Are you looking for ways to save on your taxes this year? How about ways to save for your future taxes as well? How about ways in general to make more money and not have to fork it out to Uncle Sam and why taxes will go up in the future? I’m excited to share these in today’s wealth chat.
Sure there is advice like tweak your W-4, save for college, fund your flexible saving account also known as an FSA to the limit which is $2,750 and up to $5,000 of your pay that you have your employer divert to a Dependent Care FSA account, if you earned less than $57,000, the earned income tax credit or EITC maybe an option for you to save up to almost $7,000, and giving to a charitable fund is another way to save on taxes, if you spend money donating your time to a charitable cause as well like stamps for a fundraiser, to the cost of ingredients for casseroles you make for the homeless, to the number of miles you drive your car for charity (at 14 cents a mile). Add such costs with your cash contributions when figuring your charitable contribution deduction, keep a file of your medical expenses, sell the crap stocks that lost money and are a lost cause to deduct the losses in those investments, see if your workplace offers an insurance plan that you could combine with a Health Savings Account, or consider opening one yourself if you buy your own coverage. A health savings account lets you put money pre-tax for a wide range of medical bills, including deductibles, co-pays and other medical expenses that aren’t covered by insurance, such as vision and dental care. If you are a 1099 then there are a whole bunch more options that I don’t have time to go into here and you can ask me about starting a business to take advantage of things like tax code 199A also known as QBI or Qualified Business Income, you don’t have to pay taxes on the first 20% of your business income. You are already paying a cell phone, an electricity bill, you have a desk in your rental to zoom with clients on, you can claim a standard deduction of $5 for every square foot of office space, up to 300 square feet or $1,500 right there, and internet service provider costs. You are already spending money on these things, what if I could show you how you can save those on your taxes as well?
Do you know the difference between W-2 and 1099? For W2 employees, they make their paycheck, pay all the taxes, then they get to spend what’s left.
For business owners, they make their money, do all of their spending, then they get taxed on what’s left! Which would you rather have?
I read that advisors recommend maxing out your 401k, 403b, and traditional IRA contributions to save on taxes for this year. Sure, that saves you money when you take money out of your paycheck THIS year, but then you end up paying a lot more later. Allow me to explain with a story I love to share as a licensed financial professional with my clients. We call it the farmer and the seeds analogy. Let’s say you are a farmer and I am the taxman. You are about to plant this bag of seeds to harvest for your family and to sell on the open market. As the taxman I give you one of two choices, you can pay your taxes one of two ways and there is of course no way around paying the tax man so here we go. Mr. Farmer, you can either pay the tax on this little bag of seeds and you never see me again. Or, I DON’T tax you now. But I’m going to come back in 20-30 years, take a look at your harvest, and tell you how much of it I want. Which would you choose? Is that how you have your accounts set up currently? If you have a 401k, or 403b or anything else taking money preTax then the answer to that question is YES. Is that something you’d like to fix?
Did you know we are in the middle of a Tax Sale? To find this data online, Google “Historical Highest Marginal Income Tax Rates” and there you will see that in the 30’s the tax rate was between 25 and 79%, in the 40’s the rate was 81 to 94%, 50’s it was 91 to 92%, 60’s was 70 to 91%, and in the 70’s it’ was around 70% consistently or a little more for the entire decade. Coincidentally, the 401k was invented in 1978 and back then at that tax rate it made sense to put money in preTax into these retirement accounts. When 70 cents of every dollar you make goes to Uncle Sam, you say hot damn no thank you, let me take the money out later when the taxes are lower in about 40 years. Guess what? It’s 40 years later, we are having that huge discount right now. Let the IRS tax me on my seeds and then leave me alone forever. I don’t want to roll the dice and see what they will charge me 20 to 40 years from today at that tax rate. Especially when you consider how much we are squandering money and inflation as of late has been growing at a much higher percentage then we previously expected, should have been closer to 2% Instead according to kiplinger.com
“A surge in prices across the board pushed October’s Consumer Price Index up 0.9%, and the yearly inflation rate hit 6.2%, a 30-year high.” Also visit usdebtclock.org and take a guess at how sustainable the US economic growth is in your opinion for the future?
For additional ideas and more information check out this book, “Top 10 Ways to Avoid Taxes” by Mark J. Quann
Thanks for watching to the end, please send me a message from the healthwealthandrealestate.com website on the “Get in Touch” link at the top of the page and please like and subscribe to the channel so that you don’t miss any future educational videos. You can also schedule time for a complimentary one on one with me and I hope you found this and all of my videos helpful. Have an awesome week!