| As a tax professional, I prepare hundreds of tax | | | | is outrageously high. If not, the picture I've just painted |
| returns every year. When I first started out, I used to | | | | should thoroughly convince you that you pay too much |
| think that the best way I could help people was to | | | | tax, period. |
| prepare a return as accurately and as quickly as | | | | STEP #2: Get The Right Attitude About Your Taxes |
| possible. You know, provide great customer service. | | | | What do I mean by this? Well, you simply must have a |
| And it is very important that your return be done "right" | | | | certain "mental attitude" toward this whole idea of |
| --all the numbers on the right lines, using the right forms, | | | | paying taxes. I'll get right to the point -- you must have |
| etc. | | | | an attitude about taxes that says, "Enough is enough. |
| But no matter how good a job I did preparing tax | | | | I'm paying way too much tax and I don't like it! And it's |
| returns, every year I would hear the same complaint | | | | about time I did something about it." |
| over and over again from my clients: | | | | After reading those numbers above -- paying 32% of |
| "I pay way too much tax. The government is getting | | | | your income to the government -- how do you feel? |
| way too much of my money. What can I do to pay | | | | Doesn't that just make you furious? If so, great, then |
| less tax? How can I lower my tax bill -- legally?" | | | | you are on your way to solving this problem. |
| Sound familiar? I'd bet a lot of money that you've felt | | | | If you saw those numbers above and said, "Big deal. |
| this way, too. Most people feel this way. And I know | | | | So I work until April 23 for the government. So what? |
| that most small business owners feel this way. | | | | So does everybody else in this country" -- well, I'm |
| And most people really don't know what to do about it. | | | | sorry, but you might as well just throw this article in the |
| I mean, what can you, the typical self-employed | | | | trash and forget about it. You will continue to pay way |
| person, do to lower your taxes? | | | | too much tax because you really don't care about it. |
| I'm here to tell that there is plenty you can do. So let's | | | | To reduce your taxes, you must have a desire for |
| get started. Here are 4 simple steps you can take to | | | | paying less tax. You must get focused on doing |
| drastically reduce your taxes: | | | | something about it. Right now, or before the day is |
| STEP #1: Understand How Serious Your Tax Problem | | | | over, go get last year's personal income tax return |
| Is | | | | (Form 1040) and look at how much tax you paid for |
| I'm a numbers guy. So here's a few numbers that will | | | | last year. |
| simply amaze you, startle you, probably (and hopefully) | | | | Now, when you have Form 1040 in front of you, do |
| even shock you. | | | | you realize where the most important number is on |
| Are you aware of just how much in taxes you are | | | | this form? |
| paying? Sure, when you look at your tax return each | | | | NO, it's not Line 73 -- which tells you how much of a |
| year, you see the numbers, right there in black and | | | | refund you got (if any!). |
| white. But I rarely meet someone who truly | | | | NO, it's not Line 76 -- which tells you how much you still |
| understands the significance of your annual tax bill. | | | | owed, the balance due with the return. |
| Well here are the numbers. And it ain't pretty. The | | | | The most important number on Form 1040 is Line 63. |
| following is a chart that tells how much the average | | | | Read it. It says: This is your TOTAL TAX. That is how |
| family spends on various consumer categories -- as a | | | | much federal tax you paid for all of last year. When it |
| percentage of income. It's not just how much you | | | | comes to reducing your taxes, it doesn't matter |
| spend on taxes that is important, it's how much you | | | | whether you got a refund or whether you had a |
| spend on taxes as compared to all other major | | | | balance due. |
| categories of spending. | | | | What matters is -- what was your total tax liability for |
| Consumer Spending: How Do You Spend Your | | | | the year. That's the "magic number" that should just |
| Hard-Earned Dollars? | | | | make your blood boil and your heart beat so fast that |
| Taxes 32.0% | | | | you can hardly stand it. |
| Housing 16.7% | | | | Now that I've got you all "riled up" about paying so |
| Medical Care 11.5% | | | | much tax, let's move on to Step #3. |
| Food 8.2% | | | | STEP #3: Realize That Reducing Taxes Is the Easiest |
| Transportation 7.9% | | | | Path Possible to Putting Hundreds of Thousands of |
| Recreation 5.7% | | | | Dollars in Your Pocket |
| Clothing 4.1% | | | | Consider this simple fact: Reducing your taxes by just |
| Savings 1.4% | | | | $4,000 per year is the easiest way possible to |
| Other 12.5% | | | | becoming a millionaire. |
