Common Sense Millionaire
Common Sense Millionaire
EP 14: How to Uncover the Power of Tax Planning and Secure Your Wealth
Are you ready to take the reins on your financial future?
If so, I've got a show filled with insights on the often overlooked aspects of tax planning. I'll guide you through the process of aligning your withholding with your projected tax liability and delve into the tax benefits of retirement funds and savings plans. You'll leave this episode armed with a wealth of knowledge, including how to calculate your tax liability, understand your payroll information, and assess your investment statements and healthcare costs. Plus, we'll unravel the mystery of how a mortgage can affect your taxes.
I'll be exposing some game-changing strategies to reduce self-employment (SE) tax, a revelation that could save you a significant sum, but we'll also underscore the importance of open discussions with your family about your financial plans and the commitment needed to stick to them.
This episode could potentially change your lifestyle, business, and future.
Tune in and get ready for a journey to financial freedom!
Thank you for listening to The Millionaire Mindset Podcast with George Dines.
To connect with George visit www.georgedines.com
To Schedule a call with George visit: https://georgedines.com/contact/
Welcome to the Common Sense Millionaire, where we work to promote your financial advancement in knowledge process and education so that you and your family become financially secure. This is the place I share Common Sense Action Steps that you can take today to assist your financial advancement. So sit back, grab a drink and let's get started. Common Sense Millionaire, here Today we're going to talk about tax planning, and you know there's a funny saying about tax planning and it goes like this if you don't plan, you plan to fail, and that is very important in the tax area.
Speaker 1:Why is this such a big topic now? It's because typically, what happens is you have a paycheck and you get paid. Taxes are withheld. Then you file your taxes and your tax preparer gives you either the bad news that you owe money or that you're getting a refund. The reality of the situation is that the federal government, through the IRS, they don't want to pay you money back and they don't want you to owe money. They don't want you to owe money because if you haven't been managing your activities properly, you probably don't have the money to pay what you owe and the government doesn't get its money. If you have set it up so that you get a refund. The government doesn't really want to give you a refund because that costs money. Either they have to pay fees to deposit that refund or send you a check. So the wonderful neutral situation is that at the end of the day, you don't owe them a dime and they don't owe you a dime. So that's why tax planning is important.
Speaker 1:When we do tax planning, what we do is look at all of your potential earnings for the year. That would be salaries, also potential interest earnings from investments or other activities, and we all know that these things vary from year to year depending on what you're doing and especially as to whether or not you have a small business. We take a look at that. We actually compute what your tax liability is going to be for the end of the year. Look at your withholding to make sure that the withholding matches up with what the projected amount that you owe is. That means at the end of the year when you file your taxes, you don't owe anything. You don't owe anything, so you don't have to scratch or figure out where you're going to get the money to pay your tax bill. If anything, you may get a small refund. That's okay if you get a small one, but you don't want a large one, because if you get a small refund, that means you're able to match up expenses and revenues. So instead of getting one big chunk of money at the end of the year, you could then divert what you know would have been your refund into investments and that way you start building up funds for retirement or funds to assist in the purchase of a home or something that you need to do for the kids you got to buy a car. That's how you do that. This is very important.
Speaker 1:Now, a lot of people are not very happy with tax planning because one it makes you get into for lack of a better word your business. Okay, but it's extremely, extremely important. I've had so many people that I work with that once they see what the plan looks like. It may be a little rough implementing in the first year, but over time it just becomes a regular issue that has to be talked about and action taken and recommendations on what to do with the funds that you don't have to pay to the federal government.
Speaker 1:Tax planning is a little bit more difficult if you have a business. It's very important to understand that with your business. If you have a simple LLC net income will result in additional self-employment tax. We need to look at that and you also need to look at that to find ways to mitigate having to pay that money. I always say that in the case of a LLC that's making money, hey, you can do any number of retirement options, savings, where the amount that you're investing is an expense to the entity, and I think it's better to give the money to yourself than to give the money to the government. Those are the important issues relating to tax planning. The tax planning documents we produce are pretty detailed and allow for various levels of analysis, depending on what you're expecting your business to do or any other activities that you want. It even takes into account child tax credits, any type of other dependent payments, if your mother or father might be a dependent. All of that can be modeled very clearly and concisely, and then at that point, it's up to you to make decision what you're going to do. Are you going to advance or are you going to stay in the same rut, worrying about how am I going to get this money together to pay the government?
Speaker 1:What do you need for a proper tax plan? First thing is we need to know what happened in the past. I always ask for two years of tax returns so that I can look at what your income is, what deductions you have and, even more importantly, what items you've missed, that we could probably get you some additional money back from the federal government. So we look at the returns, analyze that. Then we also need from you your most recent payroll stuff so we can know where you are from your salary and we can look at what withholdings you have, especially to see if you have any retirement withholdings. We also need the most recent investment statement. If you're investing with, say, any of the major brokerages, you could get a quarterly statement from them and we'll take a look at that to see what you're investing in and also, more importantly, what you may be selling or what the company may be selling on your behalf that could be generating income that is reportable. When you file your taxes, we also need to understand any additional healthcare costs that you're paying for that are not part of your health plan. This is extremely important for people who have high deductible health plans and also just generally in case there's a member of the family that has a situation going on medically that could be beneficial to you from a tax perspective, as long as it falls within the IRS guidelines Also need to get an understanding of what your mortgage is.
Speaker 1:So we'll need your mortgage information how much you're paying every month. We'll also need the most recent mortgage statement, which is for the prior year. We wanna just see where you are and we're looking to see if there are any special charges that are in there, like different mortgage charges, because you may have had to get mortgage insurance in that situation. Also, any plans that you have for the current year or the year going forward. That might be important. Are you taking a chunk of money out for vacation? Do you have to buy a car?
Speaker 1:We also need information if you have a business.
Speaker 1:What are your expected revenues for the year? What are your expected expenses for the year? Is your business funding or retirement plan for you and or your spouse, if your spouse is in the business? Are you in the right structure in your business? Is there a structure change that makes more sense for you than what you have right now? That we could do something about that before the year is over to make sure.
Speaker 1:I think one of the more important issues are folk that have LLCs that are quite profitable, but they are paying additional tax for the net income on that entity. So we look at what entities are out there that specifically can reduce the SE tax paid as long as you are paying yourself a salary in that entity. Those are the real things that we need in order to start the analysis but, most importantly, follow up afterwards with you and the family so that we can make sure that you're on track and that you're moving in a direction that you want to be moving in, and not that you're forced to be moving in because you didn't do any planning. So, to wrap it up, here's what you really need. One, I need to get information where you were and where you are right now so that we can compute where you're going to be. Two, don't be embarrassed. There's nothing embarrassing about this. That's hard for me to say for you, but don't be embarrassed. This will open up the areas of discussion, not just between you and me, but also within the family, and I think it's very important that the family understand the process that you're going through, because this is for the benefit of the family.
Speaker 1:And lastly, stick with the plan. When we look at the plan, when we produce the plan that you want. Stick with it. You can't cut it off in the middle of the cycle. This is extremely important. Stay with the plan and your future is going to look a lot brighter. You've been listening to the Common Sense Millionaire, where you can learn how to go from zero to a million using common sense solutions to everyday financial issues. Make sure and subscribe to stay connected for more content, tools and help so you can advance towards your financial goals. If you need assistance or have questions, leave a comment or you can email me at george at commonsensemillionairecom.
