Did you realize that the average American works until April 30th for the government?  That is right.  April 30th is Tax Freedom Day. That is the day when you are free to start working for yourself.

According to the estimates from the Tax Foundation, 120 days out of the year, from January 1st to April 30th is the amount of time it takes on average for the nation to earn enough to pay off all the taxes due.

Here is the breakdown of the taxes in terms of days:

• 43 days of work to pay off federal, state and local income taxes
• 30 days to pay off Social Security and Medicare
• 16 days to pay off sales and excise taxes
• 14 days to pay off corporate income taxes (which are passed on to all of us)
• 12 days to pay off property taxes
• 4 days to pay off other taxes such as custom duties
• 1 day to pay off estate and gift taxes

Even though they spend about a third of their time working to pay taxes, you would be surprised to find out that 2 out of 5 Americans do nothing to minimize their tax liability.

Paying taxes is your duty.  Minimizing taxes is your right.  But how exactly do you minimize your taxes?  Tax laws vary from country to country and some of the discussion here may only apply to the US, although some may be universally applied.

To the average American with a regular job there are very few deductions left.  One of the most often cited tax-saving deduction is mortgage interest.  But be careful!  Here is a contrarian view from a well-know financial advisor that challenges the idea that the tax benefits from mortgage interest is a great way to save money: Popular Stupid Tax Strategies.

She makes two good points:  One is a fundamental flaw in many people’s thinking that they should get a large mortgage just so that they can deduct more money from their taxes.  Second is that, because of the amortization schedule, you pay interest first on your loan and build very little equity in the first few years.  The key point here is, don’t get a large mortgage just because of tax-related benefits.  Get a mortgage that will allow you to buy a home you can afford.  The tax benefits are secondary because they come at the cost of paying interest in an accelerated fashion.

How about millionaires?  How do they minimize their taxes?  The blog Free Money Finance has a great post that borrows a concept taught by the book The Millionaire Next Door that might give you some insight:  MND:Minimize Taxes.

Investors in general can greatly increase the return on their investment by paying attention to the impact taxes have on their investments.  Another great post from Free Money Finance called Minimize Taxes to Maximize Investment Returns discusses concepts taught in the book The Bogleheads’ Guide to Investing.   I particularly like the summary of studies that show the dramatic impact taxes can have on your investment returns:

• A high-bracket taxpayer who invested $1.00 in U.S. stocks would have $21.89 at the end of the study period (30-year term) in a tax-deferred account. If it had been a taxable account, the $1.00 would have only been $9.87.

If you are in a high tax bracket you can more than double you return over a 30 year period if you use a tax-deferred investment vehicle instead of a taxable account!

• Over a 15-year period, the average mutual fund shareholder had an average annualized pretax return of 10.0%. However, after federal taxes, that 10.0% return was reduced to 7.7% — a reduction of 23 percent.

If you have not yet considered the impact of taxes on your investment returns, you ought to start paying attention now.