Impacting Your Tax Filing Outcome
Creating a Legacy With Your Taxes – Part 1
Most of us don’t understand that when we pay taxes, we are directly impacting the world around us. It’s our tax dollars that provide a better way of life not just for self, but for others.
“The man who has two tunics is to share with him who has none; and he who has food is to do the same.” – John (bible.com/bible/1588/LUK.3.11.AMP)
See your taxes as a large portion of the legacy you’re leaving to the world around you. When you see it this way, you’ll learn to appreciate what happens with it and will fight to ensure its best use. In this section we will discuss a few methods to help improve the process of filing taxes for you and your tax preparer.
Let’s discuss this topic that never goes away and circles around each year, taxes. Because I am a person of faith it stands to reason that this should be an area I target with prayer. Maybe you’ve not considered this, but you should. Why? Your life is your business. For me to create legacy in this area, I need to now ask myself questions that very few would ask. You know what that does? It makes me uncommon. I have no interest in becoming a normal taxpayer. Let’s talk a little more about it as I answer this question “should I pray to pay taxes or to receive a refund?”
You’re going to need to decide in which direction you’d like to pray. You can’t pay taxes and receive a refund. You’re going to be one or the other. So then, how can we align our prayer to support our decision? We must make a decision and to do that we need to be informed about what either scenario means for your life, your business.
The Thought or Concept:
Paying taxes or receiving a refund is all up to you.
Before writing this I needed to do some fact checks and you would not be surprised at what I found. Too much confusing information. I found words and language like this: taxable income, tax credits, withholdings, audit, tax deductible, tax liability, and so on. I get it. Some of the stuff you see doesn’t help at all. I think it only makes it worse. Getting to my point for this lesson. I have one purpose and it’s not to explain taxes in simple terms, but rather to help you decide on whether or not you’ll pay taxes or receive a refund. The truth of the matter is, it is all up to you.
Because I’m a person of faith, I was talking to God about taxes or rather He was talking to me. Here’s the question He asked, “should you pray to pay taxes or to receive a refund?” Obviously, by God asking me this, I know I didn’t off the top of my head have a good answer. Then my next thought was this; for what reasons does someone receive a refund?
There are two reasons that I have found that support why a person receives a refund.
- Overpaying Taxes (the most popular reason).
- Low Income Household.
Let’s take a moment and classify these a bit.
You can overpay your taxes.
Overpaying in taxes has very little to do with how much you make. You’re welcome to overpay in taxes no matter what level of income you’re in. When you have little knowledge of what you’re paying and how much you should, then what happens is you either underpay or overpay. Overpaying obviously will yield a return. Who wants to intentionally overpay the IRS and bring home less money every month? In fact, most people do this unintentionally, but are relieved when they don’t short the IRS and have to write them a check.
Back to the question, do you want to receive a refund [this way]? You’ll need to give more of your money to the IRS out of your pay each month.
You can be a low income household.
There’s one distinction we need to make. You’ve heard people say they received thousands of dollars back during tax season. They’ve claimed children that belong to someone else and have even shorted the IRS in not paying taxes at all. What we fail to realize (and this is the truth, even though it might hurt) those who receive this type of refund are mainly low income earners. Not to get tax-technical. They receive these funds because they are low income wage earners and qualify for something called “Earned Income Tax Credit.”
Now the question you must ask yourself is, do I want to be a low income wage earner?
This lesson in taxes is to discuss what type of legacy you are creating when it comes to this area in your financial outcome. In short, whether you pay taxes or receive a tax refund, starts with how much income you plan to earn. Notice I say “plan.” You see tax filing results are based on this bottom line figure. Therefore you need to decide where you wish to be so that you can plan accordingly.
The grid for figuring out your desired tax filing results.
Back to the question, do you want to pray to receive a refund or pay taxes? So this brings me to the final idea that God gave me on the subject. He showed me a picture of this grid which is the reason for this web-post.
|High Income | No Refund (You Pay)
High earnings + underpay required taxes
|High Income | Refund
High earnings + overpay required taxes
|Low Income | No Refund (You Pay)
Low earnings + underpay required taxes
|Low Income | Refund
Low earnings + overpay required taxes
Take a look at this grid and it will give you two types of people, but four options. Because these categories exist, you need a plan if you want to change from one category to the next. No matter what, you fall within one category and may wish to be in another. If this is you, you need a plan. You need to understand where you are and which category you desire to be. After I realized this, it helped me to decide how I wanted to pray. Fortunately for Pamela and me, we’ve experienced all the listed categories and are very particular on how we manage it.
This grid outlines the results that come with filing taxes. You will fall into one of these four quadrants.
- High Income/No Refund (You Pay)
This means your earnings are above the low income threshold and you’ve not paid enough in taxes. Your taxable income was greater than the amount you actually paid taxes on.
- High Income/Refund
This means your earnings are above the low income threshold and you’ve paid more than enough in taxes. Your taxable income was lower than the amount you actually paid taxes on.
- Low Income/ No Refund (You Pay)
This means your earnings meet the low income threshold and you’ve overpaid in taxes. Your taxable income was greater than the amount you actually paid taxes on.
- Low Income/Refund
This means your earnings meet the low income threshold and you’ve overpaid in taxes. Your taxable income was less than the amount you actually paid taxes on.
In summary, what these four categories reveal are two options one must consider: 1) will I be a low or high income household and 2) do I wish to pay taxes or receive a refund? Once I know how to answer this question, then I have what I need to put a plan together to target the appropriate category. For example, if you wish to be a high income household and receive a refund, then you’ll need to figure out the two actions required: 1) how to earn more income and 2) how to reduce taxable income? At any rate, whichever way you go will require a plan of action.
Today is Friday!
I look at these four categories as prayer opportunities. Rather than allowing the world or my environment to dictate where we fall, Pamela and I have decided to choose our target and work our plans to get us to the category of our choosing. The good news is, so can you. So rather than praying an arbitrary prayer, the prayer you should pray is determined by the category in which you desire to be.
Question: what legacy are you establishing when it comes to how taxes impact your life?
Thanks for visiting Kerry A. Clark & Co. I know you know someone who could benefit from this lesson, so please share it.