Tax planning is important because taxes are the largest single annual expense for most families. The average American spends more on taxes than on food, clothing, and medical care combined; he or she must work for more than three months just to earn enough to pay taxes. In 2009, Americans needed to work 103 days to cover the costs of their federal, state, and local taxes. The day on which taxes were covered, called Tax Freedom Day, fell on April 13 in 2009—close to the date that it fell on in 1967. (See Figure 1)

The statistics in Figure 1 illustrate why tax planning and tax strategies should be critical parts of your financial life. The less you have to pay Uncle Sam, the more you can save for your personal and financial goals.

Figure 1: Tax Freedom Day, 1980–2006