In today’s episode, we will finish the tax planning portion of your financial training plan at the long-course level.
We can compare this to the technique and efficiency work in your triathlon training plan.
To help you keep more of your resources throughout your lifetime, we want to ensure your tax strategy is well-designed.
My goal today is to give you some practical concepts to consider to improve the tax efficiency of your financial plan.
You will want to hear this episode if you are interested in…
- Using how much you paid in taxes last year to calculate your lifetime tax bill [1:42]
- Common tax myths [4:38]
- Shadow taxes [5:33]
- Your homework [10:18]
Why it is important to minimize taxes over your lifetime
Back in episode 31, we were checking to see if you were paying more in taxes or whether you had a balanced approach. In our last episode with CPA, Steven Jarvis, we discussed how to minimize your lifetime tax bill without going to jail.
If you want to minimize the taxes you pay over your lifetime, first take a look at how much you paid in taxes last year. We’re not looking at the payment you made in April, but rather, the entirety of the money the IRS kept. Listen in to discover where you can find this number on your 1040.
If you are 45 years old and live an active lifestyle the odds are in your favor of living another 45-50 years. While you might not be super pumped about saving a couple thousand dollars on taxes in one year, if you multiply that number over the course of your lifetime, you could end up saving a substantial amount.
6 tax myths you don’t want to fall for
Many of us have preconceived notions when it comes to taxes. In Steven Jarvis’s book, Don’t Get Killed on Taxes, he shares 6 common myths about taxes.
- Taxes are a fact and you have no control over how much you pay.
- You should pay more in taxes.
- You’ve won the tax game as long as you get a refund.
- Since you use tax preparation software, you’re all set.
- Since you have a tax preparer you’re paying less in taxes.
- Tax planning one year at a time is enough because you know you will pay fewer taxes in retirement.
Beware of shadow taxes
The IRS denies the use of shadow taxes, however, there are two types of extra fees that you should be aware of. The first is Social Security inclusion. Social Security isn’t taxable only if you have a low enough income. However, if you have other income sources like pensions or IRAs, up to 85% of your Social Security income can be taxed.
The next phantom tax is called the Income Related Monthly Adjustment Amount or IRMAA. This monthly adjustment amount is attached to your Medicare payment if your income is over a certain threshold.
There are currently 5 IRMAA tiers that range from $70 to $419 per person per month. While this is not technically a tax, it substantially increases Medicare costs simply because you have other income elsewhere. So it certainly feels like a tax.
Listen in to hear how your silent partner in investing is waiting to collect on your investments and what you can do to lower the amount you owe to the IRS over your lifetime.
Resources & People Mentioned
- Episode 31 – Income Tax Planning – Olympic Level
- Episode 42 – How to Avoid Overpaying Your Taxes with Steven Jarvis
- BOOK – Don’t Get Killed By Taxes by Steven Jarvis
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