Here's an excerpt from the book The Frugal Millionaires: 70 millionaires anonymously share their ideas about money to help each other and you. Today we're seeing what the millionaires have to say about taxes and accountants. Since I use a CPA to do my taxes, I'm on the same page as they are.
FYI, these are some representative tips from The Frugal Millionaires. There are over 800 tips in the book. The frugal millionaires are only referenced by their initials. The author signed a confidentiality agreement that the millionaires' identities would never be disclosed in exchange for them saying whatever they wanted. If they chose not to have their initials used they were given the initials AFM which is an acronym for Anonymous Frugal Millionaire.
Here's the excerpt:
Paying taxes is not everyone’s favorite topic, but it’s a fact of life in a civilized world. There are no magic bullets or secret schemes below on how to not pay taxes. They are an expense, like a lot of other things that can keep you from growing your net worth.
Frugal millionaires are willing to pay their fair share of taxes, but not more than that. And avoiding taxes doesn’t mean evading them. Many of the legal “loop holes” have been eliminated over the years, so it’s back to using the basic common sense principals of planning ahead, knowing what you’ll be in for, and minimizing what you’ll owe. The frugal millionaires have adopted an attitude towards taxes that makes them a lot less frustrating to deal with.
FJC – Just pay the taxes. I got burned several times trying various tax shelters based on the advice of friends and financial advisors (including real estate shelters, oil and gas shelters and commodity straddles).
AFM – Avoid filing extensions and always pay your taxes on times. The penalties are a waste of money.
MG&DG – You’ve got to do it. Don’t cheat the government. It will catch up with you.
DTA – You have to do it. Don’t sweat the stuff you can’t control, but do minimize when you can. Don’t lose sleep over your taxes.
AFM – The government is a bad investment, unfortunately it’s a necessary one. Explore your options, take no risks and carefully pay as little as possible.
JSB – Pay them if you have to…be careful setting up elaborate shelters as AMT gets applied very quickly now and disqualifies nearly every write-off.
DEFINITION: Alternative Minimum Tax (AMT): An extra tax some people have to pay on top of the regular income tax. The original idea behind this tax was to prevent people with very high incomes from using special tax benefits to pay little or no tax. The AMT has increased its reach, however, and now applies to some people who don’t have very high gross income (now $75,000) or who don’t claim lots of special tax benefits. Proposals to repeal or reform the AMT have languished in Congress for years, but effective action does not appear to be on the horizon. Until Congress acts, almost anyone is a potential target for this tax.
The name comes from the way the tax works. The AMT provides an alternative set of rules for calculating your income tax. In theory these rules determine minimum amount of tax that someone with your income should be required to pay. If you’re already paying at least that much because of the “regular” income tax, you don’t have to pay AMT. But if your regular tax falls below this minimum, you have to make up the difference by paying alternative minimum tax. (SOURCE: Fairmark.com, with edits)
JKB – Tax laws are written to favor the government, not you. Seek the advice of a professional to minimize the impact and always consider additional taxes and save for them.
AFM – I don’t spend large amounts of time and consideration here trying to save on taxes beyond my accountant’s advice. Try to keep your life simple and just take the hit.
JC – Don’t waste your time preparing your own tax return. Hire an expert to file for you. Be careful of AMT.