I’ll admit, I have had my share of tax time pitfalls. For me, these included spending my tax account money on renovations, not being organized at tax time and neglecting to stay organized throughout the year. One of my mentors always reminds me to build things before you need them. This bit of advice, I hold sacred, which is why I save throughout the year for taxes.
As an entrepreneur, I had to learn a lot very quickly about tax strategies and policies. When I was employed, I let my employer take care of tax deductions throughout the year, so at tax time, my taxes were pretty simple to calculate. In my twenties, I didn’t have many investments other than a house and some savings, so my taxes were relatively quick and painless. As I acquired more assets and became an entrepreneur, I quickly got overwhelmed and realized that I had to become more disciplined around spending. What I also realized is that these tax strategies should be as much of a priority as making more cash. You can acquire great skills for obtaining more cash flow, but if you don’t have strategic tax planning tactics, you won’t reap much for all that extra time and energy you’ve invested. Two of the big mistakes people make (and that I made) was not recognizing that cash flow and tax savings are two of the secrets to estate planning and wealth accumulation. I used to focus all my energy on generating more cash flow, but all that effort got sideswiped because I wasn’t smart or disciplined with saving for taxes nor did I leverage all the great tax strategies that were available to me.
Here is a list of strategies I have learned over the past 20 years. I believe everyone should know and practice these tactics by the age of twenty.
1) Be ultra organized. It might seem like it’s not that productive, but it will save you hundreds of hours and hundreds of dollars that you’ll have to spend fixing financial and personal messes. I purchase two plastic filing boxes at the beginning each year (one for my personal receipts and one for my business receipts). Because I save and organize all of my receipts, I sleep more peacefully knowing that my financial foundation is in order.
2) Have a great accountant or advisor. Even if you choose to do your tax filing, have someone to discuss tax and estate planning with so you aren’t missing any wonderful write-offs or strategies. This can add up to savings in the thousands on your taxes. I also suggest that you speak to a tax expert in your industry as there can be significant differences where tax filing is concerned.
3) Especially if you are an entrepreneur, save throughout the year for tax time. Each week (or every pay period) automate transferring at least 30% to a tax account. You won’t miss the money that has been transferred, and you will feel on top of the world when tax time arrives, and you already have all the money! I know what it’s like to hustle to make money at the last minute for tax payments. It can be done, but I don’t recommend it. You may be tempted to use that money cushion allocated for taxes for trips or clothes (I did this), but resist the urge to treat these funds as your own. If you have to, talk to your banker or financial advisor about moving it out of your sphere of spending. Be smart and disciplined.
4) Have a home-based business. Even if you are employed, relying on one income today is risky. Empower yourself by creating a plan for you and your family which includes multiple revenue streams. Today, it’s quite simple to start generating extra money on just a few extra hours a week. Turn your TV time into revenue generating time. Even better, start sleeping wealthy by adding a revenue stream that pays you while you sleep.
5) Become your own bank. Although building your estate will likely include borrowing money for real estate investing or starting a business, imagine that you had so much of your own leverage that you were your very own bank. Instead of renting studio space to start a yoga studio, buy the building cash, so you’re not as obsessed with selling out each class. This is a concept that is fun to discuss and ponder. Either way, being disciplined and creative around revenue generating and tax strategies is critical–even if you don’t dream about being your own bank.
6) Talk to an insurance specialist about whole life insurance plans. Today, there aren’t a million strategies for saving on your taxes, but there are a few powerful ones. Whole life insurance plans are powerful ways to create a Beautiful Money Lifestyle.
In my opinion, these six simple yet powerful tax tips have helped me as an individual, entrepreneur and as a mom. These are strategies I will be teaching to my kids long before they are twenty.