Take Control of Your Taxes
As everyone in the U.S. knows, we have just passed one of our most "favorite" times of the year: income tax season. If you are going to create and sustain wealth, it is inevitable that you will have to address your personal tax situation.
By "address," what I really mean is take control. This is true whether you live in the U.S. or just about any other country. Agree or disagree with the "fairness" of taxes, this is a subject that you must obtain some basic understanding if you want to significantly increase your wealth.
Before I start, let me say that I am certainly not a tax expert. And space does not permit going into detailed tax strategy. The purpose of this article is to explain why it is so important for you to take up the study of basic tax law and strategies, and even more important seek out the advice of a true tax expert.
Why is it important to understand taxes?
In most cases, taxes are your largest expense. This is probably the key reason that wealthy people spend so much time, effort, and money doing their best to minimize their tax expense. Depending on your tax bracket, your federal taxes may be as high as 28%-35% of your income! And then there are social security, state income taxes, property taxes, sales taxes, etc., etc. If you are generating all of your income from your wages (earned income), you may be lucky to actually keep 50% of what you really earn.
That is a staggering figure when you think about it. That means that if you have a salary of $50,000, you may be only keeping $25,000 of your earnings for your own purposes.
If you think I am exaggerating, pull out your last paycheck and look at the tax withholdings for taxes that have been taken off the top of your earnings. If you take your net earnings and divide them by the gross earnings, what is that percentage? Don't be shocked if it isn't about 40%. Then take a look at your sales taxes. In California, the sale tax is around 8.25%. So just doing a quick estimate, I'm already at about 48% in tax expense (assuming most of the money is spent on taxable items).
The cost of ignoring your tax expense and not doing everything legally possible to minimize it is huge. Of course, tax law can be exceedingly complex, and the penalties of making a mistake are high. So a large number of people, simply accept this large tax expense as inevitable. They concede defeat without really even trying to take any type of action to minimize the impact.
What are some actions that you can take?
1) Recognize that you can take action to reduce your tax expense. Too many people blindly assume that it is impossible to significantly reduce their tax expense. Either they think it is too complicated, too much trouble, or they are afraid that if they take deductions that are legitimate, that the government will come after them. If you assume there is nothing you can do (learned helplessness), you are right. If you assume you can improve your tax position, you're right. The fact is that while you must pay your legal share of taxes, the government actually wants you to take advantage of tax deductions and credits. That's why the laws were passed to allow for them.
2) Make a commitment to study basic tax law so that you have at least enough knowledge to speak with a tax advisor with a certain degree of intelligence. You can't take deductions that you are not aware of. Because of the potential savings, the study of tax law needs to be a fundamental part of your financial literacy education. Your two highest priorities must be to create wealth in the most efficient manner and protect it. And any protection strategy must include protecting it from over taxation. Don't just limit your study to books. Also seek out college classes, night-school, and seminars. But be careful of seminars as they can be a lot more expensive and not as thorough as a class from a community college.
3) Seek out a CPA and/or Certified Financial Planner to come up with a long range plan to minimize your taxes and increase your wealth. Start with the most experienced person you can afford and plan to pay for even more expert advice as your wealth increases. Ultimately, it will probably be less expensive to pay for outstanding advice than to over pay on your taxes. If you wait until tax time to come up with your plan, you have waited too long.
4) If you haven't already, start keeping detailed financial records. This is a good habit to get into even if you don't yet have a business. If you keep detailed records (using a computer program!) as you go through the year, it makes it much easier to turn over your records to your tax preparer when tax time comes.
5) When you record your income from your paycheck, be certain to record all deductions taken from your check. Don't just record the net. If you actively track your tax expenses deducted from the top of your wages, you will be more motivated to do everything possible to legitimately reduce that expense. If you simply record the net wages, you have probably fallen prey to the tax trap without a fight.
6) If you are an employee, make certain you are taking full advantage of your 401k and medical flex spending plan if available. Money set aside for your 401k (usually matched by your employer) helps reduce your taxable income. You have to pay taxes eventually, but hopefully by the time that happens you will be in a lower tax bracket. Medical flex spending plans help you pay for medical costs (including over-the-counter medicines, dental work, glasses, etc.) using pre-tax dollars. Flex spending plans are also available for child day care.
7) As soon as possible, replace your income from wages with income from your own business and unearned income from investments. Of course, this is easier said than done, but the benefits are huge. If your income comes from a business that you own, it's much easier to pay for expenses with pre-tax dollars. Obviously, you have to have a real business (not just a hobby) and the expenses must be legitimate business expenses, but this allows you to have a lot more flexibility in your tax planning. Realize that you can (I would say must) still start a business even if you have a full-time job. If you want to create great wealth (and minimize your tax expense), don't let fear, unbelief, or lack of knowledge prevent you from starting your own business. You must take action to overcome those obstacles.
