What do you think is a better use of your time – learning about tax planning, or taking a second job? Surprisingly, for a lot of people, diving into some tax planning is actually the better bet! ✏️
For those of you who have attended one of my presentations or workshops, you know that I started pursuing my own tax planning strategies after being saddled with a Federal tax bill for $137,000 – while I was only making $90,000 at my W-2 job! I knew we had real estate and stock losses that year, so I couldn’t understand why those weren’t offsetting our income and lowering our tax bill. That was the birth of my 🪣”Tax Bucket Formula”🪣 to help myself (and eventually others) visualize their tax planning in a much simpler way.
Following our massive tax bill, we took advantage of some substantial tax hacks the next year – the Short-Term Rental ‘loophole’, a large tax-loss harvest on our stock portfolio, and even a work vehicle bonus depreciation deduction. These reduced our tax bill by over $100,000, which if invested over 30 years at 8% will grow to over $1.2 million – not a bad net-worth increase for 1 year of tax planning! And definitely more than I could have made taking on a second job.
Some of our coaching clients aren’t currently in a position to pursue those bigger, more aggressive tax strategies, so I also wanted to highlight a simplified example from one of our clients, Marla*. (name has been changed)
Marla runs her own consulting business as the sole employee, and she was tired of almost 50% of her income going towards Federal Taxes, State Taxes, and Self-Employment Taxes. She was considering picking up a 1099 contracting job on the side to start building up her savings. We ran two scenarios with Marla:
1) Becoming educated on all of the eligible business expenses that can be deducted (car expenses, home office, utilities, phone, travel, business meals, education, etc) and taking advantage of those deductions + opening up a SEP IRA and depositing $15k to start her retirement savings.
2) Taking the second job, bringing in an extra $15k/year, which would also be taxed at almost 50%.
Guess which option allowed her to keep more of her income? Optimizing her tax planning! With Option 1, she was able to keep $58k, and with Option 2, she was only able to keep $53k.
This is the power of taking the time to learn a few tax strategies that apply to your situation! You don't need to learn the full 7000 pages of tax code, but don't be afraid of diving into some of these tax-saving opportunities. To learn more about a simple way to set up your tax planning and apply eligible tax deductions, sign up for one of our tax workshops!