How To Minimize Your Taxes — Pay, But Don’t Leave A Tip

By Richard Reis

Hello dear,

Well, I wasn’t planning on releasing this letter so soon.

That was until I noticed a Google trends search for “taxes” returned this:

As you can see, every year (without fail) from January to the second week of April is freak-out time.

This phenomenon is also known as “tax season”.

It’s understandable. As a friend of mine eloquently texted me, “no one knows why we do it this way. And it’s complicated. And you never know you did it correctly. So it’s all this uncertainty that pisses you off”.

As a result, I put on my cape, went into my notes, and yanked out everything I had on the subject. The result is this letter.

A small disclaimer: I am not a tax expert. But neither is most of the population. The following are simply tips I learned that’ll make things easier for you and save you some dough.


This Isn’t About Avoiding Taxes

Nothing illegal here. Not even shenanigans on offshore accounts, trust mechanisms, or subsidizing charities.

Besides, I love this country and the wonderful things I get to enjoy thanks to it.

Neil Strauss put it perfectly:

“If we weren’t giving the government money to protect us, then there would be other people demanding protection money instead. So why not just pay the government, which is at least accountable to a degree — unlike, say, the Mafia?” — Neil Strauss

This Is About Paying Taxes… Without Leaving A Tip

As the title suggests, you will learn how to save money on taxes.

This is perfectly legal. You shouldn’t pay more than what’s absolutely necessary.

“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the Treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.” — Billings Learned Hand (United States judge)

It’s ok to look for ways to lower taxes!

Notice this Mad Fientist post. A few simple changes can help you retire two years earlier (two years!!).

In fact, I previously mentioned how millionaires and billionaires spend a lot of time studying how they can save more on taxes. There’s no reason why you can’t.

How Do Taxes Work?

The reason I don’t mention taxes when doing my early retirement math is because they vary depending on things like income, types of income, state, and marital status.

To give you an idea:

  • See how much you’d pay in Federal Taxes depending on your income and marital status, by clicking here.
  • See how much you’d pay in State Taxes depending on, well, your state, by clicking here.

And that wouldn’t include investment taxes, social security, or Obamacare.

I could start a completely new series just to talk about taxes. Bleh.

However, there are certain tips that will help anyone.

And here they are.

Tip #1: Consider Moving

No, I’m not kidding.

You wouldn’t be alone, as you can see on this website, many people move from high-tax to low-tax states (for example, you can click on California and see it lost $13.28 Billion to Nevada alone between 1992 and 2015).

Your best options would be one of the seven US States that currently don’t have an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

You can also check out one of these “best places to retire on $100 a day” lists and go from there.

The great tax migration

Tip #2: Choose Between DIY (Do It Yourself) Or Hiring An Accountant

If you have a single job, live in a single apartment, and don’t have a side business, there’s no reason for you to hire an accountant and pay the fees.

In fact, doing it yourself is extremely simple and empowering. Especially if you use automated software like TurboTax, Taxslayer, or Taxact.

However, if you have a side-business or several sources of income, it might be beneficial to have someone else handle the complexity for you.

In this case, a Tax Accountant would be your best bet. But it’s only worth it if the savings cover the accountant’s fees!

Tip #3: Take Full Advantage of Retirement Funds

Ahh, here we are.

The following topic is all the rage in the early retirement world. I myself prefer the advice of the early retirement blogger, The Mad Fientist (if you have the time, read his tax avoidance posts).

I’ll talk more about retirement plans next week. But, for now, let’s see what we can do with them to save on taxes.

1. Front-load

This is a bit controversial (many people squabble over how well it works), but it’s worth mentioning.

Let’s say you’ll contribute $18,000 to your 401(k). Most people would contribute a percentage every month ($1,500 in this case).

There are arguments as to why contributing the full amount early on in the year is better. You can find them here.

It all depends on your situation. But, if you can, it’s worth it.

2. Max Out

This simply means contributing the maximum you can to your 401(k) in a given year. The 2017 limit is $18,000.

Why max out? Because that money will be shielded from taxes! You have to protect your hard-earned money.

Besides, the more you put in, the more you’ll have when you retire thanks to compounding interest and appreciation.


3. Take full advantage of employer match

Your employer will contribute a certain amount to your retirement plan based on how much you contribute every year.

Generally, this number is 3–6% (or some gibberish like “100% up to $1,500”).

Some of you might find this obvious, most of you won’t. Check out what this survey says:

“When asked what percentage of the company’s employees takes advantage of the full employer match being offered, a 66% majority of respondents reported that at least half of their plan participants are contributing sufficiently to take advantage of the full employer match. [… ]The flip side of this figure is, that the remaining 34% percent believe that more than half of their plan participants are ‘leaving money on the table’ by not contributing enough to take advantage of the full employer match.”

Don’t leave money on the table. Learn your employer’s terms and take full advantage.

4. Roth conversion ladder

Worried about withdrawal penalties once you’ll finally be able to touch your money? You don’t have to worry (or pay)!

You’re sitting there thinking “How???”.

It’s called a Roth conversion ladder. I suggest reading this Mad Fientist post to learn how to do it.

Tip #4: Spend Less

That’s right. One of the many reasons I love spending less money is you’ll also pay fewer taxes.

To anyone complaining about sales tax, gasoline tax, or property tax, the answer is the same. Stop spending so much money then!

If you’d like to go a step further, read this Mr. Money Mustache post to learn how, technically, you could pay no taxes.

- After retiring, he and his wife make on average $30,123 per year.
- In 2012, they spent roughly $27,000.
- Federal tax is $654 and Colorado tax is $208. Total tax due: $862.
- They get a $1,000 Child Tax Credit.
- Their total tax would be $-138. Negative One Hundred And Thirty-Eight!

Many could do this (or something similar). All you have to do is plan things right and learn how to live well on as little as possible.

And that’s it for today’s lesson!

Today, you learned how to save money on taxes (which is perfectly legal) by:

  1. Knowing the best places to live.
  2. Choosing wisely between DIY or hiring an accountant.
  3. Learning how to take full advantage of your retirement funds.
  4. Learning that spending less is always, always, always a good option.

This time of the year is quite stressful. I hope this helps ease the pain.

See you next week (follow the series here to be notified).

Be well.


P.S.: Did you know the IRS could actually do your taxes for you and save you from all this crap? The only reason they won’t is because big companies pay a lot of money. For more information, watch this Vox video. Hopefully you’ll get angry and start fighting back, oh good people of the internet.

Thanks for reading! 😊 If you enjoyed it, test how many times can you hit 👏 in 5 seconds. It’s great cardio for your fingers AND will help other people see the story.


Since I write about finance, legal jargon is obligatory (because the guys in suits made me). Before following any of my advice, read this disclaimer.