Updated: Nov 15, 2019
At some point in our lives, we all must realize that the largest expense our families will ever face is not our homes, educations, cars, food, or utilities. Our largest lifetime expense will be taxes. Yes, our taxes! Taxes will consume 40 to 65 percent of what most Americans earn, depending on their incomes. Most people are fuzzy about how much they are taxed and have no idea that with all the income, sales, property, death, investment, capital gains, state, federal, and miscellaneous taxes (like hotel taxes and license and registration taxes), they are often paying more than 50 percent of their incomes to the government.
Of course, the government wisely invests in our futures so we do not have to worry about our own financial well-being, right? Wrong! We forget that, when we fill our gas tanks, fifty cents of the price of each gallon of gas is going to the government. Many people think only of their “take home” pay and don’t think of the amount of money they actually earned as belonging to them. Moreover, many Americans never get around to estate-tax planning and disregard the fact that their taxable estate could be taxed by up to 45 percent. When you add it all up, we spend about one-half of our calendar year working for the government. I believe in paying taxes. I want a strong military, good roads and schools. I understand that police officers and firefighters need to get paid, and I see great value in many of the functions and benefits that our government provides, but I only want to pay my share. I understand that my share should include a portion for those who are unable to contribute to our system, but I also figure that I am more comfortable with 20 to 25 percent rather than 40 to 65 percent.
Why Your Tax Return Preparer Can't Be Your Tax Strategist
So how do we calculate that? Our tax code is a complicated, convoluted, and confusing series
of loops and measures that has been constructed, amended, protracted, and tweaked—perhaps more than any other document in the history of civilization. Ohio Congressman Rob Portmansaid, “The income tax code and its associated regulations contain almost 5.6 million words—seven times as many words as the Bible. Taxpayers now spend about 5.4 billion hours a year trying to comply with 2,500 pages of tax laws.” So what do we do? Most Americans assume that it is all too confusing and push the responsibility over to their tax professionals and CPAs. Here lies the problem with that approach: you cannot pay a tax professional or CPA a couple of hundred dollars per year to prepare your tax return (essentially to record history) and expect that person to become your personal tax advocate and strategist.
That’s not their job! I have had clients tell me that their CPA takes care of their taxes. I think, really? Does Dr. Phil take care of your marriage? Does Kroger take care of your nutritional needs? Does Joel Osteen take care of your faith? Of course not. You have to be in the game in all of these important matters yourself.
Your CPA or tax planner can implement your tax strategies, but you must bring the strategies and ideas to your tax professional in a tax-planning meeting that you initiate every six months.
When was the last time your tax person called you and said, “Hey! I want you to come on over for about an hour; I have been sifting through your old 1040 returns along with some recent tax code changes, and I have some ideas and strategies that might save you and your family thousands of dollars in unnecessary taxes.” You don’t get that call, do you?
Your Next Steps To Save Money in Taxes
You and I must take the bull by the horns with self-education, tax planning, and choosing the right tax attorney or strategic tax planner.
Resolve to meet with your tax planner 2 times per year.
When you meet, bring notes, ideas, and articles that you have collected.
You will soon find out if you have been working with a staunch paper pusher who only remembers the past or if you have a bright, innovative, and progressive tax planner who wants to help you avoid overpaying your taxes.
If your tax man needs replacing, then throw him out!
Call 3 friends whom you respect and who are more successful than you. Ask who their tax planner/CPA is. Tell them what you are looking for, and hope that two or more recommend the same person.
Go in prepared, and let your tax planner/CPA know that you are working toward more effective tax planning and increasing your own fiscal literacy.