Demystified Blog Archive #44 – We Love Tax Options

Last week, the Office of Management and Budget released the “Mid-Session Review” of the US federal budget.

The last government budget update was released in February. And according to the February budget update, the government’s deficit for this fiscal year was going to be a whopping $873 billion.

When they first unveiled the FY2018 budget in March of last year, they projected the annual deficit to be ‘only’ $440 billion.

So between their initial projections in March 2017, and their current projections in July 2018, this year’s budget deficit increased by more than 100%.

In addition.

Last March, they projected a total budget deficit of $526 billion for Fiscal Year 2019.

But according to the revised projections they published yesterday, the budget deficit for Fiscal Year 2019 will now be $1.085 trillion which is 106% worse than projected.

And, whereas last year the government was forecasting declining deficits in fiscal years 2020, 2021, etc., until miraculously reaching a positive budget surplus of 16 billion in 2026, the new updated projections now show trillion dollar deficits next year, the year after that, and the year after that.

Bear in mind that even though this revised budget is a colossal train wreck, the projections still don’t factor in the possibility of a recession, war, major emergency, natural disaster, or financial crisis.

There has never been any major superpower in the history of the world, from Ancient Rome to the French monarchy of Louis XIV, that has been able to run wild budget deficits without serious consequences.

Sooner or later these bills have to be paid, whether that means higher taxes, dramatically reduced benefits, serious inflation, or a loss of confidence in the currency, etc.

There are hundreds of ways this could play out, and it’s impossible to predict precisely how or when.

Lately, we have been discussing the importance of a taxation strategy.

A successful taxation strategy is one that creates tax savings that outweigh the costs of creating the tax savings.

It seems simple, but sometimes the facts can be deceiving and that causes many tax strategies to fail.

For example, which is better?

• A tax return that costs $750 to have prepared, or
• A tax return that costs $2,500 to have prepared

If both tax returns produce the exact same tax results, then the lower cost tax return is a great deal.

But now let’s assume the facts further.

The $750 tax return produces a $10,000 tax LIABILITY

Whereas, the $2,500 tax return creates a $3,000 tax REFUND

Do you see where we are going here?

Have you ever seen the media studies where they take the same tax information to several tax return preparers?

The idea is to see if the results are the same.

The results are never the same, however, that doesn't necessarily mean any of the tax returns are technically inaccurate.

It's not unusual to have options on how income and deductions can be reported on a tax return and have each option be technically accurate.

We love tax options.

And with U.S. tax law, or elsewhere, there can be many options with how items are reported.

With the right tax preparer, it can result in maximizing your tax savings.

Of course, there is always additional information you should consider when setting up a taxation strategy plan. And, you should always be working with a team of professionals to help mitigate the risk of any investment.

To your investment freedom