Chief Investment Strategist, The Freeport Society
You know our ethos here, at The Freeport Society: We advocate for life, liberty, and the pursuit of wealth.
Unfortunately, our single greatest impediment to the latter is, you guessed it – taxes. We must share our gains with Uncle Sam.
That’s why there’s one tax day I pay particular attention to: “Tax Freedom Day.”
According to the Tax Foundation, that’s the day that you officially start working for yourself and your family instead of the government.
The “official” date for 2024 hasn’t been calculated yet. But last year, it was April 18. That means the average American worked for nearly four months just to scrounge together enough to pay taxes.
Of course, that’s just an average. If you’re in one of the higher tax brackets, your Tax Freedom Day might not be until well into May. If you factor in state and local taxes… well, it might be July for you.
I’d love to tell you that taxes are the price we pay for civilization. But there’s nothing civilized about the federal, state, and local governments taking close to half your income. That’s a lot closer to barbarism. And it seems that no matter how much we pay, the benefits mostly go to someone else.
There’s a fantastic quote attributed to General George Patton, commander of America’s Third Army in World War II.: “No bastard ever won a war by dying for his country. He won it by making the other poor dumb bastard die for his country.”
Let’s adapt that for taxes:
“No bastard ever got rich paying his country’s tax bill. He got rich making some other “poor bastard” pick up the tab.” – Charles Sizemore, 2024.
If you’re generating income, Uncle Sam’s getting his portion. But, there’s a lot you can do to reduce our taxable footprint… and leave some other poor, less-prepared bastard to burn his wealth paying taxes.
So, let’s go over a few ways to legally reduce your tax bill this year.
Still the Simplest… and the Best
Believe it or not, the best legal tax break isn’t some dodgy offshore trust in Switzerland or the Caribbean. For the vast majority of us, it’s still the humble 401(k) plan.
In 2024, you can defer up to $23,000 of your income, and that number jumps to $30,500 if you’re 50 or older.
Note that those figures don’t take into account company matching or profit sharing. Depending on your company’s policy, they may add thousands of additional dollars in matching, also 100% tax deferred.
If you’re in the 37% tax bracket, a $30,500 contribution to a 401(k) is worth more than $11,000 in saved taxes. Sure, you’ll have to take taxable distributions once you’re in your 70s. But as far as I am concerned, a dollar in would-be taxes deferred for years or even decades is as good as a dollar saved.
Of course, reducing your take-home pay by $30,500 isn’t particularly easy. The earlier in the year you start, the more doable it is. But even so, you might struggle to peel off more than $2,500 per month. You have to eat and keep a roof over your head.
But here’s the thing. Money is fungible. A dollar in your left pocket is no different than a dollar in your right pocket.
So, if you want to lower your tax bill, but can’t realistically dump the full $30,500 into your 401(k) every year, I have a little trick for you.
If you have savings in the bank or a taxable brokerage account, use it to supplement your reduced, post-401(k) salary. Take that marginal dollar out of your paycheck and put it into your 401(k) plan… and then replace it in your budget with a dollar from your outside savings. In doing that, you’ve effectively turned a dollar of taxable savings into a dollar of tax-deferred 401(k) savings.
Getting More Tax Mileage Out of Your Charitable Contributions
I don’t give money to charities or churches because I want the tax break. That just feels dirty to me. But if I’m planning to make a donation anyway… why wouldn’t I take the maximum possible tax break along with it?
If you want to be altruistic about it, every dollar not paid to the government in taxes is one dollar more to give to a cause you really believe in.
And about that…
The most tax-efficient way to give to charity is to do it directly from your retirement account via your required minimum distribution (RMD).
Here’s why.
Once you take a regular RMD, it shows up as income on your tax return. Depending on the size of the RMD and your other sources of income, it might be enough to bump you into a higher tax bracket. Of course, you can then write off any charitable donation you make, potentially clawing some of those taxes back.
Great!
But given that the standard deduction now is $29,200 for a married couple, you may not get much of a tax benefit from the donation. (Charitable contributions are only deductible if you itemize, and more than 85% of Americans take the standard deduction.)
If you make that same charitable donation directly from your retirement account, the income never shows up on your tax return and isn’t taxable. This is called a qualified charitable distribution (QCD), and while I can’t get too deep into the specific nuts and bolts of it, I’d recommend you ask your tax preparer about it. If they don’t know what a QCD is… you should probably fire them on the spot.
Some people talk about retail therapy, the endorphin release they feel when they splurge at the mall.
That’s not me. I don’t enjoy spending money, particularly on items I don’t really want or need. But I do get that same endorphin release by finding little ways to chop down my tax bill.
Being a Freeport Society member, I suspect you feel the same way.
As we head into the 2024 Presidential Elections, I’ll share all my little secrets with you. It’s especially critical now because taxes always feature prominently in political campaigns and posturing.
If we are correct about the Shadow Presidential Candidate waiting in the wings, next year’s tax situation could be a whole lot worse. I urge you to watch this special presentation now. In it, our friend, Louis Navellier, reveals some shocking election predictions… and how you can start preparing now.
To life, liberty, and the pursuit of wealth.