Eventually, you need to target making the ultimate shift to getting your income from unearned income rather than wages. Unearned income is taxed at a lower rate than earned income. That's one of the ironies of our tax law: the more income that is "unearned" the lower your tax expense.
Some Power Affirmations Related to Helping you Take Control of Your Tax Expense
1) I am now in confident control of my tax expenses.
2) I have a clear understanding of basic tax law and strategies.
3) I regularly seek out sound tax advice from seasoned professionals.
4) My unearned income from investments is increasing everyday.
5) I record all financial transactions regularly and take advantage of every legitimate tax deduction.
6) I now take maximum advantage of my employee benefits including my 401k and flexible spending accounts.
7) I pay as many expenses as possible with pre-tax dollars.
8) I enjoy studying basic tax law, because I enjoy the savings my knowledge brings.
9) I am absolutely committed to increasing my financial intelligence everyday.
10) I now take full advantage of every legal tax deduction available to me.
11) I track my tax expenses and take every action possible to minimize that expense.
12) By studying books, taking college-level classes, and attending seminars, my financial intelligence is increasing everyday.
Copyright (c) 2005 Bill Marshall - All rights reserved. Feel free to republish this article provided you include the copyright information and the weblinks where possible.
For practical self-improvement tips, visit http://www.poweraffirmations.com. Get my new free e-book, "Power Affirmations: Power Positive Conditioning for Your Subconscious Mind"
Detroit Area Software Developer Pleads Guilty to Employment Tax Violations Department of Justice
Will the U.N. Tax Convention Empower Africa? Foreign Policy
Philadelphia property taxes: Are you one of thousands of homeowners losing millions in tax relief each year? - The Philadelphia Inquirer
Philadelphia property taxes: Are you one of thousands of homeowners losing millions in tax relief each year? The Philadelphia Inquirer
Fulton County Board of Supervisors adopts 2023 budget, cuts property taxes - The Gloversville Leader Herald - Gloversville Leader-Herald
Fulton County Board of Supervisors adopts 2023 budget, cuts property taxes - The Gloversville Leader Herald Gloversville Leader-Herald
CT business owner who evaded taxes but bought a 52-foot cigarette boat gets prison, fine - Yahoo News
Hospital wants taxes spent on indigent care Journal Record
Miami Business Owner Pleads Guilty to Payroll Tax Crime Department of Justice
Kanye West says he owes the IRS $50 million in taxes Business Insider
2022 Taxes/Estates/Trusts Q&A Virginia Business Magazine
Retirees Can Still Reduce Taxes in Retirement Kiplinger's Personal Finance
EU Tax Symposium “Road to 2050: A Tax Mix for the Future” International Monetary Fund
Minneapolis Tax Preparer Pleads Guilty to Tax Crimes | USAO-MN Department of Justice
Worcester homeowners get 9.6% tax increase; business owners down $5.65% Worcester Telegram
Woodstock Man Pleads Guilty to Tax Fraud | USAO-CT Department of Justice
Property Taxes Fuel K-12 Budgets. How Well Does That Work? Education Week
Seymour companies receive tax abatements Seymour Tribune
When fees are 'taxes' and free speech costs $8 a month Computerworld
Let the WTO Referee Carbon Border Taxes by Jeffrey Frankel Project Syndicate
Kansas City misses out on $2.3M in short-term rental taxes WDAF FOX4 Kansas City
Springfield City Council approves tax incentives for property owners in Grant Avenue Parkway redevelopment area - KY3
Springfield City Council approves tax incentives for property owners in Grant Avenue Parkway redevelopment area KY3
Half Payment Property Tax Deadline TarrantCounty.com
Brazil Gazettes Consultation Solution Clarifying Corporate Tax, Social Contributions on Exit Tax Document - Bloomberg Tax
Brazil Gazettes Consultation Solution Clarifying Corporate Tax, Social Contributions on Exit Tax Document Bloomberg Tax
Are taxes too high for some? vtdigger.org
Peoria man has lower property taxes with move from Illinois to Indiana Peoria Journal Star
What now for Newsom's oil profits tax? CalMatters
Salisbury property taxes set to rise | Local News | newburyportnews.com - The Daily News of Newburyport
Salisbury property taxes set to rise | Local News | newburyportnews.com The Daily News of Newburyport
Port Jervis School District Levied $23 Million Excessive Taxes in Four Years, State Audit Says - The Epoch Times
Port Jervis School District Levied $23 Million Excessive Taxes in Four Years, State Audit Says The Epoch Times
