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The 2017 Challenge: Reduce Your Income Tax Bill By 15% to 30% – MillionaireDowntheRoad.com

My dad with my brother John (left) and Ken Corba (right) looking for creative ways to reduce his income tax bill.

When my dad started his investment program at age 57 in 1978, he wanted to reduce his tax bill but he didn’t truly appreciate how critically important this one action would be in his quest to accumulate retirement capital.

It’s tax time, ladies and gentlemen, that special time of the year when we pull together an ever-increasing number of tax slips and come up with our annual tax return, secretly hoping that some miracle deduction will appear out of nowhere to turn a balance owing into a refund.

This spring-time ritual will be repeated by all of us till death do us part. Since you’ve made, or more accurately, this long-term commitment has been made on your behalf, it behooves you to develop a tax planning strategy that minimizes current taxes and defers taxation to the future whenever possible.

Why is this important? It all relates to how we accumulate wealth. Perhaps the best way to portray this concept is to use the analogy of a bucket filled with water. The initial amount of water in the bucket represents your accumulated capital. Annual capital additions (savings or investments) can be represented by water being added to the bucket while annual taxes paid can be represented by holes in the bucket that leak water out every year. Annual return can be represented by additional water being added to the buck each year in the amount of that return. For example, you would add 10% more water to the bucket if you made a 10% return or 5% more for a 5% return. The last part of the equation is time: how many years are you going to repeat this process?

We can summarize the wealth accumulation formula as follows:

(Initial capital + annual capital additions – taxes paid) X (1 plus annual % return) X (number of years)

Once we retire, we need to add another hole to the bucket to represent annual redemptions taken out of your portfolio to fund your retirement.

As you can see, tax efficiency is a key factor in determining how much capital remains in your bucket, both in the accumulation phase and the redemption or retirement phase.

Most people file their tax return and leave it at that. Unfortunately, doing more of the same will just continue getting you the same old results. My dad didn’t think that way and I don’t believe you should either.

The best case scenario in filing your 2014 tax return is that you to finally say ‘enough is enough’ in terms of how much tax you’re paying and actually decide to do something about it. For best results, focus your planning and action on three key variables:

1. Minimizing current taxes
2. Deferring taxes to the future
3. Reducing taxes on retirement income

Since the benefits of sound tax planning may take some time to translate into actual tax savings, I want to challenge you to rethink your whole approach to tax planning over the next 3 years, with a goal of dramatically reducing your tax bill by the year 2017.

Here’s how we’re going to do it.

Once you’ve completed your 2014 income tax return, dig out your 2012 and 2013 returns and jot down how much tax you’ve paid in each of the last 3 years (including 2014). We’ll use this information to create an ‘income taxes paid’ average so we have a number to compare your future tax bills against.

Is it going up, staying the same or going down? Regardless, I believe that each of us can reduce our tax bill by 5% to 10% each year over the next 3 years so that by 2017 you’re saving 15% to 30% on your annual tax bill. For example if your taxable income is $ 80,000 you’re currently paying approximately $ 17,650 in taxes.

What would you do with annual tax savings of $2,650 to $7,300 in perpetuity? How about that once-in a-lifetime trip you’ve been putting off, retiring a year or two early or enjoying the quiet satisfaction that comes with knowing that your hard-earned dollars are in your pocket rather than the government’s.

What do you think? Are you ready to take up the 15-30% 2017 tax challenge?

Drop me a line and let me know you’re in – I’ll take care of the rest.

Remember, it’s your money, don’t let it go without a fight!

Source: The 2017 Challenge: Reduce Your Income Tax Bill By 15% to 30% – MillionaireDowntheRoad.com

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