Episode Summary

Welcome to the Control Your Cash Podcast, in this episode, Olivia and Tim delve into the complex world of taxes, shedding light on common misconceptions and strategies for financial control. Discover why so many taxpayers unknowingly overpay and how the government’s tax system impacts your financial future. Learn why deferring taxes into retirement accounts may not be as beneficial as it seems, and explore alternative ways to keep your money safe and in your control. Join them as they uncover the hidden truths about taxes and provide insights to help you regain control of your financial journey. Don’t miss this enlightening discussion.

Key Takeaways

Tax Overpayment Reality Check: 

  • Research suggests that a staggering 91% of taxpayers overpay on their tax bill, with over 70% overpaying by more than 70%. This reveals a significant disconnect between perceived understanding and actual overpayment.

Opportunity Costs: 

  • Overpaying in taxes not only means losing the taxed dollar but also the potential earnings that could have resulted from it. This loss extends across generations, affecting not just the individual but future descendants as well.

Inflation as a Stealth Tax: 

  • Inflation acts as a hidden tax, eroding the purchasing power of money over time. It impacts everyone but tends to affect lower-income brackets more severely.

Empowerment Through Knowledge: 

  • Understanding the realities of tax systems and financial instruments empowers individuals to make informed decisions and seek out strategies that align better with their financial goals and aspirations.


Olivia: Hello, and welcome to the Control Your Cash Podcast. I’m your host, Olivia Kirk.

Tim: And I’m Tim Yurek. 

Olivia: We’re here today to talk about everyone’s favorite topic. Taxes. Just kidding, the dreaded taxes, it’s a huge major capital expense for households and businesses across America. So it is a topic that does need to be discussed because there are better methods than other for funding taxes, or if you’re lucky enough to receive a tax refund, how to put those tax dollars to work for you, your business, and your family.

Tim: You know, it’s funny, I did some research on taxes and found that 91% of all taxpayers overpay on their tax bill. 

Olivia: Now nobody wants to hear that. 

Tim: And here’s the kicker. Over 70% of them overpay by over 70%. So, you know, everybody out there thinks that they’re handling things the best way and that they’ve got the best accountant or the best CPA.

But clearly there’s a disconnect. If everybody thinks they’re doing it right, and 91% is overpaying, something is not adding up, if that makes sense.

Olivia: And then we wonder why the government doesn’t give us a clear cut method or tell us how much to pay in taxes. They’d be losing a huge chunk of their revenue by doing so.

Not to mention, we talk about the five areas of wealth transfer. Taxes are number one. Where are we giving up control of our money unknowingly and unnecessarily? No one wants to pay more in taxes than necessary, but they are something that we need to consider when considering financial planning and how to move ahead for ourselves.

Tim: Yeah. I mean this. So think about this. If you overpay in taxes, you don’t only lose the tax dollar. You lose what that dollar could have earned for you. That’s opportunity costs and you lose it forever. Meaning that not only do you lose it, but your children and your grandchildren and your great grandchildren lose the ability to have controlled that dollar.

So it’s really important to address the tax issue. Uh, but again, everybody thinks they’re doing it right, but there has to be some kind of a disconnect because if so many people are overpaying, and they’re overpaying by such a large degree, something isn’t adding up. And think about this, you know, every few years, uh, a political candidate might run on we’re gonna, you know, we’re gonna reform the tax system.

Nothing ever gets done. There’s no incentive in Washington to reform the tax system.

Olivia: Well, the government doesn’t produce anything. All they have is revenue, and they only, what, what are the sources of revenue? Taxes? Is that it?

Tim: Well, taxes and borrowing. Right? So, so and… 

Olivia: If you can consider borrowing as a form of revenue.

Tim: Yeah, I mean, 33 trillion dollars in debt. What’s another trillion dollars? What the heck? Easy come, easy go, right? 

Olivia: Except it never came.

Tim: But look at all the constituents we could buy off.

Olivia: Oh my gosh. So, yeah, it’s, it’s. The tax money has to come from somewhere because it is expensive to run the country, to protect the country.

And the government’s job is to do just that. And, you know, they have to get paid themselves. So the money has to come from somewhere. And as this debt adds up, as interest rates rise, and they keep on going up and up and up. As these things happen, the cost of the interest on the astronomical amount of debt is increasing, and you know the money has to come from somewhere.

And spoiler alert, it’s gonna come from the people who have the money. If you don’t have any money, the government’s not coming for you. It’s the people who have the money and newsflash again. You may be, it may not feel like it, but you may be those people who are responsible for paying those taxes, whether it feels like it or not.

Tim: You know, I like when people say, hey, the rich should pay their fair share. Well, think about this. Over 80% of taxpayers filed for $100,000 of income or less. Now, guess what? If you make $100,000 in the United States, in 2023. Are you rich?

Olivia: Does it feel like you’re rich is the better question.