Linesville to hold line on taxes but water rates going up Meadville Tribune
How To Avoid Paying Taxes on Side Gig Income Yahoo Finance
Sterling Property Owners Getting an Early Christmas Present as Property Taxes Will Be Going Down Next Year - River Country 101.7
Sterling Property Owners Getting an Early Christmas Present as Property Taxes Will Be Going Down Next Year River Country 101.7
What is a Truth in Taxation Meeting? Otter Tail County
Brainerd council looks to lower 2023 tax levy Brainerd Dispatch
Herschel Walker, running for U.S. Senate in Georgia, still gets tax break on $3 million Texas residence - KXAN.com
Herschel Walker, running for U.S. Senate in Georgia, still gets tax break on $3 million Texas residence KXAN.com
ALERIAN MLP ETF TAX UPDATE Yahoo Finance
Do I Need a Tax Form for My Roth IRA? Yahoo Finance
Deadline is Thursday to apply for new property tax break for older Mainers - Kennebec Journal and Morning Sentinel
Deadline is Thursday to apply for new property tax break for older Mainers Kennebec Journal and Morning Sentinel
Record Tax Savings in Model Portfolios Underscore an Ongoing Opportunity for Investors in Volatile Market Environments - Yahoo Finance
Record Tax Savings in Model Portfolios Underscore an Ongoing Opportunity for Investors in Volatile Market Environments Yahoo Finance
Report: Tax Prep Websites Sent Clients' Financial Data to Facebook CPAPracticeAdvisor.com
N.J. woman who stole more than half a million through a tax refund scheme sentenced to more than 13 years in prison - The Philadelphia Inquirer
N.J. woman who stole more than half a million through a tax refund scheme sentenced to more than 13 years in prison The Philadelphia Inquirer
Letter: Prohibiting water districts from subsidizing water rates with property taxes is a good idea - Salt Lake Tribune
Letter: Prohibiting water districts from subsidizing water rates with property taxes is a good idea Salt Lake Tribune
Taxes After Marriage: How to Navigate the Confusing Consequences The Wall Street Journal
Defense Rests as Trump Company Tax Fraud Trial Nears its End The New York Times
Rockford Schools keeps flat tax levy MyStateline.com
Next steps on the Child Tax Credit Brookings Institution
Will Taxing the Windfall Profits of Oil Giants Fix Countries’ Economies? The New York Times
State Elections 2022: Results for Tax Issues on the Ballot Kiplinger's Personal Finance
The Powerball jackpot is a record $2.04 billion. Winners will be hit with a massive tax bill if they live in these states - Fortune
The Powerball jackpot is a record $2.04 billion. Winners will be hit with a massive tax bill if they live in these states Fortune
When to Expect 2023 IRS Income Tax Refunds – Estimated Date Chart for Tax Refunds - CPAPracticeAdvisor.com
When to Expect 2023 IRS Income Tax Refunds – Estimated Date Chart for Tax Refunds CPAPracticeAdvisor.com
Excess Profit Taxes: Historical Perspective and Contemporary Relevance - International Monetary Fund
Excess Profit Taxes: Historical Perspective and Contemporary Relevance International Monetary Fund
myPATH for Business Taxes PA Department of Revenue
Inflation May Save You Money on Your Taxes The New York Times
Additional New York State child and earned income tax payments Department of Taxation and Finance
The President and Vice President release their 2021 tax returns The White House
Could the IRS let everyone file taxes for free? Why Congress is considering cutting out the middlemen - CNBC
Could the IRS let everyone file taxes for free? Why Congress is considering cutting out the middlemen CNBC
Rise in Deaths Spurs Effort to Raise Alcohol Taxes The New York Times
IRS Announces Inflation Adjustments for Tax Rates in 2023 The New York Times
FACT SHEET: This Tax Day, the President Is Fighting to Reward Work, Not Wealth, While Republicans Want to Increase Taxes on the Middle Class - The White House
FACT SHEET: This Tax Day, the President Is Fighting to Reward Work, Not Wealth, While Republicans Want to Increase Taxes on the Middle Class The White House
Ranking Member's News | Newsroom | The United States Senate Committee on Finance - Hearing | Hearings | The United States Senate Committee on Finance
Ranking Member's News | Newsroom | The United States Senate Committee on Finance Hearing | Hearings | The United States Senate Committee on Finance
What the Tax Software Companies Dont Want You to Know
Haven't done your taxes yet? No problem. Now there is a new way you can use top tax software programs, like TurboTax and H&R Block, to get your taxes done quickly and easily.
