How $23,000 Becomes $840,000-
& Other Real World Examples
If a picture is worth a 1,000 words, then hopefully these real world examples will be especially instructive and helpful in connecting the dots.
As explained in greater depth on our other web pages, YES shares tax and wealth secrets of the super rich with others that can benefit. Personalized proprietary YES strategies that combine real tax savings with real investments can be really rewarding - and in many ways for many people.
Potentially life changing for some. Consider what YES can do - for you, & then what you could do for others.
Ever mindful of confidentiality constraints, each real world example below starts with a picture of an actual IRS 1040 tax filing showing the year (bottom right), the Adjusted Gross Income (AGI) and in red, the amount of excess tax paid before retaining YES, or the amount of tax savings from YES strategies.
Each example is then followed by a photo gallery showing two scenarios of what the YES tax savings could have earned if properly invested. For our purposes herein we show the Nasdaq Index, an investment available to all.
By the way, we acknowledge and recommend the third party provider, financial-calculators.com and Pine Grove Software for anyone wanting to do their own calculations or to see how another investment vehicle performs. Or if you have some private projects, we recommend our page Your Ensured Success - See For Yourself.
In the examples, the first scenario shows the results of just a single year invested tax savings. The second scenario is probably the most common and more realistic scenario. It shows the taxpayer implementing the same tax saving and investment strategies in subsequent years. No leverage or margin is considered in these investment returns.
How $23,000 becomes $840,000
So let's walk through this first example. The taxpayer had a 2009 AGI of $242,910 and overpaid his taxes by $23,610.
We also acknowledge that many entrepreneurs and professionals can regularly exceed the Nasdaq Index.
However, with the many proprietary strategies, alternative investments and individual risk tolerances, for our purposes here we use the Nasdaq as an investment that anyone could have, and can invest their tax savings.
Obviously with more sophisticated investment strategies, superior risk reward returns exceeding Nasdaq can be had making the opportunity cost of overpaying taxes even more egregious.
Rather than needlessly overpaying his taxes by $23,610 in 2009, if the taxpayer had invested that $23,610 in the Nasdaq, he would have by 2020 after 11 years:
Ending Value of $134,100
Total Profit of $110,490
Annualized Rate Of Return (ROR) of 17.1%
Or more likely, assuming the same income and tax strategies produce the same $23,610 tax savings and Nasdaq investment in subsequent years, he'd have by 2020:
Ending Value of $844,637
Total Profit of $584,927
Annualized Rate Of Return (ROR) of 18.8%
So was that really just a single year tax over payment of $23,610 or did it really cost the tax payer hundreds of thousands of dollars?
And that was just on income of less than $250,000 - and for just one year. How much did he overpay in previous years?
Many professionals, executives, business owners, and two income families earn that much or more these days.
According to a Medscape survey, in 2020 the average primary care physician earned $243,000 (coincidentally, the same as in our first real world example) with the average specialist earning $346,000. Many earn half a million and more.
Depending on the location, $200,000 to $350,000 is only upper middle class in many parts of the country.
Likewise many professionals, entrepreneurs, and investors have investment opportunities that regularly substantially exceed these Nasdaq and other publicly available yields, making any unnecessary tax over payments that much more expensive.
The more you make, the more tax you over pay, the greater the opportunity costs-
but the more you can save & earn in the future.
To be consistent, these examples only address federal income tax over-payments and tax savings. This example of $11.8 million over-payment was just to the federal government. All totaled, combined federal and state taxes, the taxpayer over paid about $12,500,000 in just one year.
As explained on the other pages, this confirms the government and IRS reports that 99.5% of those earning over $200,000 fail to take advantage of all available tax code provisions. And that most that overpay their taxes use tax professionals & CPAs.
Everyone thinks their tax advisers do a good job, but few ever get second opinions until it's too late. Regardless of the fees or the credentials, no one knows everything and the more complicated and sophisticated one's business and tax activities, it's only reasonable for more to be overlooked or fall through the cracks.
That's just one reason why the wealthiest tend to consistently overpay the most.
This is nothing new. It's not a recent phenomenon.
Here is a tax over payment example from 2005. Which brings us to the "elephant in room"- when one realizes how much they have been overpaying their taxes for many years and how much it has really cost them.
Again, as more thoroughly explained elsewhere on this website, the over payment of taxes is the result of a conflicting, complicated and constantly changing system where most taxpayers rely upon a single source tax specialist for their tax information.
Unfortunately, the way the system is designed, these single discipline experts - tax, legal, investment- often overlook and miss opportunities outside of their disciple and are even prohibited from discussing such.