Pay Your Taxes and Be Happy

By: Joe Morgan

Jul 1, 2021 | TaxesCharityRetirement401kSavings AccountLifestyle

Prefer to listen rather than read? Pair this post with Deliberate Money Moves Podcast: Pay Your Taxes and Be Happy.

Maximize Available Tax Breaks for Your Existing Strategies

The goal with taxes is not to pay the least amount of tax – it’s to keep as much as you possibly can. There are lots of strategies out there designed to minimize taxes, and unfortunately, many of them also minimize what you take home.

Many people see the tax breaks others get by donating to charity and wonder why that’s the case and whether it might work for them. Well, it might – but you first have to WANT to give to charity because when you give to charity and then get a tax deduction, you are still left with less money than if you had simply not given to charity and paid more in taxes.

Don’t Let Taxes Drive Your Strategy

We never want taxes to drive our strategy, because it’s far too easy to end up doing things we simply don’t want to do. Heck, it’s easy to minimize taxes – just don’t make any money. But of course, that’s not the point.

One way we CAN use taxes to help along the way is when we are saving for retirement. Once we’ve determined we will save, then we think about HOW we are going to save for retirement:

  1. Are we going to use our employer’s 401k
  2. How about the Roth option in the 401k
  3. Maybe we should focus on our savings outside of employer plans (that way we won’t have to pay taxes in retirement when we make withdrawals)

These decisions are affected by the tax code, but we need to consider a lot more than just taxes when determining how to save and invest our nest egg.

The IRS is Going to get What’s Theirs

Look, I get it – I don’t want you to pay any more in tax than you have to. But we have to understand that the IRS is going to get their portion of our earnings. We just have to optimize how that works so we aren’t paying MORE than our fair share.

Tax strategies come in all forms. From savings, like I’ve already mentioned, to adjusting income or investing strategies.

Choose a Strategy that Fits Your Needs

The best tax strategies for you will be different than the best tax strategies for your neighbor and this is primarily because what you and your neighbor are trying to do are probably very different.

We have to keep our eye on what we truly want – we have to focus on exactly where we want to go, financially, before we can understand the best way to get there. And taxes are just something we optimize along the way.

This week’s Best Financial Life tip of the week: Pay Your Taxes and Be Happy.

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