Tax Calculator in hand, seeing our hard earned money go to unknown government pet projects is such a hard pill to swallow.
With local, state, and federal government spending their way into the abyss, taxing anything that moves has become the new normal.
With that as a given, it’s become more important than ever to understand and appreciate
the wealth destroying nature of taxes.
To do this, let’s just look at the effect of paying just a dollar of tax.
You lose the dollar, but what else is lost?
All future growth of said dollar.
Using the law of 72, where you divide a return by 72 to determine how many years until an
amount doubles: at 7% a dollar doubles every 10 years.
So, the dollar lost to taxes could have become $2 in 10 years, $4 in 20 years, and $8 in 30 years.
What does this mean?
Say you overpaid a $1 Million dollars in taxes due to lack of tax strategy. That
amount has essentially cost you $8 Million dollars over the next 3 decades.
In most cases, your tax strategy will determine whether you retire in style or as a dependent.
Even with today’s booming economy, the federal government is spending more than a
trillion dollars a year above taxes collected. Also, many local and state governments are
buried deep in red ink.
Now we have a new election cycle with one party offering free college, healthcare to all
including illegal immigrants, write off of student loans, and more. The time has never been
more demanding to explore every possible way to insulate from the tax rates coming in the
Regardless of who wins the next election, you can count on government spending to
escalate and eventually tax rates to follow.
Right now, the highest federal tax rates are well below their average since 1913 of 57%. How long that will last is unknown, but when we have a federal government spending a trillion dollars more than revenue, at some point the dam will burst and rates could skyrocket.
The good news is that there are many different ways to protect yourself from having your
earnings taxes away. The requirement is that you are proactive and have an open mind to
ideas that are not common to the general public.
The key to proactive tax control is to use the tax code as a guide to what the government wants us to do.
They want us to create jobs, economic growth, housing, and take loans to get more money in the economy. Each of these is met with tax breaks and incentives while just earning income is met with more taxation.
No CPA can save you from not having a proactive approach that reduces taxable income before you get to them. If you show up with a ton of taxable income due to poor planning, there’s only so much they can do. The tax authorities will exact their punishment (read revenge) on you for failing to better protect your money.