Taxation without Vexation

It’s April 13th, people.

Two more days until tax day.

So you’ve already probably filed your taxes by now. Even I, Mr. Procrastination, have already filed my taxes (with the help of my accountant.)

But one thing that always comes up in the miles game blogosphere at this time of year is the possibility of earning miles or points from just paying your taxes.

And there are many ways to do this.

You can pay your taxes with your credit card for a fixed percentage fee that varies depending on the platform that you choose.

Or you can pay with your miles earning debit card for a fixed dollar fee.

For a nice review of the different ways to get points from paying your taxes I encourage you to read this post from the frequent miler. 

Or if you want to pay a lesser fee, you can simply buy cash gift cards and load them onto your Bluebird card, and then write a Bluebird check to the IRS. With this method you will only pay the fee assessed when you buy your gift cards, which if you buy them in $500 increments should be about 1%.

(Also, ordering Bluebird checks is free right now.)

And I contend that offsetting each cent spent with credit card spend is almost always a great idea, because you can often get up to 6% back for the cost of 1% in purchase fees assuming you use the correct credit card at the correct store type.

In my view taxes are no different from any other expense.  And of course each dollar of spend should be offset or if possible, originally executed with a dollar of credit card spend.

Which is why I buy at least $10,000 in gift cards a month to offset my non-credit card spending. I load the gift cards onto my bluebird cards, and transfer the money from my bluebird accounts to my bank account. I then pay all of my bills, (mortgage, taxes, insurance, etc.) with my banks bill pay feature. (Which is exactly how I paid my bills prior to playing the miles game.)  Taxes are no different.  I write a bank check and offset the amount with manufactured spending.

So it’s all pretty efficient and easy. Which is not to say that it’s not profitable.

After all, if a 1% increase in expense ratio in a mutual fund can cost you 30% of your nest egg after 40 years of investing, then paying yourself back to 2-5% on every purchase that you make, and investing your savings in low-cost mutual funds, will have a similarly dramatic impact on your net worth over time.

Never discount the power of small efforts diligently continued over long periods of time.

Just because we humans are ill-equipped to sense the effects of such efforts, does not diminish their transformative power.

And before I sign off, a few final nagging notes about taxes to motivate you for the coming year.

Don’t get angry.  (It’s not a good look.) Get smart…

Did you max out your employer-based tax-deductible retirement accounts last year?

If not, and you do this year you can expect thousands of dollars more in your tax refund next year.

And did you participate in a health savings account and pay for all of your medical expenses out-of-pocket?

If not, this is another opportunity for you to get more money back (like thousands of dollars more right away) from the government next year and to have it compound upon itself into the future.

And did you take advantage of a 529 program this year to save money for your kids college expenses?

If you did here in Oregon you would likely be paying $200-500 less in state taxes this year. (Your state may vary.)

And did you back door an IRA?  (This won’t actually help you next year come tax time, but it will save you thousands when you retire.)

So instead of viewing taxes as a drag on your happiness, why not view them as a game that you can play in order to maximize your own economic benefit?

If you do, then you might just find yourself happier and wealthier at this time next year.