How Tax Collectors Like The IRS Cleverly Rob You Of Your Money

Action Figure In HKEvery IRS person I’ve spoken to has curiously been kind. Yet, despite their kindness, I still feel my heart drop every time I get a letter from them. I’m not sure whether it’s because the movies always portrays the IRS agent as a bad man in a rain jacket, looking to shake down individuals for all they are worth. Or, perhaps it’s the fact it’s little ‘ol you vs. the omnipotent government that presents a no way out scenario. Whatever the case may be, dealing with the IRS sucks.

Those who work at the IRS or State Tax Collectors agencies are actually on your side. Sure, some have mandates from higher ups to milk you dry. However, most are willing to help you resolve your issues because they know how complicated taxes are in America. Perhaps this is one of the reasons why so many citizens have decided to just call it quits and not work!

One acquaintance I know worked for the IRS so of course I peppered him with questions to extract all the juicy details. I am against anybody paying more taxes than they need to. It’s just not right for the government to tax more than a typical person saves a year. If the government could show they can efficiently spend our money, then fine. But, they can’t even come up with a darn budget so forget it!

For all you conspiracy theorists out there, I think you’ll really enjoy this post.

AN INSIDER’S VIEW OF THE IRS

How I Beat Economic Armageddon Using a 1031 Exchange

Pacific Heights MansionThis guest article was written by Shilpan of Street Smart Finance, Common Sense Personal Finance.

Armageddon is viewed as a spiritual battle or struggle in the present age between the forces of good, i.e. righteousness, purity and virtue, and the forces of evil. Well, my battle wasn’t spiritual, but it certainly was righteous as it involved saving hard-earned money from the hands of our wasteful government.

Let me end the suspense here. It all began when I wrote an email to Sam asking if I can write an article for Financial Samurai. I wanted to write about why most people can’t retire early. Soon I received a samurai like response from Sam, “Maybe your $500k in tax-free profit in the depths of Armageddon? How anybody can make money anytime and the boon of real estate as a great tax shelter for singles and couples?” How can I say no to the guy who has uncanny ability to find catchy titles?

Let’s rewind back to 2004. The commercial real estate — especially hotels — market was doing well. Lehman was still considered a major financial institution. I bid on a Comfort Inn that was owned by the Laselle bank. This hotel was doing well, but the owner recently refinanced it, took over a million dollars cash out and happily handed the property back to the bank. It was ridiculously easy to screw banks back then.

I knew that hotel required a few hundred thousands in improvements. But, I calculated that in the price that I bid to make sure that I can run it profitably from day one, should I get to buy it. I knew that there were many bidders, so my hopes weren’t too high.

Luck knocked on my doors

You Can Count On Social Security Benefits In Retirement

Seafood Buffet Funny FishDespite mentally writing off the value of my Social Security benefits, in the bottom drawer in the way back of my cob-webbed mind, I know it will be there to fund my early bird special seafood buffets when I’m retired.  Sure, the eligibility age for withdrawal might rise from 62 to 67, but we’re all hopefully living longer too.  Besides, who really needs Social Security benefits if we’re saving over half our after-tax income for some many years anyway?  Don’t get greedy now!

The Middle Class of America has given me a tremendous boost in conviction that Social Security benefits will be around for all, forever.  If you read the comments on my post, “Disadvantages of The ROTH IRA: Not All Is What It Seems“, people have come out in force defending the virtues of the ROTH IRA, even though I clearly telegraph why we should not be contributing to a ROTH IRA if we haven’t maxed out their traditional IRA and 401K yet.  To pay more in taxes to an inept and corrupt government that shirks on its promises is an atrocity.

We should ignore the fact that people comment on things even if they know they are wrong, to justify why they did something to make them feel better.  Instead, we should take comments at face value.  Those who support the ROTH IRA most likely have opened a ROTH IRA.  Because they’ve opened a ROTH IRA, they believe that the government will do better with their money than they can on their own.  Remember, only middle class people are allowed to contribute to a ROTH.  Higher earners be damned!

As you know, I have an open mind and always look at both sides of each debate.  My conclusion from the comments in my ROTH IRA post is this: Because so many people support the ROTH IRA, the people of America believe in the efficiency of the government and the fact that Social Security will be fully guaranteed at the age of eligibility.  If people did not believe the government would make due on its promises to fully pay for Social Security, there’s no way people would give the government more of their money to manage!

