Here are some excerpts from The Tax Lady’s Guide to Beating the IRS And Saving Big Bucks on Your Taxes.
From Round 1 – Feeling Intaxicated? Dude, You Are Paying Way Too Much in Taxes
Call it dread, confusion, or indifference, but Americans’ avoidance of tax planning is costing taxpayers plenty. By postponing or ignoring the impact taxes have on our lives, and by failing to put an aggressive tax planning campaign in place that will minimize what Uncle Sam gets and maximize what we keep, taxpayers are painting themselves into a corner that can cost us tens of thousands of dollars, if not more, over the course of our lifetimes.
How are Americans shortchanging themselves? Usually by not claiming exemptions, deductions, and credits they are entitled to. They also shoot themselves in the foot with untimely investment withdrawals (e.g. from a 401[k], IRA, etc.). These decisions and miscalculations are the result of either not understanding or being indifferent to their personal tax situations. Over the course of a lifetime, a missed deduction here or a lost receipt there—repeated on an annual basis—can really add up.
Consider another recent study on taxes, this one by the U.S. General Accounting Office (GAO) in 2002. It reports that as many as 2.2 million people overpay their taxes annually because they claim the standard deduction instead of itemizing. The average overpayment to the IRS is $438. That may or may not seem like much, but nevertheless, that‘s extra money that could be used for food, clothing, entertainment, or maybe even one extra tankfull of gasoline (ha, ha). If that’s still not reason enough for you, then think about this: $438 dollars invested every year with a modest 10 percent return would yield $72,435 in thirty years! That’s money you could use for an extended vacation, to put your children through college, or to live off of in early retirement. Alternatively, in my case, you could go surfing for a year!
And that’s not all. The study’s results indicate that the less income earned, the higher the chance of needlessly overpaying one’s taxes.
|Income Level||# of Taxpayers Who Overpaid Taxes|
|$25,000 - $50,000||853,000|
|$50,000 - $75,000||774,000|
By reviewing the above chart, you can begin to see how the people who can least afford it are being most penalized by detrimental tax behaviors—or by just not having a basic understanding of taxes. As you can see, over 1.6 million of the 2.2 million people who overpay their taxes (roughly 74 percent) are those making less than $75,000 per year.
From Round 6 – The New American Dream—Tax Tips for the Self-Employed
Take care of your pennies and the pounds will take care of themselves.
There is a humorous story about the above quote. Apparently as a ten-year-old attending Sunday school back in Scotland, Andrew Carnegie, the powerful head of U.S. Steel in the early 1900s and the son of a hardscrabble Scottish weaver, was singled out by the teacher and asked to quote a passage from the Bible.
After replying with the above, the incredulous teacher admonished the young lad. “Surely,” the teacher answered, “such an passage is not in the Bible.”
“It ought to be,” Carnegie shot back.
Now there was an entrepreneur who knew the secret to running a business: take care of the little things and the big things will take care of themselves.
That is a good lesson for today’s self-employed business owners. In the tax world, the pennies can really add up, in the form of the many deductions and credits available under U.S. tax laws. The trick is to know where to find them—and how to use them.
That is a tall order for the growing number of busy entrepreneurs setting up shop in the 2000s. It is no secret that self-employment, particularly in the home-based business sector, is a burgeoning trend in the United States. In one sense, thanks to the Internet and a renewed sense of entrepreneurship among Americans, self-employment is a viable and highly attractive career option. On the other hand, with a flagging economy, many individuals are finding themselves transitioning along a new career path due to layoffs and corporate downsizing. Regardless of the motivation, too often entrepreneurs leap into the small business world without fully realizing what role taxes play in their move and how their tax status will change—and change significantly.
But what if the self-employed knew how taxes impact self-employed Americans? What if small business owners knew how to place their business in the best possible position to take advantage of tax laws? And what if they knew about the wide array of deductions available to those who operate a personal business? Then they could take advantage of those tax-saving opportunities and begin saving some those pennies—and dollars—that Carnegie was talking about.