The four-letter word that keeps most people from becoming better ‘tax strategists” is Fear. Most fear in life comes from lack of knowledge, not from any real threat. The biggest expense you’ll ever encounter is neither a home nor a college education, but income taxes. What we were taught is that the amount of income tax you are liable for has little to do with your total income, and everything to do with your knowledge of tax strategies. If you sit around waiting on income tax every year, you my friend are the biggest loser. What you don’t realize is the average american works from January to April for free (this only if your W-4 is filled out wrong, email:email@example.com for additional info). One-third to one-half of all the wealth you accumulate in your lifetime is dependent on your tax-reducing plan and not your income, investments, or retirement programs.
Where do we begin? By learning to turn the money you spend into legitimate tax deductions. Up to 60% of your income each year can become tax sheltered if you combine personal expenses with tax deduction strategies.
What woke me up to these tax strategies was when my CPA had me owing the IRS money when I knew in my mind that it was impossible for me to owe anything, after they had murdered my paycheck all year. I immediately started reading everything I could have how to reduce income taxes. Calling the IRS and having conversations with them were very helpful and enlightening. After i had throughly studied and knew what i knew, I went back to my CPA and said, “Hey man I don’t owe any money i actually get a little back, but you had me owing, whats up with that?”. With a look of disgust, He walked over to me and said, “Let me tell you something, son! I am a tax preparer, not your financial adviser. You are paying me to take your numbers and put them on the tax forms. If you don’t know how to tell me about what you’re doing, I have no reason or responsibility to take the deductions.” From that moment on I said “If I ever want to protect myself from overpaying in taxes, I must learn everything possible about the tax system.” No one, not even a tax preparer or CPA, was going to do it for me the way it needed to be done. This one decision alone saves more me money income taxes than most people will make in a lifetime.
Use Only Tax Strategies, Never Loopholes or Tax Cheating
The system is already set up for you to win, so there is no need to cheat. The IRS is not out to get you. People think of the IRS as big bad monsters, but trust me that’s only because a lack of knowledge.
Tax Cheating: Understanding your income or claiming tax deductions for assets you don’t own or expenditures you never made. Tax cheating may bring you fame or fortune.
Loopholes: Gray, untested areas of the tax law that allow you to claim “default deductions” that congress and the IRS might have ruled against had they had the foresight to see the possibilities. Since a specific “no” doesn’t exist, you create a loophole by saying “yes” to a shaky deduction. Loopholes are often sought after by desperate, high-income taxpayers who never took the time to plan. Some loopholes are used purely out of greed, others are taken because of gambling instinct.
Tax Strategies: Positive legal uses of the tax laws to reduce your income taxes. Tax strategies are actions you take that automatically and legally qualify you for additional deductions. These action strategies can include opening an IRA account, starting a small business (which is what i did), buying real estate, and countless other possibilities.
When I show people these things, they tend to say, “Is paying less taxes really legal, patriotic, or moral?” For some reason many people seem to confuse our tax system with the United Fund, whose slogan is “Pay your fair share.” All the government wants to see when you file is what is going on with your financial situation, That’s it. As long as you keep good records, which isn’t hard, you have nothing to worry about. Your money goes into the economy whether paid to the government or used by you for a deductible purpose.
Make no mistake about it you can either be like Lebron and send kids to college and lower your taxes, or you can be like the average person and just give it to the government, but let’s be clear, that money is coming out of your pocket either way.
I have a sequel article to this one in which I will actually give you some of the strategies to help you lower your taxes. So, in the meantime you can always email me at: firstname.lastname@example.org