Week 3: Understanding Taxes – Keeping More of What You Earn

You work hard for your money—so why let taxes take a huge bite out of it? The average American pays 24-30% of their income in taxes, but smart financial strategies can cut that down significantly.

How Taxes Eat Away at Your Wealth

Let’s say you earn $80,000 per year:

• Federal tax (22%) – $17,600

• State tax (5%) – $4,000

• Social Security & Medicare (7.65%) – $6,120

After taxes, you’re left with about $52,000—almost 35% of your income disappears!

How to Legally Pay Less in Taxes

1. Reduce Your Taxable Income

   • Business owners can deduct home office expenses, travel, meals, and more.

   • Contribute to tax-advantaged accounts like an Indexed Universal Life (IUL) policy.

2. Stop Overpaying the IRS

   • Adjust your W-4 to avoid giving the government an interest-free loan.

   • Use deductions & credits (education, energy-efficient home upgrades, child tax credit).

3. Use an IUL for Tax-Free Retirement Income

   • Unlike a 401(k), an IUL allows you to withdraw money tax-free.

   • Your money grows without ever being taxed—no capital gains tax, no income tax on withdrawals.

Case Study: The Tax-Free Retirement Plan

Meet Lisa, a 40-year-old who started putting $500/month into an Indexed Universal Life (IUL) policy.

• By 65, she has $1.2 million in tax-free cash value.

• If she withdraws $50,000 per year, she pays $0 in taxes.

Compare that to John, who put the same amount into a 401(k):

• At 65, he has $1.2 million, but every withdrawal is taxed at 25-30%.

• If he withdraws $50,000 per year, he loses $12,500-$15,000 in taxes annually.

Lisa keeps more of her money. John loses a quarter of his retirement to taxes.

Your Turn: Find Hidden Tax Savings

What tax strategies have you used to keep more of your money? Drop a comment below!