It is summer and paying your taxes is probably the furthest thing from your mind. Perhaps we all have a little inner Scarlett O’Hara—I can’t think about that right now. If I do, I’ll go crazy. I’ll think about that tomorrow.
For a second, I want you to remember the pain of paying your taxes and devote five minutes to yourself right now. We are going to do a little math.
- Pull out last year’s tax return and look at page two. Write down the amount of federal tax you paid.
- Next look at you and your spouse’s W-2 s from last year. Write down the amount of Social Security tax you paid and the amount of Medicare tax you paid. If you are self-employed, go back to the first page of your tax return. Toward the bottom half of your return you will see self-employment taxes. This is only one half of what you paid so multiply this amount by two.
- Then, go to the itemized deductions page of your return and write down the amount of tax you were able to deduct from property tax and sales tax or state income tax.
- Add these 4 to 5 taxes. What was your total bill for 2016?
The bad news is you will most likely see this number again for 2017 unless you have made some changes. So, take your number and divide it by 12.
Now, what if taking a little time today to do some tax planning was able to save you half of what you owe for the remaining five months of the year? Would it be worth it?
Let me ask it a bit differently, what if you waited to plan for two months, and this procrastination cost you the ability to save anything in 2017 when you could have saved half of what you owe over the next five months?
I don’t know your unique situation and if you would be able to save two and half months’ worth of taxes this year, but I do know the longer you wait to do anything in the year the less chances you have to save anything. By fall, the majority of the year’s opportunities have disappeared.
And, by the way, there is more to this story.
Obviously, as a Life Planning firm, we do a lot of different kinds of planning. However, most of the people we work with come to us for tax planning. My guess is the immediate gratification by not paying Uncle Sam is the motivator behind this. The interesting thing is; however, the taxes you save may save you and your family.
We just finished working on a plan for a successful business owner and his wife who were taking a significant risk because they thought there was no other way. He has quite a bit of leverage, and she has very little knowledge of his business to keep it afloat if something were to happen to him. We worked through several different options to avoid this risk and believe it or not money saved from Uncle Sam was able to pay for all of it.
Even if your Life Plan doesn’t have a severe gap like the couple above, what about the security of your financial future? If you were to do a Google search for the “biggest retirement fear,” guess what it is? You named it—running out of money. Even if you don’t plan to retire, have you considered what would happen if you were forced to retire? $10,000 saved in taxes this year could be worth over $45,000 in twenty years; $100,000 saved could be worth over $450,000.1.
So tell your inner O’Hara goodbye and pay yourself today with a little planning!
- 8% compounding annualized return. This is not guaranteed or promissory.