Taxes are due very soon, if you weren’t aware. Of course, they’ve been on my mind. They’re my single largest expense (and yours as well, over your lifetime).
I caught an article in the Washington Post called “Taxmageddon” (style points: +5), and had a bit of a realization. Not only are taxes our single largest expense, but they’re also an expense over which we have very little control. A double-whammy.
You Budgeters know as well as I do, that we like to maximize our dollars, give them jobs, and put them to good use. We like to be in control, and with taxes, we’re not (well, more on that in a second).
I want to give you examples to illustrate a point, not to talk specifically about the examples. Based on the information given in the Taxmageddon article, on Dec 31, 2012 (if we make it past the 21st…), some tax laws are set to expire, and others to get a slightly larger net:
- You know those three kids you have? Your tax will increase $1,500. Just. like that. If you have five kids (like us), it goes up $2,500.
- If you’re in the lowest tax bracket, your tax will increase 50% (this is simplified, but if you earn $8,700 in wages, instead of paying $870 in taxes, you’ll be paying $1,305).
- The Social Security payroll tax is set to jump back up to 6.2%. If you earn $100,000 a year (easy math), you’ll be paying $2,000 more per year (again). If you have dividend income, that’ll get a huge hike. (Your employer will pay the other $2,000 for the hike.)
- The Alternative Minimum tax (without congressional intervention) will add thousands of dollars in annual taxes to an additional 30 million households.
So, will these tax laws expire? Man, who the heck knows. The second half of the article it all political blahbitty-blah and I barely could keep down my protein shake.
And I guess that’s my point. Your single largest expense is, in large part, controlled by a bunch of other people.
So what does an enlightened, budgeting, dollar-maximizing person do? Educate yourself on the code and minimize the heck out of what’s known. You can’t deal with the unknowns, but you can deal quite adeptly with the knowns! After switching tax advisors saved me $20,000 one year (I rounded that number, but not up), I became a believer in knowing what the heck is going on with my taxes, and doing my best to minimize them.
You can do the same. Casey Murdock, my tax advsior, has his book Tax Insight still available through YNAB. It’ll save you a bundle. I encourage everyone who hasn’t yet purchased it, to check it out. (It’s updated for the 2011 tax year, so you could still apply some of the strategies if you’re a procrastinator.)
Wow! What a quandary! Americans seem to love being in total control of everything, I know that many of you think that Australians live in a socialist society, with Government control, but nah – most Aussies are quite happy to have the government look after all this for us. We have a Pay As You Go (PAYG) system. Our employer automatically pays our tax for us. It is one of our main goals in life to see how much tax we can get back at the end of the financial year! I’m more than happy to let someone else sort it for me! She’ll be right mate!
Mel- American employers also “pay our taxes for us.” It is also “one of our main goals in life to see how much tax we can get back at the end of the financial year!” But we would be fools to “have the government look after all this for us.” In America we have a certain control about how much we get back based on buying/selling investments, adding/withdrawing from retirement accounts, making charitable contributions, etc.etc. Those are the strategies that Mr. Mecham is alluding to in order to minimize taxes. I would assume it’s similar in Australia, but you may beg to differ.
It seems to me like we Americans also have a pay-as-you-go system called tax withholding, where the government estimates how much tax we’re going to owe this year and has our employer divide that up by the number of paychecks and pull x amount out of each check. And people here also LOVE getting a nice refund at the end of the year. Which doesn’t make any sense to me, because that means that the government has been holding on to (and earning interest on!) MY money all year and is just now giving it back to me, even though it was mine to begin with. Oh, so nice of them to give me back what was rightfully mine. Without interest, of course. Sigh.
But anyway, I think if people here had any faith in the government whatsoever, it wouldn’t bother us so much that the government is taking so much of our money and we don’t know until we file our taxes whether it was the right amount after all. It usually isn’t, by the way. I’ve never come out exactly even. I always either owe or get a refund.
That’s great advice for Ameticans, but how about us Canadians? We have far less control over our taxes. To boot, we are heavily taxed in just about every aspect of our lives, especially in Ontario. We often shot in the states becsuse your every day items are way cheaper. If you want a little chuckle, do some quick research on Ontario prices (beer, liquor, chicken and other meats, gas, etc.). The American tax situation may not look so bleak .. Enjoy.
That’s great advice for Ameticans, but how about us Canadians? We have far less control over our taxes. To boot, we are heavily taxed in just about every aspect of our lives, especially in Ontario. We often shop in the states becsuse your every day items are way cheaper. If you want a little chuckle, do some quick research on Ontario prices (beer, liquor, chicken and other meats, gas, etc.). The American tax situation may not look so bleak .. Enjoy.
I find it rather disappointing that a budgeting software company that’s selling a new, better way of budgeting is supporting a book with claims such as “Taxes are your single biggest barrier in reaching your financial goals.”
If taxes are a barrier to reaching your financial goals, then you really haven’t figured the budgeting thing out yet.
Once your budgeting is dialed in, you attack expenses, and the big ones are taxes, housing and cars. Taxes take about half my income so I’m comfortable calling it the biggest barrier to financial goals. It is.
That certainly is hard to refute!
Jesse’s comment, that is.