If you want to be rich, you need to know a little something about making and keeping money.
The problem is that most of us are taught very little about money and even less about taxes. We’re told we have to pay taxes (which is true) but there are a lot of ways the system is built so that you don’t pay too much in taxes.
The average American works 3 months of the year just to cover taxes (income, sales, payroll, property, etc).
Almost one-third to one-half of the world’s wealth is handed over to governments. Those numbers should be alarming.
You could accept your fate… or learn a thing or two about how you can (legally) reduce Uncle Sam’s cash grabbing.
Here are 3 tips to avoid taxes like a millionaire
Disclosure: This is general advice, and you should seek help from your own professional as situations can vary. Please note this post contains affiliate links.
1) You have control over your money
Unless you live in North Korean (or any dictatorship), the money you make belongs to you.
While you are required to give some of that income to the government for roads, safety, schools, etc. it is your money and you do have power over it.
Judge Learned Hand, a former judge on the United States Court of Appeals for the Second Circuit and a judicial philosopher, went as far as to say: “Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike, and all do right, for anybody owes any public duty to pay more than the law demands.”
The first and most important way to avoid taxes like the rich is to change your mindset. And if you need help, repeat this statement, “I have no obligation to pay more than the law demands.”
2) Complex is advantageous
While you might not like sinking your teeth into something new and feeling totally overwhelmed… guess what? Everyone else feels EXACTLY the same way.
Complexity is a matter of perception. I’m sure that as a toddler, you would find learning the alphabet difficult but now that you know it, that you can read and write; it all seems pretty mundane.
Many perceive tax law as being complex but that so-called complexity is meant to reduce your taxes not increase them.
If you only ever got to the part where it says you have to pay taxes for XYZ and never bothered to continue reading on to ALL the ways you don’t need to pay for XYZ; then yes, taxes would SUCK.
In the United States, there are over 5,800 pages of tax law. That’s right; it’s really really long.
But what most Americans don’t know is that only about 30 pages are devoted to raising taxes.
The remaining 5,770 pages are meant to help you reduce taxes. In other words, 99.5% of tax law is written to reduce taxes.
3) Prioritize tax planning
Your wealth is not just about how much money you make. It’s about how much money you keep.
When you start making financial decisions with taxes in mind, you start to keep more money.
A lot of investors are guilty of only looking at the immediate ups and downs of their investments. Selling and buying as if a few bucks made a difference. That short-sighted behavior costs a lot of money.
For example, if you were to start trading stock each time values went up or down (even if just a few percentages), realize that because you have sold stock, you now own taxes.
Most investments are taxed at about 25% which means that a 10% increase in share price doesn’t even cover your tax bill.
Bottom line is…
You always have a choice when it comes to how much tax you pay.
The key is to know how and when to transact so that you minimize that burden.
There are millions of people who legally pay little or no tax.
What’s their secret? They either educated themselves about taxes or consulted with an expert. If you’re thinking those experts are expensive, think again. In most cases, you still end up saving money even after their professional fees. It’s an investment which pays you with tax savings.
Think of tax law as a map to wealth. While you might need to learn how to read that map or have someone show you the way, not investing in taxes is losing money to taxes.
I’m big on financial education.
Benjamin Franklin once said: “an investment in knowledge pays the best interest.”
With education, knowledge increases and so does wealth.
Taxes are a great example of this. As a person’s knowledge about taxes increases, they stop overpaying and retain more wealth.
If you want to learn a thing or two about taxes, check out these 7 unusual tax deductions that could save you money and why a 401(k) won’t help you retire
Most of us cringe at the thought of doing out taxes and honestly, it can be intimidating at first.
But filing your taxes is much easier than you realize.
Personally, I don’t think there is ever any harm in understanding and taking some ownership over your taxes. Not to mention, the more you know the fewer deductions you’ll miss out on.
And yes, this is coming from a CPA who already understands and is comfortable with taxes…
But I’ve helped countless clients take ownership of their taxes and they’ve all been glad they no longer avoid taxes like the plague.
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How do you avoid taxes like a millionaire?