With more and more Americans obtaining their vaccinations for the COVID virus and businesses starting to open up, there is a sense of optimism that we will soon get back to “normal” soon. Living in this pandemic has certainly highlighted how precious our freedoms are, and that they should not be taken for granted. With the hopes of brighter days, there’s another looming event coming that may not be as positive.
Just like millions of other Americans, I suspect that many of you are busily preparing your tax documents for the upcoming filing deadline in April. With the tax deadline for filing quickly approaching, it is an annual reminder of how taxes can make such a big impact to our ability to save and grow our wealth. For something that was supposed to be temporary, income taxes have become just a fact of life for most Americans.
Think about this for a moment…the average American will need to work into May just to be able to pay for their annual tax bill. For those in high income states, such as Connecticut, New York, or California that can move toward June or longer. When you factor in all the types of taxes, you could working for half the year for the government. When more of your wealth is directed to the IRS, that leaves less to provide for your family and future.
At the end of 2025, many of the tax cuts created during the Trump administration are due to sunset which will result in rising tax rates and a reduction of the standard deduction (amongst other changes). But what about even farther into the future? What direction do you think tax rates will go? Check out the below list of tax changes that are expected by the end of 2025.
As Ben Franklin said, “In this world, nothing can be said to be certain, except death and taxes.”
Taxes consume a significant portion of our wealth each year in the form of payroll, federal income, state income, property, sales, and capital gains that are slowing our ability to save and invest for the future. Each tax dollar paid is essentially a loss as the money is no longer in our possession to earn into the future. This is true. However, you also need to consider what future taxes will be and their impact to your wealth.
Most w-2 earners feel they have very few options to save on taxes and are directed by their CPAs and Financial Advisors to simply defer (aka postpone) them through 401k or IRA contributions. Although this may have been a viable strategy when tax rates were extraordinary high, we are actually at historically low taxes currently. Take a look at the below history of tax rates where the top brackets ranged from 70-90% from 1940s – early 1980s. Delaying the payment of tax now may feel good, but it cause some significant headaches down the road.
If you don’t like paying taxes now, how will you like them in retirement when they could be even higher?
Add this to the fact that the U.S. government is carrying over $28 trillion in debt and expected to run annual deficits into the Trillions. Check out the a real time look at the US Government debt.
How about the unfunded liabilities for Social Security and Medicare that are estimated to be over $100 trillion?
Where do you think tax rates could be going? Who has control to make changes to the tax rates that may drastically impact the taxes you pay on your retirement plans when you need them most? It’s your silent partner…the U.S. Government and the IRS.
TAXES ARE ON SALE NOW!
It’s time to start thinking about strategies to position your dollars to so they are immune to the impact of future tax rate hikes that will steal your wealth you worked so hard to generate. What if you could grow portions of your wealth without the fear of what future tax rates will be? 2026 will be here before you know it and repositioning assets to take advantage of lower rates can have a massive impact for your down the road.
Imagine having more freedom to use more of your wealth to impact the things in your life that matter the most. Take steps now to gain the control for your family and your future.