct index

One area that new startups are tackling is direct index investing. It’s a strategy that mimics the popular index funds, in which returns are tied to the performance of major stock indexes, such as the S&P 500.

However, the difference with direct indexing is that investors actually own shares of each constituent company rather than owning an index fund. This means that, for tax purposes, investors may choose to incur losses on their portfolios by selling worse-performing constituent companies, even if the overall index rises. These losses can offset gains elsewhere, thereby reducing tax liability.

Headquartered in San Francisco frequencyThe company, which raised $26 million in Series A funding a year ago, may be the closest thing to a pure-play startup in the space. The company provides direct index investing into more than a dozen indices. Meanwhile, Arta and other asset and wealth management platforms offer direct indexing as one of their investment options.

Other target areas

Other tax-saving areas targeted by startups include:

HSA: For Americans with high-deductible health plans, health savings accounts allow people to put pre-tax money into the account, accumulate potential tax-free gains, and withdraw money for medical expenses without paying taxes. This is increasingly becoming a choice Wealth management startups is being provided.

Education Savings Account: Education savings accounts, also known as 529 plans, offer a way to save for education-related expenses with the possibility of tax-free investment gains and withdrawals. One of the new startups focusing on this area is supporterTo date, the platform has raised more than $18 million to build college funds and encourage donations.

Charitable Remainder Trust: Charitable remainder trusts are an increasingly common tax-saving method for those planning charitable contributions. These trusts allow people to donate appreciated assets, such as stocks. This allows the giver to avoid liquidating the assets and avoiding possible taxes on the gains. Among the new startups, one proposed this dedication yes valuea company focused on providing tax-saving strategies to investors and entrepreneurs.

Freelance workers and professionals

We’ve also seen startups raise funds in recent quarters for products targeting specific job categories such as freelancers, doctors, and founders.

One of them is located in San Francisco Lettuce Financefocused on individual entrepreneurs, promises to automate taxes and maximize savings. Likewise, New York-based work production Expense tracking and tax preparation services for freelance workers.

At the same time, in the medical field, earn wealth This summer it raised $200 million to grow its platform that provides tax planning and investment advice to professionals.

There is a big market for this thing

As the number of new startups offering tax-cutting services continues to grow, it may be execution rather than demand that determines who is most successful.

After all, most of us would welcome easy-to-use, inexpensive tools to reduce our legal tax burden. If startups and artificial intelligence can contribute in this regard, there will surely be a large number of willing consumers.

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Illustration: Dom Guzman