Tim: It doesn’t feel like it for sure, but here’s the point when you’re sitting there saying, yeah, the rich should pay their fair share, you’re basically saying, come and kick my butt because I’m rich. Now you don’t feel rich, but as far as the government’s concerned, you make a hundred grand you’re rich.

Olivia: Yeah. Yeah, that that 100 to 200,000 of income has some some real challenges to face between you know all of the problems that everyone’s dealing with as far as rising inflation rising interest rates but then there’s also other layers of challenges that come up between not getting as much for child care or not getting as much for financial aid and paying more for your children to go to college. Not to mention, if you’re in that, that earning bracket, you may have some, some student debt yourself that you need to account for in there.

So it’s really important. We always say to make your money as efficient as possible. And as you continue to earn more and more money, if you don’t address these issues, those problems are going to continue to compound as your income grows. So it’s important to address each of the wealth transfers, starting with taxes to make sure that you’re not paying more than you need to, to make sure that you’re keeping as much as you can, and to make sure that you’re setting yourself up for success here.

Tim: Yeah. And looking at setting yourself up for success, all the strategies that we employ on a daily basis, whether they’re financial or personal, really have a ripple effect on everything else that we do or that we’re able to do in the future. And keep this in mind, you know, when we talk about saving money on taxes, it may not necessarily be you paying less taxes this year.

We have to look into the future and take the idea of deferring taxes into a 401k or a qualified retirement account. Well, it’s a government tax qualified retirement account, which means that all the rules are laid out by the government. They made the rules. Now, keep this in mind, those rules were made to favor the government.

They weren’t made to favor you. Remember Nelson Nash saying in his book, Becoming Your Own Banker. You know, the government creates a problem, high taxes, and then they provide a solution to that problem. The ability to defer your tax into the future. And then they make that first available to the rich, and then to the not so rich, and then to the not so rich, less, even less, and even more.

And then next thing you know, now they have an exception to the rule for everybody. It’s called an IRA. Now think about this. The government creates the problem. The government provides the solution to the problem. Do you think that maybe, just maybe, you might be, you know, you might be subject to manipulation there.

I mean, if they really wanted to solve the problem, what would the solution be? 

Olivia: Possibly to lower taxes. 

Tim: Wouldn’t that be the logical solution? But do you think that’s going to happen?

Olivia: It can’t at this point because every, every splash has a ripple and we’ve got into a very high level of government debt to say the least, and that’s just one layer.

And then adding on the, the rising interest rates on top of that. So it’s impossible for them to slow down now. And it’s just math, you know, at the end of the day, it’s just math. 

Tim: You know, so the, the big thing is people think, and they’re, they’re led to believe by their, accounting or their, their tax people, that if you defer money into this retirement account, you’re gonna save X amount of dollars in taxes.

So let’s say you’re in a 30% tax bracket and you put $10,000 into this retirement account. Hey, you saved $3,000. Eh, no you didn’t. You deferred $3,000 of taxes into the future. Now let’s look at, did you really save money? 

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Olivia: It’s funny because. You know, we get, we get calls every single year around tax time where our clients are saying, hey, my accountant said I could save on taxes.

Like I need to get money into my qualified plan. And we’re like, do you have the money accessible to put into your qualified plan? Is that money baked into your cake? Is that in your cashflow to put away 10-20,000 dollars into your IRA? And a lot of the times the answer is no. Right. Cause if it was, then you just pay the taxes, right?

You’d have the money to pay the taxes instead of scrambling to figure out how to save on taxes. At the end of the day, no one wants to pay the taxes. But another thing to consider there. On top of deferring the taxes into the unknown future, you’re also losing access to that money, you know, you’re not that money isn’t accessible before age 59 and a half without penalty and regardless of when you take it out, it’s going to be fully taxable as income at that time.

So if you want to use it to accomplish a financial goal down the line before age 59 and a half, you’re subject to taxes and a penalty. So then you really didn’t save any money on taxes. You know, they’re getting you one way or another. And a lot of times it’s where you’re worse off for it. 

Tim: Well, absolutely.

And now let’s add another layer to that cake. Right. And think of it this way. When you have to pay more for goods and services in the future, not through your own fault. But because the government is printing more money and printing more money just increase, increases the cost of the goods and services that we’re consuming. 

Olivia: Hashtag inflation.

Tim: That’s called inflation, right? So isn’t that, isn’t inflation another tax? 

Olivia: We call it the stealth tax around here because it affects each and every single one of us. Some more than others, you know, the lower your income, the more you’re going to be affected by the effects of inflation that are eroding away at the buying power of our dollars.

And a lot of people don’t consider the effect of inflation on our retirement savings, right? Because we see maybe we’re earning so much rate of return on, on our, our retirement savings, our retirement investments, maybe we’re paying fees, maybe we’re going to pay taxes. But what’s not considered is that when you put that dollar in, in 2023, that’s the most that dollar’s ever going to be worth ever. So…

Tim: Meaning that, meaning that that dollar can buy the most goods and services in your life going forward. 

Olivia: Yeah. 

