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Archive for May, 2010

The best way to save money on your tax

Everyone knows that tax, like death, is inevitable. Are you going to take the attitude that because it is inevitable, you are going to do nothing about it? Do you really know how much you shell out in income tax and other taxes every year? Nobody is suggesting that you evade taxes but wouldn’t you like to reduce them to the minimum? Do you know and appreciate the difference between tax avoidance and tax evasion?

What does your liability for tax actually mean? Let us for a moment places your tax payment in perspective with your other expenses. Some statistics from the US suggest you spend about 17 percent of your income on housing and a little over 11 percent on medical expenses. Food and transportation will cost you roughly eight percent each. All this is however dwarfed by your tax payment which accounts for fully 32 percent of your income. If you feel that you are getting a raw deal, you are absolutely right because the government takes away in taxes as much as you spend on housing, transportation and food combined. When you talk about economising, you generally look at items of expense but shouldn’t you really be looking to save money on the #1 culprit-your tax payments?

Change your attitude about taxes. Do you want to continue to do nothing about your taxes because that is what is the fellow next door is doing? Or do you hate these unnecessary payments with a vengeance that makes you determined to do something. Recognizing that you can do something about paying unnecessary taxes is the first step to solving your problem. Are you now worked up enough to read on?

Saving on taxes pays long-term dividends. Let us assume that you find some tax saving strategy that will save you $4000 every year. If you invest this money every year for 30 years and you can manage an annual return of 11.5 percent every year you will accumulate over $1 million at the end of 30 years. Even if you can save only $2000 every year, you will still end up with a retirement nest egg of over half a million dollars. Certainly nothing to be sneezed at. Even more important, you have not cut your spending because the money has come from the government who would otherwise have taken it as taxes.

Devise your tax saving strategies: there is plenty of information available on how to save tax either on the Internet or in your local library. It is worth your while to do your research so that even if you identify several small savings, the cumulative effect on your financial position justifies spending time on it. Or you could simply go to a tax expert who will devise these strategies for you.

In this case, it is no exaggeration to use the old cliché that time is money. Get started on your efforts right away by hiring a quality tax expert and then let your savings multiply out of your taxes.

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