I Love Paying Taxes – If you do not – you should focus on becoming a Tax Strategist

I love paying taxes: Said no one ever. Except I do. I like paying higher dollars each year but lower percentages. It takes focus and strategy but like any challenge, - it can be fun and rewarding. As we navigate through tax season, it's essential to adopt a strategic approach to taxation—one that maximizes efficiency without sacrificing integrity. While it may seem appealing to reduce tax liability to zero, a more sustainable strategy focuses on increasing your taxable income while reducing the percentage of your income paid in taxes. This approach not only aligns with sound financial planning but also ensures compliance with tax laws, maintaining both your financial health and your reputation.

Navigating Tax Efficiency: Strategies for Smart Investing and Planning

The Philosophy of Tax Planning

"Don't let the tax tail wag the dog" is a timeless piece of advice, particularly relevant during tax season. The core idea here is not to make investment decisions based solely on their tax implications. Instead, the focus should be on choosing investments that are fundamentally sound while also providing tax benefits. This can lead to a situation where you might end up paying more taxes in absolute terms, but less as a percentage of your income—demonstrating not only growth in your investments but also efficiency in your tax planning.

Be a Tax Strategist, not a Zero-tax absolutist

The goal of tax planning should be to become a tax strategist. This involves understanding and utilizing tax laws to your advantage, ensuring that you are not merely avoiding taxes, but are making smart decisions that align with your overall financial goals. A successful strategy means you are comfortable sharing it with your mother, an auditor, or even seeing it on the front page of a newspaper. If a tax strategy feels too aggressive or borderline unethical, it likely isn't worth pursuing.

Evaluate Investments with a Critical Eye

This is one area that has always struck a nerve with me. I was one or two years out of school with my first full year of making some money under my belt and a friend of mine told me about a way to save on taxes. He said, “I gotta guy”. It was warning sign number one. I talked to the “guy” and then excitedly told my dad about the strategy. That is when he described to me what “not passing the sniff test” was. Warning sign number 2, the “guy” stood to make $5,000 for implementing the strategy which for me at the time was nearly 20% of my first year’s salary. And the biggest warning sign: He told me it didn’t matter if the investment made money…Wait what? Needless to say, I did not implement the strategy.

So, when presented with an investment opportunity that promises tax benefits, it’s crucial to ask: was this investment designed primarily to save on taxes, or is it genuinely a good investment? Many products touted for their tax advantages need closer examination for fees, leverage, and risk. These factors can often undermine the perceived tax benefits. For instance, high fees or excessive leverage can erode returns, making the investment less attractive even if it offers tax savings.

Looking Forward: From 2024 to 2025

As you file your taxes this year, consider it not just as an end but as the beginning of your planning for the next fiscal year. The day after filing your taxes can be a moment to breathe and then shift your focus to how you can improve your tax situation next year. This proactive approach is about planning ahead to ensure that in 2025, you will see a higher tax bill but a lower tax rate, reflecting better earnings and smarter planning.

Conclusion

Tax time is not just about settling accounts with the government; it's also a strategic checkpoint for assessing and planning your financial trajectory. By focusing on tax efficiency—aiming to increase the dollar amount you pay in taxes but decrease the percentage— you align your tax strategy with broader financial goals. This method not only safeguards you against potential legal or ethical pitfalls but also sets a solid foundation for sustained financial growth. As we move past this tax deadline, let's look forward to making smart, informed decisions that benefit us both financially and ethically in the upcoming year.

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About the Author – Dane Czaplicki, CFA®

Dane Czaplicki is CEO of Members’ Wealth, a boutique wealth management firm that offers a comprehensive approach to serving individuals, families, business owners, and institutions. The firm’s goal is to preserve and grow its clients’ wealth to endure over time, while thoughtfully evolving its strategy to suit an ever-changing world. With over 20 years of wealth management experience, Dane and the Members' Wealth team thrive on bringing clarity and confidence to clients' unique situations. He believes everyone needs sound financial advice from someone whose interests are aligned with theirs, and is determined to put service before all else.

Dane received his MBA from The Wharton School of Business at the University of Pennsylvania and his bachelor’s degree from Bloomsburg University. Outside work, he enjoys spending time with his wife and kids, hiking and camping, reading, running, and playing with his dog. To learn more about Dane, connect with him on LinkedIn.

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