Taxes on the mind
The following is an article I recently read that was very interesting with all the talk of Trump Tax Cuts. Read and contact me to discuss.
Protect Your Legacy from Taxes
Doug Andrew May 5th, 2017 LIVE ABUNDANT
Last month, the nation’s mind was on taxes. Millions of Americans were rushing to make the tax deadline, assessing how much they had already sent to the government (and hoping against hope they didn’t need to send more). Whether you’re getting a refund or writing a check, filing tax returns can be a chilling reminder of just how much of our hard-earned money goes to national coffers. While I’m a big believer that we all need to contribute to the services that benefit us—defense, highways, public education, etc.—I’m also a believer that we shouldn’t have to pay more than necessary, just to feed Uncle Sam’s spending habits.
The government giveth and the government taketh away. Even though President Trump believes in a philosophy like Ronald Reagan—that it’s better to raise the revenue that’s being taxed than raising taxes—effective tax rates will likely increase (sooner or later due to elimination of some deductions). Below are some positive highlights of the Trump Tax Plan:
Americans can expect a sizable increase to the standard deduction allowed when filing taxes, permitting taxpayers to keep more of their income—to the tune of a couple thousand dollars.
Although it calls for the elimination of the majority of personal tax breaks, Americans currently enjoying a trio of deduction benefits can rest easy. Mortgage interest, charitable giving and the practice of socking away money for retirement—tax free—won’t be touched.
Whether you call it the ‘Death Tax’ or the ‘Estate Tax,’ it can add up to a serious chunk of change for families and family-owned businesses. Trump’s team is proposing to repeal it, along with the Alternative Minimum Tax (AMT).
Businesses get a huge break. The new plan proposes cutting the corporate tax rate by 20 percentage points, from 35% to 15%, a move that would also apply to owner-operated companies, which includes many small businesses.
They want to make it more simple: 90% of taxpayers need help when filing their taxes, per National Economic Director Gary Cohn, who noted 7 billion hours are devoted to navigating the complicated system each year. The 1040 form has 79 lines and 211 pages of instructions. Instead of a single form, the IRS now has 199 tax forms just on the individual side of our tax code, said Cohn, who promised to keep it simple by “taking the current seven tax brackets we have today and reducing them to only three brackets—a 10 percent bracket, a 25 percent bracket, and a 35 percent bracket.”
The problem is, even with promises of huge tax cuts ricocheting around the new administration’s rhetoric, the long-term prognosis for taxes still doesn’t look bright. Whenever I speak, I ask audiences, “Who thinks taxes (if lowered) will stay down in the future?” I get nothing but crickets. When I ask their opinion about the likelihood of tax increases, a sea of hands goes up.
I’m not surprised. America is addicted to spending—from programs like Social Security and Medicare to defense and countless other initiatives—the outgo continues to far outpace the income.
With the long-term reality of rising taxes, I look for every valid and legal way to maximize my income and minimize my taxes. I’d rather redirect my money for causes I support that can truly make a difference for my country, as well as my family, than give that cash to the government in unnecessary taxes (that won’t necessarily benefit the greatest national needs).
You may be thinking, “Well, that’s true, but I won’t have to worry about it too much in retirement. I’ll be in a lower tax bracket then.” What you also may not realize is when you reach retirement, you may lose many of the deductions you once enjoyed, such as home mortgage interest, dependents, and retirement plan contributions. And if you’re a business owner, you’ll be losing even more deductions. It’s what I call the Deduction Reduction, and it means that although you may have less income during retirement, your taxable income may be just as high or higher!
If you don’t take action to avoid paying excess tax, you’ll most likely be in for a rather unwelcomed surprise during your retirement years, which could result in living a lower lifestyle or worse, outliving your money, which means you won’t be able to leave a financial legacy for the family.
The key to minimizing taxes is to take ownership—being responsible and accountable—for your own future. As you take ownership in your own future, I encourage you to look at which financial vehicles will give you more bang for your buck, especially when it comes to tax savings. While plans like 401(k)s and IRAs give you a tax break on the front end, you’ll get hit on the back end when you take out money during retirement. You’re likely to find yourself in a tax bracket during retirement that’s as high or higher than today. Roth IRAs will help you get your taxes over and done with, but there are still several strings attached.
Financial vehicles like max-funded tax-advantaged insurance policies (what I call LASER Funds in my upcoming book), provide powerful liquidity, safety, predictable rates of return, and unrivaled tax advantages (as in the opportunity for tax-free income during retirement and a tax-free death benefit for your heirs).
Whichever vehicles you choose to create your own mix of financial strategies, keep in mind that as you identify ways to save on taxes, you’re essentially redirecting those otherwise payable taxes to causes you care about—charity, church, new business, and, most important, your family’s Legacy Bank. You’re being self-reliant vs. government-reliant; independent vs. dependent; and having skin in the game vs. getting something for nothing. Paying less in taxes means having more control about how your money benefits the people and efforts you care about today—and that of future generations.