One of the great books of all time is “How a Man Thinketh” by James Allen. The premise of this book is that we will do according as we think. And we will never do something that is not first a part of our thought process. Allen says, “All that a man achieves and all that he fails to achieve is the direct result of his own thoughts.”
I have long believed this to be an essential element of how someone pays (or overpays) their taxes. Let’s start with how most people think about taxes in the first place. Two words best describe how people think about taxes – fear and boredom. People are afraid of the IRS. And people are afraid of the complexity of the tax laws. And they see taxes as a boring subject in the first place.
Let’s say you conquer your fear of learning about taxes and decide you will put up with the boring subject of tax law enough to read a book or go to a seminar or sit down with an accountant. What are you likely to be told in the book or seminar or by that accountant? It’s very likely that you will be given a few tips to preparing your tax return, or some ideas about how to postpone your taxes to a future year, such as through an IRA or 401(k) or by prepaying some expenses at the end of the year.
When you read or hear information like this, how does it affect your thinking? Assuming it comes from a credible source, you probably believe it and begin thinking that this is what you should be doing. You should be deferring (postponing) your taxes by maximizing your contribution to an IRA, 401(k) or profit sharing plan. You should be deferring taxes by prepaying expenses. And it’s just as likely that you will think that’s all you can do. So, you start doing it.
Now, most of you are thinking right now that you have been doing this all along even without a book or seminar. Why? Because you have been told this by countless people in the media, including advertising from mutual fund companies, banks, insurance companies and others who want you to make these contributions because the contributions have to be invested and most likely will be invested in a company like theirs.
And, if you are like most people, this is the extent of your thinking about tax planning. It’s all you know so it’s all you do. The reality is that their are more than 5,700 pages of the Internal Revenue Code. Of these, less than 400 are devoted to tax deferral. Less than 100 are devoted to raising taxes. So what about the remaining 5,200 pages? Devoted to more meaningful ways to reduce your taxes.
Think about that! 5,200 pages of ways to reduce taxes that are never discussed in the media, by your employer, by your accountant, or in the books you may find on taxes. Does anybody know about these 5,200 pages besides high-priced tax lawyers (most of them don’t either, by the way)? Yes!!! The wealthy know these rules. They are the ones who pay the high-priced lawyers and accountants to keep their taxes down.
Isn’t it time you started learning about the 5,200?