| TOTAL 100.0% | | | | Let me elaborate. |
| So there you have it. If you think you are being nailed | | | | First, let me "run the numbers" for you. Let's say you |
| by the government, you are absolutely right. You | | | | implement some new tax-saving strategies that |
| spend more on taxes than any other category of | | | | reduce your taxes by $4,000 each year. Now, if you |
| consumer spending. In fact, you spend more on taxes | | | | take that $4,000 per year in tax savings and invest it |
| than on food, clothing, and housing combined. (Run the | | | | over the next 30 years, assuming you earn 5.25% on |
| numbers: Food-8.2% + Clothing-4.1% + Housing-16.7% = | | | | your investment, you end up with $310,584 at the end |
| 29% vs. Taxes-32.0%) | | | | of the 30 years. |
| Think about it -- the Average American spends 32% | | | | And here's the best part about this scenario: Where |
| of his/her income on taxes. And it's not just federal | | | | did you get the $4,000/year to invest? Well, you got it |
| income taxes we're talking about here. There's also | | | | from money that would have gone to Uncle Sam. It's |
| state income taxes and local income taxes (like your | | | | money that you used to spend on taxes, part of the |
| city or county). | | | | 32% of your income that goes to taxes each year. |
| Oh, we're not done. That 32% also includes "Payroll | | | | In effect, it's free money. It's money that was always |
| Taxes" -- for employees, that's the 7.65% of your | | | | there -- you just didn't realize it. |
| gross wage that goes to fund Social Security and | | | | Is this a good deal or what? In effect, by taking |
| Medicare programs; for business owners and | | | | advantage of the tax reduction strategies you'll read |
| self-employed people, Payroll Taxes are double that | | | | about shortly, the government will finance a huge |
| amount -- 15.3% of your wages or self-employment | | | | chunk of your retirement nest egg. |
| income. | | | | And let's say your tax situation is such that you save |
| And if that's not enough, there is also Sales Tax, | | | | $2,000/year instead of $4,000/year. Same |
| Excise Tax, and Property Tax. | | | | assumptions: you invest the $2,000 each year at |
| Finally, we should include Corporate Income Tax. Why | | | | 5.25% for 30 years. End result: $155,292. Not too |
| do I include that? Well, where do corporations get the | | | | shabby, eh? |
| money to pay their corporate income tax? From | | | | So all you have to do is come up with the tax-saving |
| consumers like you and me, that's where! When you | | | | strategies that will put $2,000 or $4,000 in your pocket |
| buy groceries, part of the price is going to be used by | | | | each and every year. Which brings us to Step #4. |
| the grocery store to pay the store's income tax. The | | | | STEP #4: Get Hold Of The Tax-Saving Strategies |
| grocery store just passed his tax bill on to you. | | | | That Will Make You Rich |
| Here's another way to look at it. Each year | | | | You know, it doesn't really take much information to |
| economists do a calculation to determine "Tax | | | | save a lot of money in taxes. It is true: just a little bit of |
| Freedom Day". What is "Tax Freedom Day"? It's a | | | | tax knowledge can save you thousands of dollars |
| way to graphically depict that we spend 32% of our | | | | every year. |
| money on taxes. In Year 2008, Tax Freedom Day | | | | Useful tax information is freely available. On the |
| was April 23. That means that from January 1 through | | | | internet, at your local library, and through your local tax |
| April 22, all the money you made went to taxes. Finally, | | | | professional. |
| on April 23, you now get to keep what you make for | | | | The question is: Are you willing to spend some time |
| the rest of the year. | | | | this year learning about effective tax strategies that |
| By the way, the April 23 date is a national average. | | | | can save you literally thousands of dollars? |
| Your actual Tax Freedom Day may actually be a few | | | | Here's a simple goal to set for yourself: Over the next |
| days sooner or later than April 23, depending on which | | | | 10 weeks, set aside just an hour a week to read up on |
| state you live in. That's because state and local taxes | | | | tax-reduction strategies. That's all, just 10 hours. |
| vary considerably. For example, Washington, DC | | | | Chances are you'll find 2 or 3 strategies that reduce |
| residents do not get to celebrate Tax Freedom Day | | | | your tax bill by $1,000 this year. |
| until May 3. Connecticut's Tax Freedom Day is May 8 | | | | So you spend 10 hours and, in effect, pay yourself an |
| (the latest of any state.) The earliest state to celebrate | | | | extra $1,000 for your time. Not a bad hourly rate, eh? |
| Tax Freedom Day is Alaska - March 29. | | | | That's all it takes to pay less tax. |
| Maybe you already knew "intuitively" that your Tax Bill | | | | |