How to Lower Your Taxes

It's that time of year again and everyone is getting amped up about filing taxes, right? Well regardless of whether your president will be paying his or not, chances are you have to. And if you're like many people, it's a kind of painful process that results in you owing the IRS a little bit of money. Not to worry though because I've got a tax secret no one is talking about. Guaranteed way to pay less taxes, period!

To set the scene, let's talk about how income tax works for just a moment, as many people don't actually understand this part. Since this is the most boring subject on the planet (literally), we'll keep it simple:

  1. The tax bracket you fall into is not the rate at which all of your earnings are taxed
    • Instead it works in tiers. You pay a certain percentage for the dollars that fall within each tier.
    • For example, if you filed as a single person for 2016, you paid:
      • 10% on the first $9,275
      • Plus 15% of the dollars between $9,276—$37,650
      • Plus 25% of the dollars between $37,651—$91,150
      • Plus 28 % of the dollars between $91,151—$190,150
      • Plus 33% of the dollars between $190,151—$ 413,350
      • Plus 35% of the dollars between $413,351—$415,050
      • Plus 39.6% of anything over $415,050
    • You can't just multiply your tax bracket % by your total income to figure out what you owe because if you do you will overpay. If you're not clear on the math, just use one of the many online calculators to estimate it, or something like Turbo Tax to actually file your taxes (they do all the hard work for you).
  2. There are certain expenses which are deductible, such as traditional 401(k) contributions, healthcare costs, and many others. The tax law here gets incredibly complicated so I won't try to summarize it other than to say, you should be aware that there are many deductions available which reduce your taxable income, therefore reducing the taxes you owe.
Awesome, now that we've set the scene, here's the secret! 

You don't need to know any of that to significantly lower your taxes, all you have to do is buy less crap. 

It's true. Everyone loves to get all worked up about Income Tax, but no one ever thinks to talk about Sales Tax. You pay a flat sales tax amount based on the state you live in (in Texas we pay 8.25% on almost all goods and services at the consumer level) on almost everything. The less you fall for the tricks of advertisers and make stupid purchases, the less tax you pay, period. For the math nerds out there, here's the super-complicated formula:

salesTaxPaid = (unitPrice * quantity) * salesTaxRate

You only have true control over one of those variables, quantity (you could argue price, but who has time for that?). So.... BUY. LESS. CRAP. It won't make you happy!

Popular posts from this blog

A Question About Stars

AGILE Product Development Adapted for Business Transformation Projects

Mitigating Financial Risk: Practical Steps to Guard Against Economic Uncertainty