People Vote With Their Pocket Books 

The Average Tax Refund And How To Spend It

The average tax refund is roughly $2,750 for 2014. With the US per capita income at around $48,000, that’s 6% of one’s income they’ve overpaid to the evil empire. Everybody knows that getting a refund is like giving the government an interest free loan.  But, with interest rates the way they are, who cares?!

If you were to ask people to put aside $230 a month to save $2,750 a year, I bet most would fail due to the lack of discipline. As a result, I think it’s fantastic most people are getting refunds. The key is not blowing your refund on some splurge you wouldn’t otherwise spend money on if you didn’t get a refund.

In 2014, I had to pay about $1,000 more in Federal taxes, but I got several thousand back from the state of California. For the past 10 years, I’ve saved or invested every single refund I’ve received, and this year was no different. Boring! At least a philosophical post came out of it entitled, “Is Paying Taxes A Form Of Charity?

Here’s a neat infochart with more ideas of what to do with your refund. I like the rocket ship chart of investing your refund every year until you retire with a 7.5% return. Buying a nice Macbook Pro would be sweet too, however, that’s a corporate expense, baby!

If you are like me, you should be motivated to invest and pay down more debt with your refund, rather than spend it on superfluous things. Although buying 1,000 lottery tickets sure sounds like way more fun!

Make Money with Your Tax Return Infographic

HERE’S HOW TO INVEST YOUR REFUND

1) Take your boss out to lunch (10% / $300 over the year). Your number one money-maker is your job; hence, it behooves you to invest as much as you can in making yourself the most compensated employee possible. One of the best ways to get paid and promoted is to build a tremendous support network of individuals predisposed to root for your success. When it comes time for a raise and a promotion, your name will float to the top of the list because managers tend to take care of people they like and disregard people they don’t really know. It doesn’t matter how rich somebody is — nobody can resist a free lunch!

Estimated return on lunch: 1,000%+

2) Donate to a charity that matters most to someone whom you want to impress (10% / $300). If for some reason you feel bad about taking your boss out to lunch, support her in a different way by volunteering your time or money to a charity that she cares about deeply. (Ideally, you will sincerely care about the charity as well, for congruency purposes.) Nothing builds better relationships than finding something shared in common that greatly matters. Because his mother had died from lymphoma years before, a friend of mine supported a client’s lymphoma marathon charity. The client was raising money for lymphoma research because his close friend had also died from lymphoma. Not surprisingly, the two men formed a very tight bond,and from then on my friend was perennially ranked #1 with that client.

Estimated return on donation: A lifetime connection + 1,000%+

3) Take your loved one on a weekend getaway (30% / $900). Money doesn’t matter much if you don’t have somebody you love with whom to spend it. Assuming there’s someone special in your life, you probably neglected, upset, disappointed, or saddened that person at some point during the year. Use some of your refund to apologize and show them you still love them deeply. If you don’t have someone special, then offer to take your best friend somewhere to catch up on good times and make new good times. Poll after poll shows that having a good circle of friends is the number one source of real happiness.

Estimated return on friends and partners: Priceless.

4) Thank your parents (30% / $900). Without our parents we would not be where we are today. Although most of our parents don’t expect any special thanks for raising us, it’s always nice to give back to those who may have sacrificed the most for us. Some parents are financially struggling due to unlucky breaks or poor decisions and are too proud to ask their children for help. Touch base with them and allocate part of your refund to those who could use the money most. They’ve spent a lifetime working to provide not only for you, but also for themselves in retirement. Help make their golden years the best years possible.

Estimated return on thanking our parents: Priceless.

5) Treat yourself (20% / $600). A tax refund isn’t new money; it’s money that you earned and that was owed to you all along. Most financial advisors would encourage you to save your refund, invest your refund, fund a ROTH with it, or use it to pay down high interest debt. By now, however, you’ve already invested 80% of your refund in steps 1-4, with returns that range from 1,000% to priceless; go ahead and treat yourself with the remaining 20%! A 1,000% return on a lunch investment blows away any historical 8% S&P 500 return average.

Estimated return on thanking yourself: Sanity and motivation.

FOCUS ON GIVING INSTEAD OF RECEIVING

Because the average refund is a relatively small absolute dollar amount, going the traditional route of investing or paying down debt is not an exciting proposition. Even if your entire $3,000 refund returned a healthy 10%, that’s only a $300 pre-tax return… and how much would that really change your life?  Focus instead on using your refund to improve existing relationships or make new relationships. Not only does it feel better to give than to receive, you’ll likely end up receiving way more down the line anyway!

