Today is Tax Day 2023. As you are scrambling to make sure you file your taxes remember this. It wasn’t until 1913 when the 16th amendment was ratified which gave Congress the legal authority to tax all incomes. Up until that point there were no federal taxes.
Up until then it was only done at certain times to fund certain things. For example the first time a tax was exercised was 1861, the Revenue Act of 1861 which was done to help fund the Civil War.
In 1943, Congress passed the Current Tax Payment Act, which required employers to withhold taxes from employees’ wages and remit them quarterly.
I personally believe this is when Americans became oblivious to how much they are actually paying in taxes. Because it is automatically done and people then and especially now, don’t pay close enough attention to how much they are actually paying and the government wastes, but I digress for now on this topic.
So let’s talk about how much you are actually paying in taxes. Keep in mind. I am not a tax professional and you should consult a tax professional for your individual situation to determine you tax liability.
Tax brackets are used in the United States to determine the progressive tax rates at which different portions of an individual’s income are taxed. The tax brackets are periodically adjusted for inflation and can vary based on filing status (e.g., single, married filing jointly, head of household) and can differ between federal and state tax systems.
2023 Tax brackets are below.
|TAX RATE||FOR INCOMES ABOVE|
|10%||$11,000 or less|
Married or Filing joint filers.
|TAX RATE||FOR INCOMES ABOVE|
|10%||$22,000 or less|
It’s important to note that these tax brackets are subject to change, and other factors such as deductions, credits, and exemptions can affect an individual’s overall tax liability. It’s advisable to consult with a qualified tax professional or review official government tax resources for the most up-to-date and accurate information on tax brackets and rates.
Now your goal in paying federal taxes is to take whatever your total number in income is and subtract as many deductions from it to decrease your tax liability as low as you can get it.
For example: Lets say you make $100,000 dollars, that means if you are married, your tax liability would be 22% and 24% if you are single. See above.
$100,000 X .22 = $22,000 (married)
$100,000 x .24 = $24,000 (single)
So you need to make sure the tax being withheld by your employer is equal to the above amounts.
Now your goal is to take that same $100,000 and then subtract from it with your deductions. Most W2’s (employee) don’t have a lot of deductions.
Lets talk about deductions:
A tax deduction is an expense or itemized deduction that reduces an individual’s taxable income, which in turn decreases the amount of income that is subject to taxation. Deductions are allowed by tax laws as a way to incentivize certain behaviors or to recognize legitimate expenses incurred by taxpayers.
When calculating taxes, an individual’s gross income ( the $100,000 example above is gross and assumes no deductions) is generally subject to various deductions before arriving at their taxable income.
Deductions are subtracted from the gross income to arrive at the adjusted gross income (AGI), which is the income used as the starting point for calculating the individual’s tax liability. Deductions reduce the amount of income that is subject to taxation, which can lower the individual’s overall tax bill.
The government created the Standard Deduction to make it things easier basically. Since most Americans have very little deductions outside of their mortgage interest on their primary home, student loan interest, and a few other items, the standard deduction includes all of these things. And now you can either itemize or take the standard deduction.
So basically your mortgage interest deduction is negligible at best.
There are two types of deductions that taxpayers may claim on their tax returns:
- Standard Deduction: This is a fixed amount set by the tax laws that taxpayers can deduct from their gross income without having to itemize their deductions. The standard deduction amount varies depending on the taxpayer’s filing status (e.g., single, married filing jointly, head of household) and may be adjusted annually for inflation.
- Itemized Deductions: These are specific expenses that taxpayers can deduct if they exceed the standard deduction amount. Itemized deductions include expenses such as medical expenses, state and local taxes (e.g., property taxes, state income taxes), mortgage interest, charitable contributions, and certain other expenses allowed by tax laws.
Taxpayers can choose to either claim the standard deduction or itemize their deductions, whichever results in a lower tax liability. It’s important to note that tax laws and deduction limits can change, and it’s advisable to consult with a qualified tax professional or review official government tax resources for the most up-to-date and accurate information on tax deductions.
According to the IRS, 69% of taxpayers took the standard deduction in 2019.
Here is a list of standard deductions in 2023.
The 2023 standard deduction for taxes filed in 2024 will increase to $13,850 for single filers and those married filing separately, $27,700 for joint filers, and $20,800 for heads of household. $13,850.
Most likely you will take the above standard deduction.
Let’s look at that same $100,000 person.
$100,000 X .22 = $22,000 (married)
So now the married person gets the standard deduction: So subtract the $27,700 from the $100,000. Equals $72,300 dollars now.
So if you look way up above at $72,300 dollars the married couple now is put into another tax bracket. A lower one. So instead of 22% being owed. They now only owe 12% in federal taxes.
