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 advisor, 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.)