18 Feb The Tax Man Cometh
“… in this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin
We opened 2019 by recommending that everyone contribute a minimum of 10% of their income to retirement accounts. We spent the next 4 weeks showing you how to save money to pay for your retirement savings. Let’s continue that trend by showing you how to lower your income tax bill.
Do you know that contributing to your 401(k) also saves you money?
Consider this; the average American family earns $56,516/year in income.
Assuming neither spouse contributes to a retirement account and has no other deductions, they will pay $3,663 in federal income tax. That works out to $305/month in income tax obligations. That means this hard-working American couple must work 270 hours/year just to pay income taxes.
Now let’s take a look at another couple who also earn $56,516/year.
Both spouses contribute 10% of their wages to a 401(k). Their 401(k) contributions are tax deductible. Assuming they have no other deductions, they will pay $2,985 in federal income tax. That works out to $249/month in income tax obligations. This couple must work 220 hours/year to pay income taxes. This couple saves $678/year on income taxes. That’s a savings of $57/month. This hard-working couple is working an extra 50 hours/year to pay themselves, not Uncle Sam. By saving money, they reduced their income tax bill by -19%.
What this means is that saving money can save you money! 401(k) contributions are always tax deductible, which means you can put money in your pocket & lower your tax bill at the same time.
As sure as the earth will spin & the sun will rise, the tax man will come to take as much of your money as you allow. One simple move on your part will severely curtail what he gets.
Sapiat Asset Management is an independent registered investment advisor, specializing in financial planning based, asset management for Gen X Individuals & Families, their Businesses, & the Trusts that benefit them.