Tax Planning Your Bridge to a More Stress-free Life
Leverage the Tax Code for financial freedom.
In my last posting entitled Tax Planning is an Investment Like No Other, we discussed how proactive planning to reduce, defer and sometimes even eliminate taxes offers stunning returns on investment. As a reminder, the investment is the fee you pay to implement a tax plan and your Return on Investment (ROI) is the tax savings you enjoy by taking advantage of tax law. The real ROI, though, comes in the freedom you have to spend those tax savings any way you wish!
Think out of the box and allow your imagination to soar. Do you have a daughter getting married? Why not let Uncle Sam pay for it through tax savings? Have you always wanted to sink your toes deep into the white sands of Oahu’s Hanauma Bay and snorkel in its clear blue waters? Let those tax savings pay for your dream trip. Or, perhaps, have you always wanted to buy investment real estate but didn’t have the funds for a down payment on a starter rental? You do now. Let the tax savings be your down payment.
Here is another choice: Use the tax savings to pay off debt. Doing so can also bring to you a stunning Return on Investment: Every dollar of debt that you decrease equals a dollar more in your pocket to save or spend elsewhere. That also is a 100% guaranteed no-risk return on investment!
Per a recent article published in the Huffington Post, the average U.S. household owes debt of $130,000. As of the fourth quarter of 2015, these debts include:
- Mortgage debt, with each household having an average mortgage of $168,614.
- Credit cards, which average out to $15,762 per household.
- Auto loans, which average out to $27,141.
- Student loans, which average out to $48,172.
Can you think of a better way to retire debt than by letting Uncle Sam pay for it? The client I mentioned in my last posting saved more than $70,000 in taxes simply by appropriately applying existing tax law to her situation. That would definitely pay for a wedding, a dream trip or the down payment for a starter rental.
Or perhaps you are facing something financially that is a burden and causing you great distress. Proactive tax planning just might be your cure.
Questions people ask
What counts as the return on investment from tax planning?
The return on investment from tax planning is the amount you save in taxes beyond the fee paid to implement the plan. This means more usable cash for your goals, whether that is personal spending, investing in real estate, or paying down debt.
How can tax savings be used beyond reinvesting in a business?
Tax savings create flexibility. In the article, examples included paying for a daughter's wedding, taking a dream vacation, covering a real estate down payment, or reducing debt. The point is that tax savings give you options you may not have had before.
Can tax planning help pay off existing debt?
Yes. Using tax savings to reduce debt effectively turns every dollar of tax saved into a dollar of debt paid off. This approach brings a straightforward, no-risk return because any debt reduced directly increases your available funds for other uses.
How much debt does the average U.S. household have?
According to the article, as of the fourth quarter of 2015, the average U.S. household owed total debt of $130,000. This includes mortgage debt of $168,614, credit card debt of $15,762, auto loans of $27,141, and student loans of $48,172. Some households hold several types at once.
What is a real example of tax planning benefits?
The article describes a client who saved more than $70,000 in taxes by applying existing tax law correctly to her situation. That amount would have been enough to cover a wedding, a dream trip, or the down payment for an investment property, demonstrating the practical impact of tax planning.