Taxes suck. While most of us understand the need for taxes to pay for the services we use, everyone hates them. We hate them every time we go to the store (unless you’re in Alaska, Oregon, Montana, Delaware, or New Hampshire - states with no states sales tax), we hate them every time April 15th rolls around, and homeowners hate them when that real estate assessment or property tax bill shows up in our mailbox.

So here are five infallible ways to lower your income taxes (you’re on your own for anything else), you’ll thank me later.

Don’t save. One of the down sides of saving money is that you can earn interest on your money. If you happen to get tricked into opening a high yield savings account, you could be earning far more than at a regular checking account. While at first it sounds good, you have to realize that interest is taxed and all you’re doing is giving the government more of your money! Stay with 0% APY checking accounts, that will guarantee your tax bill won’t go up because of pesky interest.

Earn less. The beauty about taxes is that it’s a percentage of how much you earn, so if you earn less, you are taxed less! Take this example of someone who is in the 25% tax bracket. If he earns an additional $100, then he has to pay an extra $25 in taxes. That’s unconscionable! If he were to instead earn $100 less, then he would pay $25 less in taxes. Heck, quit.

Lose money in the stock market. There are plenty of penny stocks you can roll the dice with and the IRS lets you deduct up to $3,000 of losses against other income. If you were to go to Vegas and lose it on the craps table, the IRS would let you deduct $0! Take advantage by picking some no-name stocks and hoping they do poorly! If you’re in the 25% tax bracket, losing $3000 in the stock market means you will not have to pay $750 to the IRS.

Start cranking out kids. Lots of them. Kids are great tax deductions, just start popping them out and you get to claim them as dependents (deduction!) and you might even the child tax credit (cha-ching!). That child tax credit is worth up to a thousand bucks a child! That’s right, Jon and Kate Plus 8 get $8,000 in child tax credits each year! Sometimes when I see that show on TV, the kids look like little bundles of hundred dollar bills.

Buy too much house. The most important thing about a house is the size of the mortgage interest deduction. Well, that’s the second most important thing, the first most important thing is to get the biggest house out of anyone you know. But, that mortgage interest deduction is going to take serious money off your tax bill and the more you pay in interest, the better (plus, it means property taxes will be higher too!). While you’re at it, remember to get a home equity loan on the equity you have built up so you can get a deduction on that interest as well. Leaving equity in your home is like leaving money in the banana stand, you’re just asking for trouble.

(Photo: mlee)

Business Pundit had a great post last week on 25 Well-Paying Jobs that Most People Overlook (and Why) meant to “spotlight jobs with stigmas attached to them that pay more than the typical person would think.” The headline job was that of crab fishermen and a shout out to one of my favorite shows, The Deadliest Catch. If you’ve ever seen the show, just one episode, you’ll know that those men earn every penny of the tens of thousands they earn in a short period of time. They get the crap beat out of them by the ocean, by the boat, by their captain and their crew mates. I totally understand why Alaskan King Crab is as expensive as it is.

Which job surprised me the most? Probably a dog walker:

Dogs can be scary enough without putting several of them on leashes and hoping they’ll behave for a complete stranger as you walk them around town. However, the undesirability of the job is precisely what makes it high-paying. In a busy metro area, a reputable dog walker can rake it in to the tune of $50 per hour. As one article points out, “that’s more than the average salary of a mid-level manager.”

If things don’t work out, I could always walk dogs.

The Washington Post story today, discussing the findings of Nobel Prize-winning (2002 Nobel Prize in Economic Sciences) behavioral economist Daniel Kahneman, confirmed the classic joke of an American businessman and a Mexican fisherman. You’d think that the more you earn, the more out of life you’d be able to enjoy; however that isn’t the case. More and more studies are showing that happiness has less to do with money and more to do with other factors. First the (not so surprising) findings, then the ironic joke.

Findings

Kahneman found that wealthy individuals, those earning more than $100,000, spent less than one-fifth of their time in passive leisure. Those earning less than $20,000 a year, spent more than a third of their time in passive leisure. The rich spent more of their time doing the required things, such as working, and less of the optional things because they’re trapped in a mental illusion. They focus on getting rich because they believe that when they are rich, they can buy some cool electronics or get daily spa treatments… therein lies the joke. If you want more Kahneman, here’s more goodness on the aspiration treadmill.

Living the American Dream

An American businessman was standing at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellowfin tuna. The American complimented the Mexican on the quality of his fish.

“How long it took you to catch them?” The American asked.

“Only a little while.” The Mexican replied.

“Why don’t you stay out longer and catch more fish?” The American then asked.

“I have enough to support my family’s immediate needs.” The Mexican said.

“But,” The American then asked, “What do you do with the rest of your time?”

The Mexican fisherman said, “I sleep late, fish a little, play with my children, take a siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos, I have a full and busy life, señor.”

The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds you buy a bigger boat, and with the proceeds from the bigger boat you could buy several boats, eventually you would have a fleet of fishing boats.”

“Instead of selling your catch to a middleman you would sell directly to the consumers, eventually opening your own can factory. You would control the product, processing and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually NYC where you will run your expanding enterprise.”

The Mexican fisherman asked, “But señor, how long will this all take?”

To which the American replied, “15-20 years.”

“But what then, señor?”

The American laughed and said, “That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions.”

“Millions, señor? Then what?”

The American said slowly, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take a siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos…”

###

Touché.

How Rich People Spend Their Time [Washington Post]

(Money by Tracy O, Fishing by shefaet)

Here’s a little story my friend Matt sent me and it’s about economics, taxes, and drinking; only one of which I actually enjoy. I didn’t double check the math but it appears sound and the message is pretty interesting (especially given the talk of the 2008 tax stimulus package!). I invite you to share your thoughts in the comments.

(The origins of this story, as well as some of the story details, are unclear but it’s still an entertaining and thought provoking read)

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. What happens to the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

‘I only got a dollar out of the $20,’ declared the sixth man. He pointed to the tenth man, ‘But he got $10!’

‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than I!’

‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’

‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important.

They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

(Photo by ricktoomer)

My blog is worth $62,663.94.
How much is your blog worth?

Hahahahaha, if I sold this blog, my old comic books, and baseball cards, I could retire today and buy myself a nice cozy bungalow in Bermuda (Technically, I couldn’t because I’m not a native, but whatever). Heck, I’d would take an offer of even half of that “valuation!”

On a semi-related note, The Wealthy Blogger was sold a bunch of weeks ago for $2,000 and has since been abandoned. It’s sad, I like reading the personal finance writings of Jeremy and Mike. (Incidentally, The Wealthy Blogger has a valuation of $0.00)