$100,000 x .24 = $24,000 (single)
The single person gets to take a standard deduction of $13,850.
$100,000 – $13,850 = $86,150. At $100,000 they were being taxed at a rate of 24% and now at $86,150, they are being taxed at a rate of 22%.
Up until this point we have only talked about the Federal Tax you are required to pay.
Let’s talk about the other taxes.
- State Income Tax: Some states impose an income tax on individuals and/or corporations based on their income earned within the state. However, not all states have an income tax, and the rates and brackets vary by state.
Each state has a different rate for their taxes. You can click here to learn what your state tax is.
How much is it? But a good average of state taxes are 5.1%. So that mean you are paying 5.1% of you income in the state that you work in in state taxes.
- Social Security Tax: This is a payroll tax that is assessed on earned income to fund the Social Security program, which provides retirement, disability, and survivor benefits. The tax is typically withheld from an individual’s paycheck and is calculated as a percentage of their wages up to a certain income threshold.
How much is it? 6.20%
- Medicare Tax: This is another payroll tax that is assessed on earned income to fund the Medicare program, which provides healthcare benefits for individuals aged 65 and older, as well as certain younger individuals with disabilities. It is also calculated as a percentage of wages, with no income cap.
How much is it? 1.45%
- Sales Tax: This is a tax on the sale of goods and services, which is collected by state and local governments. The sales tax rate and application vary by state and locality, and not all states impose a sales tax. Click here to learn what your state sales tax is.
The average sales tax for a state is 5.1%. There are thirty-two states that fall above this average, and eighteen states that fall below this average, suggesting that the few states with a sales tax of 0% bring down the average.
How much is it? Most states have a sales tax ranging between 4% and 7%. Everything you buy gets taxed.
- Property Tax: This is a tax on the value of real property (e.g., land, buildings) and is typically assessed and collected by local governments. Property tax rates and assessments vary by location and are often used to fund local services, such as schools, roads, and public safety.
Click here to learn what your states property tax is.
How much is it? A good average is 1.11% across the US.
- Excise Tax: This is a tax on specific goods or activities, such as gasoline, tobacco, alcohol, and certain luxury items. Excise taxes are typically included in the price of the goods or services and are collected by the federal government, state, or local governments.
How much is it? It obviously varies, but you are paying it.
7-9 below, are not taxes everyone pays, but are additional taxes that many people pay across the USA.
- Estate Tax: This is a tax on the transfer of property after a person’s death, which is assessed on the estate (i.e., the assets left by the deceased) and is subject to certain exemptions and deductions.
- Gift Tax: This is a tax on the transfer of property from one person to another during their lifetime, and it applies when the value of the gift exceeds a certain threshold.
- Capital Gains Tax: This is a tax on the profit earned from the sale of investments, such as stocks, bonds, and real estate, and the rate depends on the holding period and the individual’s income level.
So how much do you pay each year?
In 2020 the image below shows you the percentages based off of tax brackets.
Roughly 13.6% for all taxpayers.
This website gives a breakdown by state, on the averages a person will pay in overall taxes. All taxes over a lifetime.
If this website doesn’t make you sick. It should. You are taxed to death. And then taxed again at death.
These figures were calculated by adding both federal and state lifetime taxes across earnings, sales, property, and automotive, then compared against an estimated lifetime earnings figure based on the results of the latest American Community Survey (with inflation applied to 2023) and multiplied by the average years worked in the U.S. (36 years).
The average taxpayer in the U.S. will spend 33.23% ($532,910) of their lifetime earnings ($1,571,244) on various state and federal taxes.
However, due to local property markets, salaries, and government actions, some states see taxpayers paying even more than the national average.
They did the study over a lifetime, but you can assume that it would be roughly the same amount on yearly basis. And my guess is that number is low.
I think most people are closer to the 40-45% range based on all of the consumerism that exists in our world nowadays.
Think about that. Whatever your current salary is, close to 40% a year is being eaten up on all of the taxes you pay.
In total, about 59.9 percent of U.S. households paid income tax in 2022. The remaining 40.1 percent of households paid no individual income tax.
See chart here.
A lot of people are riding on the backs of everyone else in America.
Look, I don’t have a problem paying my fair share. And you shouldn’t either. But as you can see by the current situation we have in America, a few are taking care of everyone else.
Our government continues to spend more and more money on endless wars that don’t have anything to do with America. We spend money on projects and other things that don’t make America any safer or better off. I am tired of it and you should be too.
Your goal in 2023 should be to find a way to get as many deductions as you possibly can outside the standard deduction. And then limit your spending wherever you can or find ways to earn more money.
To your success and you future.
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