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"

In The News:


USA TODAY

Avoid taxes? 10 things to know about inversions
USA TODAY
The U.S. has the highest corporate income tax rate in the industrialized world, at 35%. The U.S. is also the only developed country that taxes corporate profits earned abroad. Foreign profits are subject to U.S. taxes once they are brought to the U.S ...
Why Burger King's tax-dodging ways need to be stoppedNew York Post
Burger King-Tim Horton: Scrap the Corporation Tax CompletelyForbes
Editorial: Corporate tax messBoston Herald
Dallas Morning News -The Daily Courier (subscription) -Dayton Daily News
all 705 news articles »

TMZ.com

Chris Tucker -- Runs Up Additional $14 MILLION Tax Tab!!
TMZ.com
Chris Tucker should seriously consider making "Rush Hour 4" -- and maybe 5,6,7 and 8 -- because his bill for unpaid taxes has grown to more than $14 MILLION DOLLARS! Tucker was just hit with a brand new federal tax lien for $2.5M ... which is on top of ...
Chris Tucker Owes $14 Million In Back Taxes: ReportBallerStatus.com
Chris Tucker makes move to settle £8.2 million in taxesExpress.co.uk
Chris Tucker - Chris Tucker Makes Move To Settle $14 Million In TaxesContactmusic.com
Global Grind
all 27 news articles »

Coachella Valley collects $55.9M in hotel bed taxes
The Desert Sun
The tourism economy has been full speed ahead in the Coachella Valley during the past year, with all desert cities charting gains in hotel bed taxes. The valley collected $55.9 million in transient occupancy taxes — as hotel bed taxes are known — in ...

and more »

Washington-area business owners' tax burden mounts as economy rebounds
Washington Post
A rebounding economy means more customers, higher sales and new jobs. It also means higher taxes. State and local tax bills for companies across the country grew modestly last year as the economic recovery accelerated, according to new research ...

and more »

The concept that cutting taxes stimulates the economy is a canard
Washington Post
Second, we have the usual Republican demands for lower taxes, in this case lower corporate taxes. Mr. Krauthammer lamented that the 35 percent nominal corporate tax rate is way too high for competition, though he acknowledged that the effective rate ...


Forbes

$100 Million Later, The Ice Bucket Challenge May Not Lower Your Taxes After All
Forbes
Despite media saturation and knock-offs, you have to hand it to the amazing success of the ALS Ice Bucket Challenge. The ALS Association announced that donations topped $100 million in one month, a 3,500% increase from a year ago. More than three ...

and more »

The Diplomat

China's New Property Registration System: Real Estate Taxes in the Pipeline
The Diplomat
This will include the land, public security, civil affairs, tax, business, finance, audit, statistics and other departments. According to the draft legislation, the system will combine data submitted at the national, provincial, municipal, and county ...

and more »

Truthdig

Businesses Are Winning Cat-and-Mouse Tax Game
New York Times
And a big oil producer split itself in two, cleaving off a multibillion-dollar division that now operates tax-free. Across corporate America, companies large and small are finding new ways to address one of the business world's oldest irritations ...
Charles Krauthammer: Lower corporate taxes nowAlbany Times Union
Bernie Sanders says tax share paid by corporations has fallen from 33% to 9 ...PolitiFact
Charles Krauthammer: Stop 'inversion' by lowering corporate taxesKansas.com (blog)
Truthdig
all 107 news articles »

Wall Street Journal

Japan's Tax Increase Puts Abenomics at Risk
Wall Street Journal
Household spending in Japan dropped sharply in July, heightening concerns that Prime Minister Shinzo Abe's decision to raise taxes by some $80 billion is taking a greater-than-expected toll on the economy. Japan's core consumer price index rose just 1 ...

and more »

The Inquisitr

Jerry Plantz: Another company dodging taxes
Blue Springs Examiner
The thought of this mammoth American corporation deciding to buy out Canada's Tim Hortons restaurants and defect to Canada under the guise of expansion when I know it is another “tax inversion” ploy, joining with some 41 other American companies to ...
10 things to know about corporate inversionsOCRegister
Is Burger King's Buying Tim Horton's An American Tax Dodge?The Inquisitr
GUEST EDITORIAL: Warren Buffett is 'betting against America' on Burger King ...Northwest Georgia News
wivb.com
all 11 news articles »
Google News

Marriage or Divorce ? Check Your Social Security Number

Newlyweds and the recently divorced should make sure that names... Read More

Know A Tax Cheat? Get Paid To Tell The IRS

According to the IRS, taxpayers underpay their taxes by some... Read More

Take Control of Your Taxes

As everyone in the U.S. knows, we have just passed... Read More

How To Get An Extension To File Your Business Tax Returns

Yes, the tax season is upon with the first filing... Read More

E-commerce Taxation

The means and types of businesses have transformed with advent... Read More

Tax Trap #5 -- Ignoring The IRS (and the 5 best ways to contact them!)

We all love to criticize the IRS, don't we? And... Read More

How to Cut Duty Cost and Increase Profit as an Importer

Import duties continue to be significant elements in the cost... Read More

Access to E-records by Taxing Authorities: A Case for Pakistan (Part II)

All tax authorities to e-commerce transactions should investigate the record... Read More

Tax Time Tune Up

Excerpted from the new book, "How to Do Space Age... Read More

Alas! In E-Commerce Taxland

In trying to comply with tax laws for your e-business,... Read More

Employment Taxes ? Depositing With The IRS

If your business has employees, you must pay employment taxes.... Read More

How to Check the Status of Your Tax Refund Online

So, you were pleasantly surprised to learn that you are... Read More

Tax Jokes and Quotes

Do you realize that some tax forms ask you to... Read More

Requirements To Produce Tax Information (Whats Up With That?)

"What we've got here is a failure to communicate." ... Read More

Taxing Overseas Firms for SOX Compliance

The Sarbanes-Oxley Act, also called the Public Company Accounting Reform... Read More

IRS Statute of Limitations: Do Taxes Ever Expire?

Many Americans believe that an IRS debt is a debt... Read More

Business Tax Deductions

As we enter mid-March, taxpayers begin to become very interested... Read More

History Of The Federal Income Tax

The powers of Congress, and the limitations set upon those... Read More

Car Donation: An Easy Way to Support Your Favorite Charity and Get a Tax Deduction

Most people look forward to getting their tax return, but... Read More

Income Tax Returns Your Accountant Should Not File

You've been feeling uneasy (perhaps even guilty) because you've failed... Read More

Highlights of IRS List of 2005 Tax Scams

Each year, the IRS lists various scams taxpayers get caught... Read More

Home Business Tax Tips

If you have recently started an Internet or home business,... Read More

Seven Key Tax Deductions for the Self Employed

As a sole proprietor, it's wise to familiarize yourself with... Read More

Tax Tips to Save Money on Taxes - Get the Corporate Kick and Save Loads of Money

Why a Corporation Helps Save You TaxesThe Tax Rates (Notice... Read More

Small Business Tax Issues for Self-Employed Individuals

The United States is a nation of entrepreneurs. There are... Read More