Taxes - The Largest Transfer of Your Wealth
Taxes - The Largest Transfer of Your Wealth
Taxes - The Largest Transfer of Your Wealth
Tax Refunds
Owning A Home
Financial Planning
Life Insurance
Disability
Purchasing Cars
Credit Cards
Investments
These ten transfers can create financial losses for you. You should
study each one and determine how they will affect you. On the surface, the
transfers seem pretty basic. It is not until you think a layer deeper that you
find that these transfers may cause unintended consequences in the future.
The future demographics of the country will affect everyones financial
future.
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Hotel Tax
Cable TV Tax
User Taxes
Unemployment Tax
Workers Comp. Tax
100s of Regulatory
Fees
Cigarette Tax
Corporate Income
Tax
Inheritance Tax
Accounts Receivable
Tax
Inventory Tax
Marriage License
Tax
Liquor Tax
Building Permit Tax
Medicare Tax
Fishing License Tax
Real Estate Tax
Food License Tax
Fuel Permit Tax
Hunting License Tax
No One Told Me
If it came to your attention that you were unknowingly and
unnecessarily paying a tax you didnt have to, would you continue to pay it?
If you were told to pay a certain amount of tax, would you purposely
Copyright 2014 Wealth & Wisdom Institute. Wealth & Wisdom
Institute is a Partner of Fidelity Financial Co., LLC.
0
overpay that amount due? If you could legally recapture or keep some of
the money you pay in taxes, would you do it? If no one has taught you
techniques of reducing taxation when you can, that is truly unfortunate. The
most common belief is that using qualified plans is the best way to reduce
taxation. This is what you are told to believe. Dont be surprised to find out
that this is not necessarily true. The tax savings were talking about here is
not about loading up your IRA or 401(k) plans. Once again it may be quite
the opposite.
Id.
The
Century
Foundation.
Tax
Reform.
New
York:
The
Century
Foundation
Press,
1999.
6
Id.
5
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same story that we sometimes hear today about retirement income: That
he would probably retire to two-thirds of his income, thus being in a lower
tax bracket. In 1960, although the marginal tax rate was 87%, just about
everything my father purchased was deductible on his tax return. After his
deductions, his realized tax bracket was around 12%. Twenty-five years
later, my father did retire to two-thirds of his income, but retired to a 28%
tax bracket. Now, you might say that the difference between a 12% tax
bracket and a 28% tax bracket is just 16%. Not quite. It was an increase of
almost 140% in his taxation level. Soon after retirement the dog
disappeared.
In the tax reform acts of the 1980's, the government professed to give
its citizens one of the lowest federal tax brackets in the history of the
country. Numerically they did, but they quietly took away most of the
deductions. It created one of the largest windfalls in the governments
taxation history. It was amazing politicians proclaimed lower taxes while
we actually paid more. The next leader came in and said Read my lips, no
new taxes. The next thing you know the federal marginal tax rate went
from 31% to 39%. Check your math. Is that an eight percent increase? NO!
Its about a 27% increase in taxation. Remember, all those increases were
put in place with no tax deductions. A double whammy. Once again, even
with the record tax revenues being collected, the countrys debt continues
to grow. In the near future, the demographics of the country will compound
the taxation issues causing major problems. Does anyone really believe
taxes will go down in the future? If your income is so small when you retire
that your taxes actually go down, I feel sorry for you. Get help.
No matter how you look at it, taxes will continue to be the largest
transfer of your wealth now and in the future. If you believe what the
government tells you about its retirement plans and deferring taxation to a
later date, I would encourage you once again to study the demographics of
the country. I believe the governments main objective is to thrive and
survive. Meanwhile, on the streets of America, we the public struggle to do
the same thing. Remember, you and I the taxpayers, are the only ones
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paying for this. There is no such thing as a free lunch. Every time you earn
a dollar, spend a dollar, and save a dollar, you face possible taxation. Any
attempt by you to thrive or survive will be taxed. The real unfortunate fact
is, they can change the tax rules anytime it suits or profits them. Trying to
plan your financial future without understanding the inevitable changes the
government must make, is like building a home on quicksand. Is the
governments goal to finance their future or yours? Their plans may also
create unintended consequences for you.
Tax Refunds
Avoiding Tax Exuberance
The concept of overpaying for something really makes my blood boil.
Have you ever been on an airplane and overheard the couple next to you
say they spent $200 less than you did for your ticket on
CheapTickets.com? First youre mad, then you feel stupid. You would have
to be tortured to admit you overpaid.