Donating Cars To Charity - New Tax Rules
On June 3, 2005, the IRS released guidance on charitable deductions for donated vehicles. The American Jobs Creation Act (AJCA) radically changed the amount of the deduction taxpayers can claim for their donated car.
Truly Bizarre Taxes: The Tax on Illegal Drugs
One can never underestimate the enthusiasm that politicians have for trying to hunt up tax revenues. The creativity of some politicians can lead to bizarre taxes and unfortunate results.
Business Tax Loophole: Leasing Assets To Your Corporation
While there are many equally valid reasons to incorporate, saving money on taxes is a consideration that can yield relatively immediate results. Leasing assets to your corporation is a tax strategy you should absolutely consider if you already have a corporation or are thinking about forming one.
Getting A Second Extension to File 2004 Taxes
Millions of people file tax return extensions every year. The tax filing deadlines can rush up on your quickly.
Rearrange Your Affairs For Maximum Tax Savings
One way to maximize your business profits is by reducing your taxes.Frequently, income and other taxes could be lowered significantly if only the taxpayer were willing to plan ahead.
Need an Offshore Sales Office in a Tax Free Environment?
The 100 year old investment-banking firm of Warburg, Dillon Read (on Park Ave. N.
Marriage or Divorce - Check Your Social Security Number
Newlyweds and the recently divorced should make sure that names on their tax returns match those registered with the Social Security Administration (SSA). A mismatch between a name on the tax return and a Social Security number (SSN) could unexpectedly increase a tax bill or reduce the size of any refund.
Rental Property Tax Deductions
Own residential rental properties? This article discusses how income from those properties impacts your taxes.What Constitutes Revenue?Generally, rental income is defined as any revenue you receive from the occupancy or use of residential property.
Save Money on Taxes - Double Your Income Now With Tax Saving Tips on Deductions
Adding Your First Additional Stream of IncomeMost new wealth builders currently have a full-time job. After realizing that means "Just ----Over Broke" they commit to quitting their job and starting their own business.
Paying Workers - What Can You Write-Off?
As your business grows, you are going to need help. This help comes in the form of employees and independent contractors.
How to Cut Duty Cost and Increase Profit as an Importer
Import duties continue to be significant elements in the cost of international trade. Yet many companies and businesses still pay more duties than the law requires - which impacts adversely on landed cost and ultimately on business profitability.
Military Reservists, Enlistees May Get Deferral of Back Taxes
Reservists called to active duty and enlistees in the armed forces may qualify for a deferral of taxes owed if they can show that their ability to pay taxes was affected by their military service.The deferral covers active duty members of the military services - Army, Navy, Air Force, Marine Corps and Coast Guard - and commissioned officers of the uniformed services - Public Health Service and the National Oceanic and Atmospheric Administration.
Keeping Your Own Money - NOT Handing It Over To The Taxman
Most people trying to make a crust online (or offline for that matter) are so focused on doing just that, they ignore taking simple steps to ensure that they hang on to just as much of it as they can. Instead, they hand over large lumps of their hard-earned money in tax, usually in one of two mistaken beliefs.
Hurricane Katrina - How To Use Your Business Loss To Get A Refund on 2004 Taxes
With the massive losses caused by Katrina, the economy of the Gulf Coast region is in extremely bad shape. Fortunately, there is a quirk in the tax code that can help you generate a large refund from your 2004 taxes.
Send Your Kids To Summer Camp and Write It Off
If you paid someone to care for a child so you could work, you may be able claim a tax credit for child and dependent care expenses on your federal income tax return. This credit is available to people who, in order to work or to look for work, have to pay for child care services for dependents under age 13.
Income Tax Returns Your Accountant Should Not File
You've been feeling uneasy (perhaps even guilty) becauseyou've failed to report your under the table business income. Perhaps you've never filed a tax return, even though you know you owe money.
Save Money on Taxes - Let Uncle Sam Pay for Your Fun!
"Deducting Meals and Entertainment"O.K.
The Tax Man Cometh... To Search
You're at your office, or home, and the doorbell rings - it's the Canada Revenue Agency ("CRA").The first thing to do is find out why they've come.
Insider Guides to IRS Audits!
Ever wish that, as a business owner, you knew exactly what would raise "red flags" at the IRS? Or how to make an IRS audit go as smoothly and painlessly as possible?If you're in the right type of business, you can get that information, directly from the IRS!Traditionally, IRS examiners have been responsible for auditing many types of businesses. An examiner might audit a grocery store one week and a construction company the next.
|home | site map|