Saving Taxes is Not a Commandment
Choosing a life aligned with your soul vs a protracted battle with the IRS.
I once heard about a man worth several hundred million dollars who hated that his estate would owe more than $100 million in taxes when he died. He viewed this as legalized theft, and he lamented that the money he worked so hard to earn would just vanish in the tidal wave of government spending.
He renounced his U.S. citizenship and moved to a tax haven, a country with no estate tax. He loved his adult children and grandchildren, and he assumed they shared his disdain for taxes and government spending. He imagined they would move with him to his tax-free paradise.
His family stayed put. No longer a U.S. citizen, his time in the country became limited. He could no longer see his children and grandchildren on a regular basis.
He owed no U.S. estate taxes whatsoever when he died, after spending less time with his family in the waning years of his life.
Why would anyone make this terrible trade? Even after potential estate taxes, the family had enough money to satisfy their material needs, wants, and wishes for generations.
Let me be clear. I endorse sensible tax reduction strategies. I max out my retirement plan contributions, fully fund my Health Savings Account (HSA) for future medical expenses, and make monthly contributions to 529 Plans for my grandchildren’s education. Heidi and I use our donor advised fund to leverage any tax benefits flowing from our contributions to good causes and charitable contributions.
Some complex tax avoidance strategies are questionable; they may or may not be legal. The Internal Revenue Service (IRS) may or may not challenge them, the courts may or may not uphold them. Neither white (unquestionably legal) nor black (definitely illegal), I think of them as gray. Most are time-consuming, complicated, and generate substantial professional fees. I avoided these strategies, for my clients and for myself. I had no desire to get into protracted battles with the IRS or end up in jail for tax fraud.
My philosophy: better to pay my taxes and live my life.
In some circles, especially among families with extraordinary fortunes, that notion is heresy. These clients and their advisors see themselves in a protracted battle with the IRS. Winning is all about reducing your taxes to the bare minimum, and maximizing your financial wealth.
Their quest to reduce taxes starts to feel like a holy mission.
I believe these people are confused. There are 613 commandments in the Hebrew bible; love the stranger is mentioned 36 times; saving taxes not once. Jesus told his followers, “Render unto Caesar what is Caesar’s due.”
Sometimes I imagine the following eulogy delivered at a sparsely attended funeral for a man who passionately hated paying taxes. “He spent hours researching creative tax reduction strategies, kept meticulous records to justify numerous tax deductions, and hired accountants and attorneys who aggressively pursued his tax savings goals. His relentless efforts to reduce taxes left little time to travel, hang out with friends, or build loving relationships with family. His three children did not see much of their father, but upon his death received a substantial inheritance.”
A great life has little to do with saving taxes. Life is all about living in a manner that is aligned with your soul, your deepest and heartfelt desires.
I remind myself that I raised my family and built my business on the foundation of living in America. Had I lived somewhere else, my life would have been different, and possibly much worse. Taxes are, in part, my way of paying for that fortunate foundation. I hope it remains strong for my children and grandchildren long after I am gone.
My grandfather always quipped, “If you paid a lot of tax, it means you made a lot of money.” I try to remember that when I owe a big tax bill.
Until our next conversation,
David
Small Steps & Worthy Questions
Do your tax strategies reflect your values or your desire to win?
Think of three ways that living in the U.S. has made a positive impact on your life.
If you knew that you had enough money to provide for yourself and your loved ones, would you feel differently about paying taxes?
If you love this, share it with your friends, foes, and even perfect strangers. Let’s change the way America thinks about money.
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