Obstacle #1: What is a tax strategy?
Obstacle #2: Where do you start?
A strategy is a systematic plan of action intended to accomplish a specific goal or purpose.
The specific goal or purpose is to permanently reduce your taxes.
So, a tax strategy is a plan of action to permanently reduce your taxes.
Of course, most people are all for permanently reducing their taxes. What is typically missing in their quest to do that is the strategy piece. And it’s the strategy piece that produces the maximum results.
The strategy piece helps focus our actions and thoughts every single day on permanently reducing taxes.
It doesn’t have to take hours every day to get maximum results from your tax strategy. Instead, your strategy becomes a part of your daily routine.
Every transaction you do can have an impact on your taxes. Your tax strategy helps you think about your daily transactions in a way that gets you to your goal of permanently reducing your taxes.
Let’s say you are going to Hawaii. When you go to book your ticket, you need to know where you are departing from, right? This is your starting point.
It is impossible for you to get to Hawaii unless you know where you are starting.
The same applies to a tax strategy. You must know where you are starting. In your tax strategy, this means you must know your current financial position.
Your current financial position includes:
Your Current Balance Sheet
Your current balance sheet tells you your current net worth. It’s calculated as follows:
Your Assets (what you own) – Your Liabilities (what you owe) = Your Net Worth
When you know your current net worth, you know the exact resources available to you to use in your tax strategy. Your specific assets and liabilities help create the best path for you in your tax strategy.
Your Current Statement of Cash Flows
Your current statement of cash flows tells you your net cash flow. It’s calculated as follows:
Your Income – Your Expenses = Your Net Cash Flow
Identifying your sources of income is the starting point of identifying how to reduce the tax on that income.
Identifying your expenses is the starting point of maximizing your deductions.
The starting point to reducing your taxes and forming a tax strategy is understanding your current financial position.
If you haven’t created your tax strategy yet, start by updating your balance sheet and statement of cash flows.
If you already have your tax strategy in place, review your current financial position regularly to identify new opportunities for your tax strategy.
When you reduce your taxes, you immediately increase your cash flow. Increased cash flow can be used to create wealth. Your taxes are a powerful way to feed your wealth strategy!