Many of us like to save money (especially if you consistently read these articles). And we do things like refinancing our mortgage or buying a fuel efficient car all in the name of saving money.
These are all great things.
But there is one expense that gets flat out ignored for most of the year. And for many folks, especially high earners, this expense is one of the largest expenses you’ll ever have. You might have guessed it already but I am talking about taxes (riveting right?).
Taxes can be a huge expense especially as your income increases. For many people, it is close to if not the biggest expense they have all year.
This is why good tax planning can make such a big difference especially over a lifetime.
One misconception that I see all the time is most people think that taxes stop once they retire. This is certainly not the case (at least for most people).
Nowadays, most retirements in America are funded by social security and retirement savings. Both of these sources are taxable more often than not. Up to 85% of social security is taxable once you have income over certain limits and many people have most of their retirement savings in traditional retirement accounts (not Roth) which will be taxed once you take it out in retirement.
For those of use that like being law abiding citizens, taxes are here to stay. The question now becomes what do we do to lower our tax bill within the bounds of the current tax law?
The problem is that most tax strategies don’t work for everyone. Something that works for a business owner may not work or may not even be available to an employee.
This is why it is so important to educate yourself on what options are available to you so you can make educated decisions. Often, your tax professional can be a huge help in this arena.
Taxes may not be the most exciting topic, but a little energy in this area can make huge differences over a lifetime.