Tax Planning - How to Keep it Interesting
Tax planning protects your nest egg from a real threat that is always evolving - taxes. If you are planning your retirement and not defending against a complex tax code that can erode your wealth, then it’s time to take notice.
The tax code is over 74,000 pages long so it is not an easy thing to tackle. But you can minimize the damage. And this article will show you how to stay on top of taxes and we won’t bore you in the process.
Everyone needs mental incentives to stay aware of tax laws and opportunities to save on taxes. And since this is not an exciting part of finance, it calls for a bit of gamification. Which is a method for keeping people motivated for all sorts of activities such as exercising, learning, and goal setting. Gamification is a way to stay alert and proactive when it comes to protecting your savings from no one’s favorite Uncle.
Win the Game of Tax Planning
Gamification is the process of using game mechanics, elements, and principles and applying them to non-game contexts to engage users better. Think back to elementary school and all those gold stars you received for learning your ABCs. Being able to read is the reward but humans need more immediate rewards, like those stars.
The same thing applies to taxes. Saving thousands of dollars should be the prize for paying attention to tax changes, right? But that’s not enough, because dealing with taxes will make you poke your eye out with a calculator. The tedious nature of it means we must set up incentives that keep us motivated to keep taxes in check.
This becomes even more crucial in retirement when your nest egg can be cracked and your income is solely reliant on those endangered savings. So instead of focusing on the future gains of tax planning, you can set up short-term rewards for tax wins. For example:
● Treat yourself to a special dinner for investing 60 minutes learning about estate taxes
● Upgrade your golf clubs when you save $2,000 on income taxes
● Schedule a day trip or massage when you save on property taxes
● Buy that new fishing rod when you make time to speak with a trusted CPA
*Gamification has been used successfully by massive online courses like Duolingo and has proven successful.
Tax Planning by the Rules
No one wants trouble with Uncle Sam. So tax planning must follow the rules. You don’t want to land in hot water like a group of state troopers did a few years ago. They were promised big tax refunds only to find out the company providing these amazing results was not playing by the rules.
The good news is you can still come out on top while staying within the tax laws. But you can’t know every detail or every opportunity to save on your own. Plus, tax law changes every year. That’s why it is vital to have a solid accountant to help you navigate the waters.
Speaking with other people about their tax plans helps too. Lived experience is valuable information that can help you avoid costly tax penalties and paying more than your fair share. Who can you look to for their thoughts?
● Fellow business owners
● Older family members who are where you will be one day
● Again, a trusted CPA
Competing with Taxation
One of the best ways to stay vigilant against over-taxation? No, not a tea party. I’m talking about competition. This technique has helped lots of people get fit by competing against others on the Fitbit app. Friendly competition prompts us to take action even when we don’t feel like it.
Of course, there’s no app that lets you try to win a tax-planning trophy. But it is possible to set up a competition among your friends, family, or colleagues. Or compete against yourself. See how much you can save on taxes compared to last year or do it monthly. And remember to give yourself a little reward when you win.
If this sounds a bit off the beaten path, that’s ok. You are dealing with a tax system that is bizarre and hard to fathom. Here’s proof:
● Since 2001 there have been more than 4,500 changes to the tax code
● Jeff Bezos got a $4,000 child tax credit in 2011 - when he was worth 18 billion dollars
Tax Planning is a Grind
No doubt that protecting your money from the tax collectors requires work. That’s why, according to The Motley Fool, only 30% of households itemize deductions. It’s so easy to take the standard deduction and move on with your life, right? But you are throwing money away that you can keep for your retirement or to hand off to the kids someday. Do you want those “thrifty” politicians to decide how to spend your wealth or do you want to take control?
That requires work and some diligence. I would compare it to getting a black belt in martial arts. That can take ten years in most cases. But if the student shows up week after week, they will receive upgraded belts along the way, eventually reaching their goal. It’s a gamification technique that offers a tangible reward so students don’t give up.
You won’t get any blue, purple, or black belts for succeeding with your tax planning. However, you can create some symbolic rewards that keep you motivated to protect your wealth before and during retirement. More importantly, the monetary rewards, you will notice each year and when your retirement fund is intact in your 60s and 70s.
Tax Planning in Visual Form
Over the years I’ve found the best way to convince couples that tax planning is super important is a comparison. Let people compare what $5,000 in tax savings looks like then ask if they would prefer to work a part-time job to earn that same $5,000. Saving a dollar is easier than working extra for it, right?
There are several ways to create a visual representation of this. Keep your budget on display. You can even turn it into a vision board of sorts. Use graphics to keep fresh in your mind what tax savings can do for you now and during retirement. Saving on taxes can help you retire on time, have the lifestyle you seek, and ensure your funds last throughout your golden years.
Daily visuals remind you:
A dollar saved is a dollar earned
You can avoid being overtaxed
Hard-earned money should be protected
These ideas are meant to keep your eye on the prize - your retirement funds. While also watching out for taxes that diminish those savings. Feel free to use whatever system works for you, whether you call it gamification or just motivation to be vigilant with your financial and tax planning.
I’ll leave you with a few of the biggest mistakes made when filing income taxes. Among them:
● Filling out forms with incorrect information
● Not taking all your deductions
● Getting hit with big penalties for not paying tax bills on time
This information is not intended to be a substitute for specific individualized tax or
legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.