Most people feel like their taxes are a sleeping giant. They tiptoe around them as if staying away from the topic will keep it from waking up. Then at tax time when the giant awakens, they often act as if the final tax refund or bill is a surprise. Many working people try to change their withholding to get their tax outcome “dialed in”, but that joy of having a refund of “XYZ” coming is so often way off from what was expected and they are shocked. That’s because taxes are dealt with one time a year for most and their scenarios that lead to a consistent outcome change. For example, they go from no kids, to having kids. Children on a 1040 adds EIC tax credits and daycare deductions and allows lower withholding from take home pay. Then five years goes by like a flash and the kids stop daycare and go to school, but they don’t have more withheld when the kids get on the bus and the missing day care deduction is a large increase in tax that erases their expected refund. There are many lifetime events that shift people’s tax outcomes but it most often is an unpleasant surprise.
Tax preparers could tell people at tax time, “Hey, your children are not going to daycare anymore so you better increase your withholding!” But few preparers give any proactive advice. They are too busy, don’t think proactively or think people are more aware and should already know what needs to be done without being prompted.
Then there are life events, elections and world events that also shift tax policy. Its on the TV and or social media every day, but people look right past those events without mentally admitting to themselves, “Hey, the government is printing and giving away money it doesn’t have again. I better increase my withholding because my taxes are going up.” That’s an unfortunate disconnect, but every time we build a new playground, open a homeless shelter, send another bomb to a foreign country to defend itself or give a tax break to a guy with a super yacht, taxes are likely going up. No matter your political affiliation or lack thereof, every time we do anything for the world or ourselves, your taxes need to go up or spending needs to come down, or the economy needs to grow the tax revenue. Also, we have all the debt we have been carrying like the worst credit card ever created. Just the interest on that debt is killing us as a country.
We have been in tight spots before as a country, but even during WWII, our GDP versus spending has never been as bad as it is today.
Empower yourself with a great (not just good) tax planner, as you are going to need to learn, engage and understand what you can do to not pay more than your fair share, because over the next ten years you are going to be asked to pay for much more.