RECOMMENDATION TO BUILD WEALTH

Manage Your Finances In One Place: One of the best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize your money. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances on an Excel spreadsheet. Now, I can just log into Personal Capital to see how all my accounts are doing, including my net worth. I can also see how much I’m spending and saving every month through their cash flow tool.

The best feature is their Portfolio Fee Analyzer, which runs your investment portfolio(s) through its software in a click of a button to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was hemorrhaging! There is no better financial tool online that has helped me more to achieve financial freedom. It only takes a minute to sign up.

Updated on 2/4/2015. May you all get a healthy 2014 refund in 2015!

A Look Inside Australia’s Education, Investment, Tax, Healthcare & Retirement System

Australian CurrencyYou’ve heard about Bondi Beach, the Great Barrier Reef, Elle McPherson and the Australian Open.  You know that Australia has a great “walkabout” culture where college graduates take a gap year to go explore the world and expand their horizons.  As far as you can tell, Australia is a wonderful land down under!

Unless you’ve been to sunny Australia, everything is hearsay.  I’ve never been, but fortunately for all of us,  Shaun from Money Cactus is a regular reader who hails from Australia and has decided to provide some insights into what it’s really like living and working in Australia.

One of my friends from San Francisco moved to Sydney five years ago and he loved it so much he decided to start a business there and become an Aussie citizen!  After looking more into the Australian healthcare and social safety net system, there’s no wonder why people love Australia!  In fact, I might consider retiring there myself if they have me.  Then again, why would they since I haven’t paid any of their taxes!

Here’s Shaun’s perspective on Australia.  For other Australian readers and those who’ve spent some time there, please feel free to share your thoughts as well!

Australian Boom: Where The Money’s At

Is Paying Taxes A Form of Charity?

Sleepy Old ManI just got done with two things: 1) Writing a check for another $1,000 more in taxes to the Federal Government for 2011, and 2) Re-reading the article, “The Average Percent Of Income Donated To Charity Can Improve“.  Hopefully all of you are on pace to finish doing your taxes before the April 17th deadline.

Forget about filing an extension and putting off paying your taxes.  Do it now!

Several things I’ve learned from doing my taxes:

* I paid almost as much in taxes as I’ve saved.  In fact, most of my friends, and probably most of you have paid MORE in taxes than what you’ve saved, since most people don’t save more than 20% of their gross income, let alone 55% of their after-tax income.  Go ahead, make the calculation and start vomiting.

* The amount of total taxes I paid in 2011 could buy a nice 4 bedroom McMansion in the MidWest or a Lamborghini Gallardo.  With the money left over from the Lambo, I could pay for five friends to go to Vegas for a week.  We’d stay in suites at the Aria Hotel and reserve a private booth each night at Tao with an endless flow of Crystal, Ron Zacapa, and Goose.  And here I am, a total fool trying to keep my credit card spending below $1,500 a month so I can save more for retirement and build more financial security.  I might as well live it up since the government is living it up with my money!

Disadvantages Of The ROTH IRA: Not All Is What It Seems

Passed Out Drunk Vomit Oozing From Mouth For years I’ve been an opponent of the ROTH IRA after the government came out with its tricky dick way to let us all do a “one-time” conversion from our traditional IRAs. The government was so successful in getting people to pay huge sums of taxes on their IRAs during the financial crisis that I just shook my head in disbelief.

As a personal finance blogger who wants to help you achieve financial freedom sooner, rather than later, it’s my duty to write this post to help you see the error in contributing or converting to a ROTH IRA if you have not maxed out your 401(k).

Of course if the choice is between NOT SAVING and saving via a ROTH IRA for your future, then the answer is that one should open up a ROTH IRA rather than piss their money away on stupid stuff that depreciates in value. However, do know that you are still pissing money away by giving some of your money to the government. And if the choice is between choosing a traditional IRA over a ROTH IRA, choosing the traditional IRA is hands down the way to go.

Please read the reasons why a ROTH IRA is not a good idea for the large majority of you. I really hope this article will wake you up to the tremendous government brainwashing that is being conducted to get you to part more with your hard earned money. If you’re still in favor, at least you know the other side of the story and Uncle Sam thanks you!

DISADVANTAGES OF A ROTH IRA – NOT ALL MILK AND COOKIES