When you were younger, your parents probably told you that you needed to study hard, find a good job, and work hard to make money. What they didn’t tell you is that the more money you make at your job, the more money you give to the government in the form of taxes. And, it’s not only the federal government that gets you; it’s the state and sometimes even the local governments that tax you as well. But you do work hard for your money, and I’m sure that you feel it’s unfair to pay as much in taxes as you do.
I’ve never heard any of my clients or friends say that they were so happy with the way things were going that they were going to pay the government extra in taxes this year. That would be a ludicrous state- ment, right? Yet every year, thousands of people pay more in taxes than necessary. Why is this? There could be a number of reasons why. Some people believe that it’s their accountant’s job to help them save money in taxes, but most tax professionals simply prepare returns. In fact, if you want to save money in taxes, you need to see your accoun- tant before the end of the calendar year, not just when you drop off your tax forms.
Plus, many people fail to take advantage of the itemized deduc- tions, believing that the standard deduction is better. For many peo- ple, itemizing would be an ideal way to save money on taxes. However, the more money you make, the quicker the government phases out this option. Then there are different types of investments that help reduce taxes.
Throughout this chapter, we discuss the different ways to help save on federal and state taxes. We also touch upon the different investment vehicles you can use to divert interest and gains from your tax report- ing. These days, there aren’t very many good tax shelters left for you to use, but we take a look at how the remaining tax shelters will benefit you. Estate taxes, however, are saved for a later chapter.
Another mistake people make is to consider the tax implications of everything they invest in or purchase, such as a home. Using this mindset can often hurt you rather than help you. An important guide to this is that the tax write-offs are an added benefit, not the ultimate benefit. That is, do what’s best for you and your goal to become wealthy, not just what’s good for this year’s taxes.