According to the Internal Revenue Service, the average tax refund is around $3,000.00.
Many people treat those Tax Refunds like a year-end piggy bank or worst, like winning a small lotto ticket. They buy TVs, go on vacation, and make down payments on cars and one thousand and one other things that they don’t realize are keeping them trapped financially on the sidelines.
What a Tax Refund really means is that, if you’re overpaying, you’re providing an interest-free loan to our government each year.
Banks charge interest, Credit Card Companies charge interest, even the IRS charges interest and penalties if you owe them. So why aren’t you in the game when it comes to your own money?
“Underutilized” Tax Refunds
A $3,000 Tax Refund makes out to be $250 per month missing out of your monthly household income. If you use that $250 per month to focus on eliminating debt and building wealth correctly, you’ll find it will go a much longer way than having the government hold it for free and send it back to you:
Debt Elimination – Use that extra monthly cash flow to pay down debt.
Pay down the principal of your car loan or mortgage. In doing so, you could possibly cut your loan in half and eliminate credits cards from your life forever. For the average person, the only good debt, is no debt. Debt Financing is one of the oldest hustles and financial traps around. It’s has become so much a part of the American lifestyle, that we’ve been conditioned to not ask about prices of things anymore, but ask about monthly payments or subscriptions. This addiction to debt also contributes to the fact that the average American today is only $500 and paycheck away from bankruptcy.
And a coalition of banks, credit card, and other debt-related companies seem to want to keep it that way. These companies spend billions of dollars in advertising & lobbying legislators each year. In fact, it’s been the most powerful lobby and influence over our government dating back to the 1700s with JP Morgan and other financial monopolists.
“But what about my business? How can I growth my business without banks, credit or giving up a chunk of equity.” I’m glad you asked that question. For business owners, there are some very good debt-positioning strategies that decrease your reliance on banks and credit while contributing to your business growth and personal wealth…which is the next area of focus.
Wealth Building – Use the displaced cash flow for tax overpay to build your own financial fortress.
Imagine if you could go back in time to when you were in high school or college and you received your first paycheck. You know, when you were first slapped in the face by that FICA guy. Imagine if you were to have started investing monthly all of the cash that you reserved for taxes and received back through Annual Tax Refunds. Those initial investments & returns would have started out slow & low because you were in a low paying job, but as your income began to rise, your investments would have started to gain traction.
For simplicity, let’s use the $250 per month as an example. If you’d invested in a Roth IRA earning at least 10% annually, you would have earned about $61,000 in 10 years. After 20 years you’d gain about $211,000. And after 35 years, you would have amassed just under $1,000,000. Through the magic of compounding interest and tax-free investing, you’d be a millionaire after only 35 years!
Of course it all sounds easy mechanically because IT IS, but psychologically, it takes tremendous amounts resolve and discipline. Especially, if you’ve been conditioned to be a shopaholic, or have very limited income, or have little to no accountability or support.
“Leveled Out” Tax Strategy
The good news is that it’s never too late to get started and even if you fall off, you can always get back on track with debt elimination and wealth-building goals.
“So how do I reclaim my underutilized tax refunds and/or allocate for wealth-building?” Another good question, thank you. Part of a good tax strategy is to “level out” your taxes. Your tax goal is not to overpay or underpay. If you’re an employee, you can adjust your W-4 with your employer to take out the proper amount. The IRS has a withholding calculator at irs.gov that can help you figure out the proper amount to take out of your check.
If you’re a contractor, freelancer, or small business, you can set up a profit-building and/or wealth-building budgets and tax-free or tax-deferred savings vehicles. This is where working with a tax professional is most valuable.
The average person thinks that their federal income tax bracket is what they pay. But, it’s not. The average American actually pays about 11% of his or her income in federal income taxes.
Some people pay 20-30% while others pay close to zero. But, what determines what you actually pay is based on a combination of how much income you generate; how you invest your profits, and how well you take advantage of potential deductions.
The average person has no strategy and only thinks about taxes around only March, April and May. The average person thinks that he or she can do their taxes for $9.99. They can, but the average person doesn’t realize how much that $9.99 is actually costing them.
Many cookie-cutter tax firms and big-chain companies view this as an opportunity. One popular tax software company boasts “It doesn’t take a genius to file taxes” or something like that.
Well, it may not take a genius to file your taxes, but it does take a professional if you want your taxes done the right way with all of the strategic considerations necessary to receive the best deductions and position yourself to win over the long haul.
Get Sirius about Your Taxes
The bottom line is that you really need to get serious about putting a tax strategy in place. We advise our clients that tax season begins January 1st and ends December 31st. Taxes are as much a part of your business as sales revenue is. What I’ve found in working with hundreds of business owners is that most spend countless hours strategizing about gaining more clients and revenue and not enough time strategizing about how to retain it all.
Often times, the amount of time, money and energy spent strategically retaining cash flows and eliminating waste is only a small faction (2%-5%) of the time, money, and energy spent in attracting new sales revenue, but results in the same bottom line profit.
If you’re a Contractor, Freelance Professional, or Smaller-sized Business and interested learning more about effective bookkeeping & tax strategies, reach out through our website: http://TaxKrunch.com
To Your Success!