The myth. There’s nothing I can do about the amount of taxes I owe.
The fact. The tax code is full of choices we can make to ensure we aren’t tipping the IRS. Withholdings, filing status, qualified accounts, business structure, timing of income, and the list goes on. Don’t choose inaction.
The Myth. There’s nothing I should do about the amount of text I owe.
The Fact. There are no patriotic awards for paying extra to the IRS. You should only pay what you owe and look for every opportunity to owe less. Proactive tax planning gives you more control over how your hard-earned dollars are spent.
The Myth. Getting a refund means I won that tax game for the year.
The Fact. A refund is just an interest-free loan to the IRS. That’s it. It tells us nothing about how much the IRS capped. Taking intentional steps to reduce the total tax kept by the IRS is how we can get ahead and stop leaving the IRS a tip.
The Myth. All CPAs are tax planning experts.
The Fact. CPAs spend most of their time on compliance, getting the forms filed each year. Having a tax preparer can be a great resource but it does not mean you have someone looking for your proactive plan opportunities.
The Myth. It’s too early to worry about my retirement tax.
The Fact. Many tax savings opportunities are capped annually and how much you can benefit from them. The earlier someone starts being intentional about taxes the better.
The Myth. Tax laws are written by tax experts.
The Fact. Tax laws are written by politicians. There is always some motive behind the tax laws. They are not written by tax experts. A backdoor Roth was never intended to be a strategy but someone figured out this loophole.
The Myth. Tax laws are always changing, so there’s no point in planning – it’s all just a guess.
The Fact. Yes, tax laws are always changing, but it’s not OK to just let things happen. You still want to be proactive to have some level of control.
The Myth. My employer doesn’t offer a 401K so I can’t contribute to a qualified retirement account.
The Fact. Our country is made up of small businesses and not all employers have 401k plans. You do have options and opportunities to set up your own retirement plans to help you save for your future.
The Myth. I have a CPA so I don’t need a financial plan.
The Fact. A CPAs role is focused on tax preparation. Some may have expertise on financial planning but not all. Financial planners should be looking into the future of how your funds are managed.
The Myth. A million dollars in my IRA means I can take out a million dollars when I retire.
The Fact. Not true as you may have to pay taxes on these dollars if they are all in a pre-tax bucket. This is why taxes need to be looked at every year as you plan for your retirement. Decisions made today with the investments you choose, be it tax deferred or not, play a huge role on the amount of retirement funds you have when you retire.