Death and taxes are said to be the only things certain in life, but in our case only the former concerns us and not the later. The reason is simple our early financial life was directed with annual visits to a CPA in our hometown. When we first began work life our father told us to go to the local CPA to do our taxes and maybe he would take us as a client. The CPA likely could have told us no since he had lots of high profile business, but for some reason he took us as a client and we have prospered for almost four decades due to his guidance those early years we used him as our tax accountant.
H. Donald Scott we suppose saw us as someone who might have a future and maybe could be a good long term business prospect. You see Mr. Scott was frankly one of the smartest and most ingenious people we ever met concerning financial and tax matters. Fortunately we also were a quick learner and good listener and as he dispensed tax, financial, and investing advice we took it in like a sponge. One thing he told us was that making lots of money was nice, but if you were going to turn around and give lots of it back to the Federal and State Governments why bother to make it in the first place. It would be like giving up to 50% of your labor away. The way to change this was to use, take advantage, and manipulate legally the tax code. Treat it almost as a friend and not an enemy. So we did and whenever our CPA suggested a tax free, tax deferred, and tax avoidance strategy we not only listened we applied the technique and used it going forward.
Mr. Scott on almost every annual visit gave us a piece of investing advice that would help us make money. An example of which was investing in a small Mississippi firm that was making a big push into telecommunications after the deregulation in the 1980's. We promptly went out and bought 1000 shares of the pink listed stock LDDS that would one day turn into World Comm. Now yes World Comm and Bernie Ellhers would one day make news from being a company run afoul of the law, but we had long before that period made some very nice profits in the early run-up in the stock price and exited the position. All that tidy profit in our tax deferred IRA of course.
Through the years we have used the early training we got from this CPA to move with the prevailing tax laws and rules to maximize our cash flow and minimize our tax bill. Honestly we expect for someone who has been blessed with our income we have likely paid less tax legally than anyone alive. We were audited some years ago when one year we sent in a tax return owing almost no taxes on a sizable income. The tax auditor told us he thought we were quite clever with our use of the tax code but did tell us that there was a mistake in our return. The mistake was we had forgotten to take a tax credit owed us and we were actually due a refund check for taxes not paid. All legal and legit of course.
Now this next statement generally drives liberals and democrats we know ballistic. Since we retired in 2008 we have yet to pay a single dime of income tax. Better yet if we so desire we can live out this life and never pay a single dime ever. The reasons are quite simple the years of planning and using the tax code to our benefit as taught us by Mr. Scott has led us to the point of being off the income tax rolls both state and federal permanently if we so desire.
Yes, anyone can do this, but most people are not willing to do the planning or take the time to make their finances form to being non taxed. Not paying tax means you get to use the full measure of your income and actually need less than those paying taxes to do live the same standard of life. Here is the kicker if we were actually looking after ourselves we would prefer that Obama get re-elected because his policy is to continue the current tax code. Only Republicans want to change the code to make everyone pay more by taking out all the huge cornucopia of tax avoidance techniques that are all legal in today's code. With Romney we would be forced to pay tax, with Obama none. Try that little piece of info on for size liberals.
Not to get into specifics here because much of this tax free existence is gained from hard learned experience and maximizing the tax code to our advantage but here are a few pointers. Using tax deferred vehicles to take as much of your earned income off the tax rolls is almost sacrosanct. Roth and regular IRA's, 401-k's, and HSA's should be used to their very max allowed. There are many small business angles on these retirement vehicles as well. When spending money always consider how the expenditure can be used as a deduction or credit against any tax one might owe. Consider if there is a business use attached to the expense and spend accordingly. Investing in individual tax free municipal bonds from your home state are slam dunks that most people either avoid due to the research involved or just not willing to take the time to learn. Once you have tapped out retirement vehicles noted above do not avoid tax deferred annuities as well since they can allow you to add punch to retirement income and take almost tax free withdrawals. Charitable giving is a easy way to take money that might be taxed and used by the government but instead used by you for social purposes you prefer. When all else fails buy something that throws off lots of tax benefits like real estate as again I would rather spend my money in some form of private use than government use. Finally and most importantly keep very good and very precise records. I keep a file in my desk where I write down anything that might save taxes and update it quarterly just to make sure I do not miss anything. Yes, all this can be time consuming, but if you treat if like a work to be done where you literally make tax money back then you get paid to do it.
Our current CPA has continued many of those early techniques and added a few of their own, but without the good start we would not be in position today.
Anyway all this goes back to our mentor of our early financial life and for the training and smarts we say thank you.
No comments:
Post a Comment