So first let’s define what Taxes are. Taxes, according to Dictionary.com and Webster’s is a sum of money demanded by a Government for its support of specific facilities and services through income, payroll, property taxes, sales taxes, etc…. Also it is a burdensome charge, obligation, duty or demand.
The following is an example of the taxes someone pays on an annual income of $100,000 residing in the great state of Texas. As everyone’s spending habits are different and not everyone has investments or owns property I used average prices and numbers. Please note on property taxes, even if you don’t any land or property you still pay property taxes as it is calculated into your rent you just don’t get to deduct it.
Also note I am not a Tax Preparer and do not advocate any tax planning advice in this post. The numbers used are averages and everyone will have different numbers and I ask you to consult a tax professional for specific tax advice. This is on a fictional person in Texas making $100,000 gross income through a W2 system. All numbers below are based on Annual numbers.
-$5,436 in Property Tax (Texas median Tax rate is 3.2% on a median home price of $169,900 in 2012 according to Zillow.com)
-$28,000 in Federal Income Tax (assuming 2012 Rates)
-$100 inspection and Car Registration
$6,200 Payroll Taxes (Including SS, FICA, Medicare etc… Based on the Fiscal Cliff Bill passed January 1st 2013)
- $1,996 – Gas Tax (Texas gas tax including 18.4 cents of Federal taxes for a total of 38.4 cents per gallon according to the American Petroleum Institute times 100 gallons a week used for 52 weeks according to Triple A.) Note- You could pay more than this depending on length of travel, type of vehicle, etc…
$0 – State Income Tax (Texas has no State Income Tax, but you need to check your local states and municipalities as some have additional income taxes based on income level)
- $100 Interest Income Tax (Assuming an average savings account and investment account paying dividends)
- $1,000 Capital Gains Tax (Assumes average non-qualified investment activity resulting in Capital Gains.
- $480 Phone/Cell Phone/and Cable Taxes and usage fees (According to Federal Communication Commission). Please note these are based on federal fees, states and local municipalities may have additional charges.
- $7,712 in Sales Tax (According to Forbes.com in 2010 the average Sales Tax levied in United States was 9.64% the highest rate found was 13.65%. According to the U.S. Retail Association the average person consumes 80% of their gross income annually. Of course spending habits are different for everyone so these numbers may vary)
-$900 Credit Usage Taxes (According to FCC average credit card is 3% and since most purchases are on credit and most people carry debt I used this times the average credit card debt of $30,000
Leaving you with $48,076 that you use for consumption, savings etc…
Some things not considered on this number are pre-tax deductions like a 401(k) and certain insurance deductions out of a paycheck as those vary widely depending to choices and could potentially reduce taxable impact. Again consult a tax advisor for specifics to your situation.
In addition, using the above definition of a tax is a sum of money going to a government or a burdensome charge obligation duty or demand here some additional fees and taxes that you might pay that would further increase the amount of money you pay in taxes.
Professional Association Dues
Professional License Registrations (i.e. Doctor, Lawyer, Financial Advisor, Real Estate Agents, Contractors, etc…)
Facility Usage Fees
Hotel Taxes if you travel
Airport/Airplane Taxes if you travel
Estate and Inheritance Taxes if you’re lucky.
So after assessing these numbers knowing that I may have missed some and overestimated or underestimated on others utilizing median and average numbers I have realized that while I think we need to increase revenue at some point so we can pay down the debt, the government already gets way too much of my money as a whole, while recognizing not all of the above charges go to the Federal Government but some to the State Government, they need to really figure out how to best utilize the money they get not keep raising taxes and not adjust spending. After looking at the above numbers, 52% the above income is eaten up by taxes. When looking at my situation, my wife and I have over 63% of our income going to some form of taxes which is ridiculous.
What strategies do you have to minimize tax implications for your financial strategies? You should consult a tax advisor and a financial advisor to identify specific strategies to potentially reduce taxable load.
Hopefully this was as eye opening for you as it was for me. If I missed anything please let me know, and please comment on your thoughts.