Thursday, July 16, 2009

At The Risk of Sounding Like a Scratched CD....

OK, I was going to title this blog "At the Risk of Sounding Like a Broken Record", but thought that would completely date me as so 1960's. But then, come to think about it, referring to a scratched CD is so 1990's. What do you call it when an MP3 player hits a bad track?

Anyhow, maybe my cliche's are a bit dated, but the focus of keeping more of your money in the face of big government spending is very timely. The latest cost for the universal health care bills in Congress is $1,500,000,000,000. That's $1.5 Trillion. And that only goes out 10 years. Add on top of the "bailout spending in the past year at 3.5 Trillion ( referencing and we are talking about more than a third of the GDP.

The money has to come from somewhere. That means taxes, levies, and fees. And with the battle in congress indicating that "everything's on the table" (it was a sound bite of one of the politicians who was being interviewed), I take that to mean that the every source of revenue that is politically acceptable will be looked at to fund these expenditures.

The signals to me can't me any clearer. The time to lay the ground work for sheltering our income from the needed tax increases is now. You will need time to plan and execute a strategy. You will need time to meet with your tax advisor or accountant. If you and I wait until taxes are higher to start, it will already be too late.

What am I doing? Well, as a business owner, I am taking advantage of the IRS rules that allow me to have a Keogh plan, sheltering up to $49,000 of income from taxes. I also have an IRA, and a deferred annuity.

Since I need life insurance anyhow, I have a return of premium policy, also called a "cashback" policy. Sure, I'm paying almost twice what a regular term policy is. But if I bought just a term policy and invested the difference, I would have to get about 7.8% interest tax free. That's just not likely in this environment. I will get back all my premiums (if I'm lucky enough to live to the end of the term) and won't pay taxes on that since it will be considered a return of my own money and not capital gains or interest.

The bottom line for me: spend less, shelter more. Think about it like this: if I can shelter $1000 from taxes, and I'm in a 33% tax bracket, I automatically have made 33% on my money (because I'm avoiding $330 in taxes). To me, that's economically responsible.

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