I can never understand the exuberance people feel when they get a
tax refund. They worked all year and paid taxes then went round and
round, got dizzy, worked hard to get it back, spent a lot of time doing it, only
to find out it was theirs all along. They act as if they won something when in
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Possibly because high current taxation has forced us, as a country, to save
at a negative rate. Possibly the governments own fear that social security
and other social programs will be forced to change dramatically. Possibly
because the government understands the demographics of the changing
population and the effects it will have on social programs. Possibly to shift
the blame for less retirement income from them to you. Possibly because
introducing these programs may help them get re-elected. Maybe, just
maybe, they are interested in financing their future not yours. Everyone will
agree that tax deferred savings is a good idea. But the government will
decide what rate of taxation will be assessed when you take withdrawals.
Wouldnt it be a coincidence if the government were able to collect more tax
revenues from you by using these programs? If they were truly that
concerned about our savings, wouldnt they simply lower taxes? If they
were that concerned, why do they even tax what little we are able to save?
Who Pays?
There are many types of government-sponsored savings plans. They
allow you to save money, if you qualify, in tax-deferred programs. Some of
these plans such as defined benefit, defined contribution, and profit sharing
plans to name a few, require the employer to make contributions to these
plans on your behalf. The plans are disappearing more and more because
it is becoming very costly for companies to maintain them. This first group
of plans, although laden with regulation, is a great benefit to the employee.
None of the workers money goes directly into these plans. These plans are
funded by the employer.
The second type of plan enables the employer and the employee
both to contribute to the plan, with restrictions of course. The employer will
match a certain dollar amount or percentage of the employee contribution.
Matching contributions by the employer is an option. It is not uncommon for
the employer not to contribute anything. One of the most familiar plans that
fall into this category is the 401(k). The 401(k) made it easier and less
expensive than the old traditional retirement plans for the employer. Why?
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For the cost of administering the plan, a company can proclaim that it offers
benefits for its employees. Even though the employee is funding most, if
not all, of the plan.
The third type of plan that was created is one where the participant
funds the entire program. IRAs, 401(k)s, and others are the most widely
used plans by most individuals. Since these are the most commonly used I
am going to focus on these plans.
When it comes to transfers of your wealth I want to simplistically
separate these plans by one factor: Who pays for these programs. If you
can get someone to help fund your retirement with money, terrific, do it! But
as for the money you contribute into these plans without company matches,
I want you to start thinking a layer deeper. If youre funding the full amount
for these plans, there are things you need to know in considering whether
or not to participate in them. My intent here is not to explain and describe
how these plans work and all their complexities, but simply to examine
where the funding is coming from, and to discover who is encouraging the
use of these plans and why.
Magicians Assistant
Step right up, come one come all, to the greatest disappearing act
ever performed. Watch in amazement as the master of deception makes
things disappear with the help of his assistants. Watch as entire fortunes
vanish into thin air. Your participation is mandatory and our assistants will
prepare you for the show. Welcome to the greatest show on earth.
The government creates the plans, and financial professionals deliver
them. With little or no questioning, it is believed that life can not exist
without government savings plans. They are marketed by banks,
accountants, brokers, insurance and investment companies. All of these
companies promote these savings programs because they profit from their
existence. It would also be logical that the ones who created them would
also profit. The popularity of these plans is based on blind faith. It is
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WHOSE FUTURE
ARE YOU
FINANCING
YOURS,
OR THE
GOVERNMENTS?
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Gross,
Martin
L.,
The
Government
Racket
2000
and
Beyond.
New
York:
Harper-Collins
Publishers,
Inc.,
2000.
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Financially Speaking
The reason I have brought all this up is this: The largest financial
transfers of your wealth are created by the government in the form of taxes.
Their actions will affect your money more than anything else in your entire
life. The real bad news is they can make up the rules as they go along.
There is an interesting debate simmering. Is the money we earn ours, or
does it belong to the government and we are just using it? Think about it.
The uncertainty of taxation rates in the future continues to be a problem.
The growing aging population problem, over-spending, growing debt,
increased costs of health care, the never ending war on terror, increased
spending on security, will all affect the amount of money that you will be
able to keep and spend in the future.
Qualified retirement savings plans could become a bigger tax
revenue target in the future. Just understanding that this could happen and
searching out alternative savings for retirement could save you thousands
of tax dollars in the future. The government has a vested interest in all the
money you are saving. They are taking it seriously. You should too.
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CLICK
TO
SCHEDULE
MARK
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Resources
For more information and financial knowledge to help you make
better life decisions, check out these excellent publications available online
at Fidelity Financials University storefront:
CLICK TO ORDER
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Disclaimer
This eBook is for educational purposes only and should not be
considered as specific investment or planning advice. Depending on
individual circumstances, the strategies discussed in this eBook may not be
appropriate for your situation. Please consult a qualified advisor regarding
your individual circumstances and to learn more on strategies that may be
appropriate for you. All investments involve the risk of potential investment
losses as well as the potential for investment gains. Prior performance is no
guarantee of future results, and there can be no assurance that future
performance will be comparable to past performance. Any examples or
client case studies are hypothetical, intended for illustrative purposes only
and highlight a single possible outcome. Your results will vary.
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