A Suze Orman exclusive

The Second Most Popular Stupid Tax Strategy

Leasing a car makes no sense. It's the same problem as the mortgage interest deduction. For every dollar you spend you are "saving" 28 cents (assuming you're in the 28 percent tax bracket.) So let's review this one more time: why are you so excited about paying 72 cents to save 28 cents? And don't get me started on all the other problems with leasing, such as the costs for exceeding the mileage limit, or getting a dent or two, let alone addressing what happens if you cannot make the lease payment and you have to turn the car back in. In future columns I will address why in my opinion leasing is the stupidest thing most of you will ever do in your life.

Refunds Are a Sign You Have Screwed Up

Tax refunds are not gifts. It is literally a refund of money you paid. More to the point: it’s a refund of money you overpaid. You’re excited about getting a refund when in reality you’re simply getting money back from Uncle Sam that you needlessly forked over. You gave Uncle Sam an interest free loan. I don’t think you would give your own uncle an interest-free loan, so why are you giving it to Uncle Sam? And don’t tell me it’s your way of saving money. I know about your type. You get the refund check and instead of investing it, you spend it as if it’s funny money. Come on guys, let’s get a grip. If you receive a refund you need to either contact your employer’s payroll department and increase your withholding (so less is taken out of each paycheck for taxes) or if you’re self-employed, adjust your quarterly estimated tax payments. And if you think that cannot make a difference I am here to tell you it can. The average refund is $3,000. What if you took that $3,000 or $250 a month and used that money to fund your Roth IRA each month? As I showed you above, that adds up to serious money over time. Now that is what is called retirement planning, not just tax tips.

Capital Gains Tax

I’d also like you to think strategically if you have any assets you plan to sell in the coming years. Remember that the 2003 tax bill lowered the capital gains rate for many of us to 15 percent. (It’s 10 percent for those in lower income brackets.) That’s a nice decrease from the former 20 percent rate. But remember that right now that break is only good until 2008; if Congress doesn’t act to keep it in place after 2008 we could see the cap gains rate shoot back up. So if you’re sitting on a big capital gain, be strategic. That five percentage point difference can add up to big savings.

Okay my friends, those are the main tips to leading a tax-smart life. Follow this advice and I guarantee it will provide you far more financial security than any annual deduction-chasing, tax-credit-searching exercise.