Taxes are the largest expense you’ll ever have – larger than the cost of your home or sending your kids to school. And therefore, they’re the largest obstacle to your financial freedom. This is very important to understand.
If you’re not familiar with the term “tax freedom day,” it’s when you finally stop working for the government and start working for yourself. Or as an entrepreneur, it’s the reason why you don’t breakeven until at least 3 to 4 months into each year.
The following table, calculated by the Tax Foundation, shows how many days the average person had to work to pay taxes for each of the years listed:
|
Year |
Tax Freedom Day |
Percentage |
|
1950 |
March 31 |
24.6% |
|
1960 |
April 11 |
27.7% |
|
1970 |
April 19 |
29.6% |
|
1980 |
April 21 |
30.4% |
|
1990 |
April 21 |
30.4% |
|
2000 |
May 1 |
33% |
|
2006 |
April 24 |
31.2% |
|
2007 |
April 24 |
31.1% |
|
2008 |
April 16 |
29% |
|
2009 |
April 8 |
26.6% |
|
2010 |
April 9 |
26.9% |
In other words, the average person spends nearly a third of the year paying off taxes. But effective tax planning can free up your profits by an extra month or more.
Let’s say you could save just $4000 dollars each year. If you invested that money for 40 years – at an average yearly return of 9% — your investment would be worth 1.6 million dollars!
Not to mention, all of the alternative ways that you could use the extra cash — new homes, cars, child’s education, etc.
So, tax planning is extremely important to your long-term success, and it can pay off very well in the short run as well.