Ah, the tax man cometh. What a great topic considering I just finished taxes for personal and business and I have to say that it is the most I have ever paid in my life. And you know what I did? I was happy to pay it. I know that sounds weird but think about it…
If you’re at the point where you’re making enough money where you “get to pay taxes,” then isn’t that kind of a signal that hey, you’re doing things, you’re handling your money such that you’re not giving it away to the government right away when you make it but after you’ve tallied things up and when you’re ready to pay.
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It’s one of those things that I’ve read in the “Be a millionaire by thinking better and changing your mindset” by T. Harv Eker and Felix Dennis and other people. It’s just like “Hey, you shouldn’t feel bad about paying taxes” because it just comes with the territory. You make more, you pay more, so get over that.
Now if you’re thinking about how can you avoid taxes, I would say that’s probably the wrong mindset because you can’t avoid it altogether. You can only minimize the impact or optimize your business such that your taxable income is lower. For business ventures, it just depends on which vehicle you pick.
If you’re a sole proprietorship, you’re going to pay the full amount for self-employment tax. If you’re a corporation, you’re going to pay somewhere between 7% to 10% less because of whatever Medicare, Social Security and other benefits that you can roll into that and work with, but it’s a lot more complex.
You can also itemize all of your deductions and that’s a matter of tallying up the hundreds of receipts that you have, and I still do that. Well, my wife helps, certainly. It doesn’t always get you to the point where you overcome the standard deduction and it makes a difference but for several years in a row we itemized every single thing.
It was always greater than the standard deduction and totally worth the couple of hours of going through those numbers and really spending some extra time on this. Or paying someone the $200-$300, CPA-type person to do it for you. If you’re saving thousands of dollars and you put the $300 up front, it’s kind of a no-brainer on the amount of difference there.
So if you’re wondering about how to avoid taxes, I’d say you need to approach it from a different perspective and that is really diving into each of the sections of whatever Turbo Tax or H and R Block program that you use or have someone that can be recommended to you that’s AAA graded by the IRS and is really good at the whole tax return thing and has a good reputation with the money changers.
All that effort and research that you do up front to make sure that you’re keeping as much as you can, investing pre-tax, getting every deduction that’s coming your way and that’s due to you and diving into all of the opportunities you have to keep as much money as possible from being considered taxable, that is the only way you’re going to avoid the biggest hit for taxes.
Think about that, talk to someone in the know. I’m just a guy who does taxes. I’m not certified or anything. Take it with a grain of salt but I hope that gets you started on the right path.