Financial Freedom Series - Part Three - Freedom and Taxes

Updated: Jul 6, 2018

What is Financial Freedom in regards to taxes? Planning your taxes well with no surprises come tax season. That way when it comes tax time you don't have to worry about what you owe. You will know what you owe, or better yet, know what you will get back in a refund.

Remember financial freedom is about having options and being prepared to do the things you love and live the life you want.

Definition of taxes:

1. a compulsory contribution to state revenue, levied by the government on workers' income and business profits or added to the cost of some goods, services, and transactions.

2. a strain or heavy demand.

It isn't a coincidence that the word tax translates to being something difficult or a strain. However, taxes don't have to make you feel constrained. If planned correctly taxes can bring you one step closer to financial freedom. How? By knowing which tax advantages, accounts and more can help you actually lower your tax bill. This allows you to bring home more money each year. More money equals more financial freedom.

The purposes of taxes: Unfair taxes levied without representation were a catalyst for the American Revolution. We still hate paying taxes today, although our discontent is with Uncle Sam, not the King of England, as tax collector.

But taxes are necessary, as Supreme Court Justice Oliver Wendell Holmes famously noted, to pay for a civilized society.

And not only does the federal government collect taxes, but so do the 50 states.

Although we are not free from evading taxes we are free to minimize them".

That is how you become financially free through your taxes: knowledge and planning.

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One has the freedom to spend the time and understand where their money gets taxed. This then allows you to find what best they can do to actually and legally minimize that tax.

Here are some tax questions that can help lead you to financial freedom.

1. Do you understand your Paycheck and what all of the taxes are?

The first step in reading your paychecks involves becoming familiar with the standard financial and tax information that appears on all of them. This information includes the deductions for federal and state taxes, Social Security, Medicare, personal insurance plans and retirement savings.

2. Do you contribute to your 401k at work?

If your employer matches 50% up to the 401K maximum, you should take advantage of this return. The correct way to look at an employer match is as a guaranteed return on your investment. A 50% match equals a 50% return on investment, which is outstanding.

3. Do you use FSA’s?

A Flexible Spending Account is a dedicated account you put money into that you use to pay for certain out-of-pocket health care costs. You don't pay taxes on this money.

4. Do you understand how long term the tax code helps one own a house – the American dream?

Homeowners already know the many tax breaks that Uncle Sam offers, most notably mortgage interest and property tax deductions.

5. Do you take advantage of various Tax credits?

There are many different tax credits that you can take advantage of to maximize your dollars.

Do you save money every year by taking advantage of all of the above and many more points.

You are free to do so and pay less and keep more of your hard earned money.

Or you are free to not get active and pay more.

This is America and I love it! Free to help yourself or do nothing at all!

It is your choice...that is freedom!