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4 Simple Steps To Reduce Your Taxes In 2006
By: Wayne M. Davies
Does Tax Season get you down?
Here are 4 simple steps that any small business owner can take to lower your tax
bill this year.
STEP #1: Understand How Serious Your Tax Problem Is
Are you aware of just how much in taxes you are paying?
Here's how much the average family spends on various consumer categories -- as a
percentage of income.
You must realize that it's not how much you spend on taxes that is important,
it's how much you spend on taxes as compared to all other major categories of
spending.
Consumer Spending:
How Do You Spend Your Hard-Earned Dollars?
Taxes ---------------------- 32.0%
Housing -------------------- 16.7%
Medical Care --------------- 11.5%
Food ----------------------- 8.2%
Transportation ------------- 7.9%
Recreation ----------------- 5.7%
Clothing ------------------- 4.1%
Savings -------------------- 1.4%
Other Miscellaneous -------- 12.5%
TOTAL --------------------- 100.0%
So, if you think you are being "nailed" by the government, you are absolutely
right. You spend more on taxes than any other category of consumer spending.
In fact, you spend more on taxes than on food, clothing, and housing combined.
And it's not just federal income taxes we're talking about here. There's also
state and local income tax, payroll tax (Social Security and Medicare), sales
tax, excise tax and property tax.
Maybe you already knew "intuitively" that your tax bill is outrageously high. If
not, the picture I've just painted should thoroughly convince you that you pay
too much tax, period.
STEP #2: Get The Right Attitude About Your Taxes
What do I mean by this? Well, you simply must have a certain "mental attitude"
toward this whole idea of paying taxes. I'll get right to the point -- you must
have an attitude about taxes that says, "Enough is enough. I'm paying way too
much tax and I don't like it. And it's about time I did something about it --
TODAY!"
After reading those numbers above, how do you feel? Doesn't that just make you
furious? If so, great, then you are on your way to solving this problem. The old
cliche is true: "You can't solve a problem until you admit you have one.")
If you saw those numbers above and said, "Big deal. So I pay 32% in taxes. So
what? So does everybody else in this country" -- well, I'm sorry, but you might
as well just stop reading this article right now. You will continue to pay too
much tax because you really don't care about it.
To reduce your taxes, you must be committed to the idea of paying less taxes.
Before today is over, go get last year's personal income tax return (Form 1040)
and look at how much tax you paid.
When you have Form 1040 in front of you, do you realize where the most important
number is on this form?
No, it's not Line 71 -- the refund amount.
No, it's not Line 74 -- the balance due amount.
The most important number on Form 1040 is Line 62.
It says: This is your TOTAL TAX. That is how much federal income tax you paid
for all of last year. When it comes to reducing your taxes, it doesn't matter
whether you got a refund or whether you had a balance due.
What matters most is: What was your total tax liability for the year. That's the
"magic number" that should just make your blood boil and your heart beat so fast
that you can hardly stand it.
Now that I've got you all "riled up" about paying so much tax, let's move on to
Step #3.
STEP #3: Realize That Reducing Taxes Is The Easiest Path Possible To Creating
Wealth
Consider this simple fact: Reducing your taxes by just $4,000 per year is the
easiest way possible to becoming a millionaire.
Let me elaborate.
Let's say you implement some new tax-saving strategies that reduce your taxes by
$4,000 each year. Now, if you take that $4,000 per year in tax savings and
invest it over the next 30 years, assuming you earn 11.5% on your investment,
you end up with $1,048,745.98 at the end of the 30 years.
And here's the best part about this scenario: Where did you get the $4,000/year
to invest? Well, you got it from money that would have gone to Uncle Sam. It's
money that you used to spend on taxes, part of the 32% of your income that goes
to taxes each year.
In effect, it's free money. It's money that was always there -- you just didn't
realize it.
Is this a good deal or what? By simply reducing your taxes, the government will
finance your million-dollar retirement.
And let's say your tax situation is such that you save $2,000/year instead of
$4,000/year. Same assumptions: you invest the $2,000 each year at 11.5% for 30
years. End result: $524,372.99. Not too shabby, eh?
So all you have to do is come up with the tax-saving strategies that will put
$2,000 or $4,000 in your pocket each and every year. Which brings us to Step #4.
STEP #4: Get Hold Of The Tax-Saving Strategies That Will Make You A Millionaire
You know, it doesn't really take much information to save a bundle in taxes. It
is true: just a little bit of tax knowledge goes a very long way.
Useful tax information is freely available. On the Internet, at your local
library, and through your local tax professional.
The question is: Are you willing to spend some time this year learning about
effective tax strategies that can save you literally thousands of dollars?
Here's a simple goal to set for yourself: Over the next 10 weeks, set aside just
an hour a week to read up on tax-reduction strategies. That's all, just 10
hours.
Chances are you'll find 2 or 3 strategies that reduce your tax bill by $1,000
this year.
So you spend 10 hours and, in effect, pay yourself an extra $1,000 for your
time. Not a bad hourly rate, eh?
Many times, that's all it takes to pay less tax.
About the Author:
Wayne M. Davies is author of 3 tax-slashing eBooks for small business owners and
the self-employed. For a free copy of Wayne's 25-page report, "How To Instantly
Double Your Deductions" visit www.YouSaveOnTaxes.com
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