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Your tax map for meeting approaching tax changes

Brian P. Michaud March 7, 2022

With your personal tax map, what are you doing to prepare for a rise in taxes between now and retirement?

With your personal tax map, what are you doing to prepare for a rise in taxes between now and retirement?

LAST YEAR SAW ONE OF THE LARGEST AMOUNTS OF MONEY ever brought into the federal government’s coffers. Not since 1970 was there as much money collected by the Internal Revenue Service, adjusted for inflation. On Nov. 15, 2021, Congress passed an infrastructure bill with funding for the Internal Revenue Service ($1.5 billion) for additional IRS agents to audit and capture more taxes. When preparing your personal tax map, remember that the Trump-era tax cuts are set to expire in 2025.

U.S. debt

The country as a whole is $28.5 trillion in debt. Just $6 trillion was added to that total during the pandemic alone. Washington, D.C., cannot spend the money fast enough, and they exponentially spend way more than will ever be able to be collected, annually. Someone needs to pay for this.

If taxes do not go up, inflation will. And as of this publication, we have all seen a rise in inflation. Food has gone up. Gas prices have increased over $1.33 per gallon just within the last year. Natural gas and oil prices have increased 33%. So not only is our dollar not buying as much, but we will also have an increase in taxes, to assist in “paying down” this debt.

When the legislation does finally get passed, it is only then do we see how it will affect us. But until then, we can only try to guess what the changes will be coming down and try our best to pivot and put ourselves in the best position possible to lessen the effects the changes will have on all of us.

Your tax map and tax brackets

Over the rest of your lifetime, do you think taxes will go up, go down or remain the same?

More than 98% of the people I ask this respond that taxes will be going up. I agree with them, wholeheartedly.

My follow-up question for them is: “What are you doing to prepare for that?” Most do not have a definitive answer. However, if you believe that taxes will be going up over the rest of your lifetime, then you inadvertently believe that you “may” be in one of the lowest tax brackets of your lifetime. Let that sink in for a minute.

Many people believe that when they retire, they will be in a lower tax bracket. But let’s analyze that for a minute. Practice owners (business owners) build their practices so they can retire in the lifestyle they have grown accustomed to. My question for them is, then, when you prepare your personal tax map, what will you be cutting back on during your retirement? What area of your lifestyle will be lessened or lowered when you reach the pinnacle of your career, and you finally retire?

Taxes on your retirement

Let me remind you, or enlighten you, that the social security you receive will also be taxed. What you put on your tax form will depend upon how much of it will be taxed.

The average married couple, aged 65-85, will be taxed over a quarter of a million dollars, just on their social security. Did you ever imagine that you would be giving the government over $250,000 in taxes just on the social security benefits to which you are entitled?

This vicious circle that business owners are on includes working harder to build our businesses – and the harder we work, the more money we make. The more money we make, the more taxes we pay. We do this year after year to reach a point that we want to enjoy what we have built and finally exit. And once we exit, we live on what we have accumulated only to see that we will lose more to taxes, because we believe that taxes will be going up. Let that sink in.

And this does not take into consideration that depending on where we put our accumulated wealth, it may be subject to market volatility, shared with our “guy” (a money manager putting together our tax map) and higher inflation, thus eroding our spendable dollars even more.

The good news

The good news is (believe it or not, there is some good news) that there are strategies that can be implemented that avoid everything discussed in the paragraphs above. These strategies have been utilized by this nation’s wealthiest for years.

These strategies are totally legal and endorsed by our government and are actually written into the U.S. tax code. I will name off a few of these strategies, but before you dismiss them (in part or in total), do yourself a big favor and educate yourself as to what they are and how they work. Commercial mortgages, crypto-currency, reverse mortgages, life insurance, rental income and trusts are just a few of these strategies.

There are changes coming to the tax code. That point is certain. The only thing still uncertain is what those specific changes are, who will be affected by those changes, and who will be paying for those changes. The harder you work, the more you make, the more you pay. I urge you to learn about the strategies that allow you to build your wealth so that your wealth remains all yours.

BRIAN P. MICHAUD, CLTC, is CEO for Consult Encompass LLC and Encompass Group LLC, and a business consultant and financial strategist. He can be reached at 860-930-5330 or bmichaud@trustencompass.com.

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Filed Under: 2022, Chiropractic Business Tips, Chiropractic Practice Management, issue-04-2022 Tagged With: prepare for retirement, retirement, saving for retirement

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