Since it is Tax Freedom Day according to The Tax Foundation (www.taxfoundation.org), I have decided to hopefully make it hit home a little harder. In case you don’t know what Tax Freedom Day is, it is the day each year that the average US taxpayer has stopped earning their aggregate tax bill for the year and is now earning money for themselves.
What if, instead of having your taxes taken out by your emloyer, included in your escrow payment on your house, or included in the bill at the restaurant/grocery store/laundromat, you had to write separate checks to each governmental institution that these taxes were owed to? Most business owners understand this concept, but the majority of Americans do not. It’s virtually invisible, so it has much less effect than having to pay these “takings” out of pocket. By the way, simple math tells us that a Tax Freedom Day of April 23rd is equivalent to 31% of our wages “taken” by various taxing authorities. I would venture to guess that the uproar over having to actually pay out of pocket for each of these levels of government would nearly cause a revolt. If nothing else, there would be a serious call for major auditing of budgets and possibly more importantly, a complete overhaul of tax codes and methods at every level.
Why is this important, you may ask? It is one of my goals as a financial advisor to help make sure that my clients are taking advantage of every tax break and method of tax abatement that they are legally entitled to. But it’s not just about saving on taxes now. As noted in a previous post, the best financial plans incorporate long-term strategies for tax planning. Maybe that involves a Roth IRA. Maybe it involves cash value life insurance. Maybe it involves maximizing the equity in your home. Long-term planning will help develop strategies and solutions for these and a host of other issues.
