4 Simple Steps to Reduce Your Taxes In 2006
BY Wayne M. Davies
Does Tax Season get you down?
Here are 4 simple steps that any small business owner can
take to lower your tax bill this year.
STEP #1: Understand How Serious Your Tax Problem Is
Are you aware of just how much in taxes you are paying?
Here's how much the average family spends on various
consumer categories -- as a percentage of income.
You must realize that it's not how much you spend on taxes
that is important, it's how much you spend on taxes as
compared to all other major categories of spending.
Consumer Spending:
How Do You Spend Your Hard-Earned Dollars?
Taxes ---------------------- 32.0%25
Housing -------------------- 16.7%25
Medical Care --------------- 11.5%25
Food ----------------------- 8.2%25
Transportation ------------- 7.9%25
Recreation ----------------- 5.7%25
Clothing ------------------- 4.1%25
Savings -------------------- 1.4%25
Other Miscellaneous -------- 12.5%25
TOTAL --------------------- 100.0%25
So, if you think you are being "nailed" by the government,
you are absolutely right. You spend more on taxes than any
other category of consumer spending.
In fact, you spend more on taxes than on food, clothing, and
housing combined.
And it's not just federal income taxes we're talking about
here. There's also state and local income tax, payroll tax
(Social Security and Medicare), sales tax, excise tax and
property tax.
Maybe you already knew "intuitively" that your tax bill is
outrageously high. If not, the picture I've just painted
should thoroughly convince you that you pay too much tax,
period.
STEP #2: Get The Right Attitude About Your Taxes
What do I mean by this? Well, you simply must have a
certain "mental attitude" toward this whole idea of paying
taxes. I'll get right to the point -- you must have an
attitude about taxes that says, "Enough is enough. I'm
paying way too much tax and I don't like it. And it's about
time I did something about it -- TODAY!"
After reading those numbers above, how do you feel? Doesn't
that just make you furious? If so, great, then you are on
your way to solving this problem. The old cliche is true:
"You can't solve a problem until you admit you have one.")
If you saw those numbers above and said, "Big deal. So I
pay 32%25 in taxes. So what? So does everybody else in this
country" -- well, I'm sorry, but you might as well just stop
reading this article right now. You will continue to pay
too much tax because you really don't care about it.
To reduce your taxes, you must be committed to the idea
of paying less taxes.
Before today is over, go get last year's personal income tax
return (Form 1040) and look at how much tax you paid.
When you have Form 1040 in front of you, do you realize
where the most important number is on this form?
No, it's not Line 71 -- the refund amount.
No, it's not Line 74 -- the balance due amount.
The most important number on Form 1040 is Line 62.
It says: This is your TOTAL TAX. That is how much federal
income tax you paid for all of last year. When it comes to
reducing your taxes, it doesn't matter whether you got a
refund or whether you had a balance due.
What matters most is: What was your total tax liability
for the
year. That's the "magic number" that should just make your
blood boil and your heart beat so fast that you can hardly
stand it.
Now that I've got you all "riled up" about paying so much
tax, let's move on to Step #3.
STEP #3: Realize That Reducing Taxes Is The Easiest Path
Possible To Creating Wealth
Consider this simple fact: Reducing your taxes by just
$4,000 per year is the easiest way possible to becoming a
millionaire.
Let me elaborate.
Let's say you implement some new tax-saving strategies that
reduce your taxes by $4,000 each year. Now, if you take
that $4,000 per year in tax savings and invest it over the
next 30 years, assuming you earn 11.5%25 on your investment,
you end up with $1,048,745.98 at the end of the 30 years.
And here's the best part about this scenario: Where did you
get the $4,000/year to invest? Well, you got it from money
that would have gone to Uncle Sam. It's money that you
used to spend on taxes, part of the 32%25 of your income
that goes
to taxes each year.
In effect, it's free money. It's money that was always
there -- you just didn't realize it.
Is this a good deal or what? By simply reducing your taxes,
the government will finance your million-dollar retirement.
And let's say your tax situation is such that you save
$2,000/year instead of $4,000/year. Same assumptions: you
invest the $2,000 each year at 11.5%25 for 30 years. End
result: $524,372.99. Not too shabby, eh?
So all you have to do is come up with the tax-saving
strategies that will put $2,000 or $4,000 in your pocket
each and every year. Which brings us to Step #4.
STEP #4: Get Hold Of The Tax-Saving Strategies That Will
Make You A Millionaire
You know, it doesn't really take much information to save a
bundle in taxes. It is true: just a little bit of tax
knowledge goes a very long way.
Useful tax information is freely available. On the Internet,
at your local library, and through your local tax
professional.
The question is: Are you willing to spend some time this
year learning about effective tax strategies that can save
you literally thousands of dollars?
Here's a simple goal to set for yourself: Over the next 10
weeks, set aside just an hour a week to read up on tax-
reduction strategies. That's all, just 10 hours.
Chances are you'll find 2 or 3 strategies that reduce your
tax bill by $1,000 this year.
So you spend 10 hours and, in effect, pay yourself an extra
$1,000 for your time. Not a bad hourly rate, eh?
Many times, that's all it takes to pay less tax.
ABOUTH THE AUTHORWayne M. Davies is author of 3 tax-slashing eBooks for small
business owners and the self-employed. For a free copy of
Wayne's 25-page report, "How To Instantly Double Your
Deductions" visit http://www.YouSaveOnTaxes.com |