Tim: Right? As inflation affects those dollars going, that dollar going forward, you’re going to be able to buy less and less goods and services with that dollar. So, but, you know, so now let’s sort of, the picture is starting to come together. You’re told you’re saving taxes, and in the example we used, $3,000 you’re saving in taxes.

And you believe it because that’s what you see on your tax return. Right? This is go, goes back to what Nelson always said, the seen and the unseen. We see the $3,000 we’re saving in taxes. We don’t see at the time of that deduction or the time of that deposit into the account, we don’t see the taxes we’re going to have to pay in the future.

We don’t see or feel the cost of inflation on that money. And, you know, another thing we don’t see or feel is did we make or lose money on that deposit over time? So all of these things paint a picture that oh well, I don’t know what the taxes are going to be in the future. I know that the dollars that I’m taking out of that account down the road are going to have less buying power than the dollars today, but I don’t know how much less.

I don’t know whether or not I’m going to have, I’m going to lose money or make money in that account. Now you’re looking at it and saying, boy, am I saving money? Or am I just greasing the wheels of the, you know, the accounting industry and the financial services industry and the government, and they’re just using my money to sort of advance themselves and me, well, I guess I’m left to sort of sink or swim on my own.

Olivia: And that’s the case. A lot of times. And, you know, a lot of times there isn’t enough money in those accounts for, for someone to retire comfortably. In the past it used to be that your employer would provide a pension and all of that risk was placed on your employer instead of on that individual.

But nowadays, ever since we have these qualified plans and the accessibility to them, all of the investment risk is on the individual. And we’re seeing now how that’s working out with so many people. Unprepared for retirement, you know, whether, whether they’re saving in their 401, 401k or not, you know, um, it’s, it’s sad and it’s something that needs to be addressed as soon as possible so that you’re set up for financial success throughout your life and also saving in a place where the government can’t get their hands on it, you know, a place where, um, that money’s safe and there for you, your business, and your family, and no one else.

Tim: And, and that’s, that’s a such a great point, right? Wouldn’t the best way to overcome taxes be to put your money in a place that the government can’t get at? 

Olivia: Contractually. 

Tim: I mean, how much, how logical is that, that Wait, you mean to tell me there’s a place I could put my money that the government will never be able to get its hands on it?

Olivia: Well, you think about it, like, the government are the ones making the rules. And they’re making those rules frequently, you know, mind you. They’re not just saying, let’s make these rules, set it, and forget it. We see how often the rules have changed between, um, in those qualified accounts. Between the beneficiaries, between the RMDs, between everything.

We don’t know what that’s going to look like down the line. 

Tim: And who do they, who does the government lean on when they’re making these regulations? When they’re changing these laws? When they’re setting up, uh, when they’re setting up, uh, regulations? Aren’t they using the access to the large companies, the ones who are going to benefit the most?

So think about this, the people who are making the laws, right? So, they, they make the rules, they profit from your participation, and they control the outcomes. What chance does the individual or the, or the, the average person or business owner have against the big corporations and the government and the financial institutions?

I mean, it’s, the deck is stacked so far against us that it’s really, really difficult to get ahead. And we’re seeing that more and more today because of inflation, because of taxation, because of the amount of money that the government’s printing. The little guy’s getting squeezed out, no doubt about it.

And just, you know. Rightfully or wrong, wrong, right? Let’s look at COVID. They put the little guy out of business, the small business owner, but you can go to Walmart, you can go to the big corporations, you can go to Target, but you can’t go to Joe’s store down the street. 

Olivia: Yeah, it’s sad, and I’m sure many people are still recovering from those effects, and the effect that it had on their business during COVID, and then after.

But yeah, it’s hard. It’s hard as a business owner, and it’s important to that’s why we always talk about making your money as efficient as possible, setting it up. So, you know, you’re in control of it. You know, you’re not being squeezed by all of those outside entities, all of those, those things that conventional wisdom teach us to do.

And we do so naturally because that’s what everyone else is doing. That’s seems to be the only way, but there is a way to set yourself up and your family and your business so that you could regain control of that. Um, and do it in a tax efficient manner. 

Tim: Yeah. I think you have to realize from this perspective, a lot of what we think to be true about taxes may not necessarily be true.

And if what we think to be true is not true, how soon do we want to know? When do we want to know that what we thought or believe to be true about taxes? This is really not true. Do we want to know now or do we want to know 30 years from now or 20 years from now? 

Olivia: It’s always better to know as soon as possible.

So you could start making those incremental changes. Those, put the ripples in the other direction, if you will, so that you’re moving towards your financial goals rather than being separated from them unknowingly and unnecessarily. If you’d like to learn more about our process. At Tier1 Capital, be sure to check out our website at tier1capital.com. 

You could feel free to schedule your free strategy session right on our homepage. We’d love to speak with you personally about your specific situation. Thank you so much for listening today. We appreciate it from The Control Your Cash Podcast. We’ll see you next time.