Have you ever wondered just how much you pay in taxes over a year? Not just big tax items like income and property taxes, but even the taxes on the gas you pump into your car to the taxes on your utility bill?
Maybe you haven’t because you’re not obsessed with taxes like us CPAs, but if you are curious, the American Institute of CPAs has come out with a nifty tax calculator that is designed to give U.S. taxpayers a complete picture of their estimated total federal, state, and local tax obligation.
To give you fair warning, you will not be able to just plug in a few numbers and get your calculation. For the calculation to be accurate, you will need your prior year’s tax return, your estimated income, and a good idea of what you spend a month on expenses like gasoline, cable, cell phone, electric and gas, alcohol, clothing, etc. With just a click of the button you will be provided with a total estimated annual tax liability and exactly what percentage of your income is paid over to the taxing authorities. If you have a moment – check it out; the results just might shock you! http://www.totaltaxinsights.org/Calculator
The calculator is also available on our website – bvcocpas.com, in the resources/links section.
It’s spring time in the Truckee Meadows. The river is running high, the trees are green, and students of all ages are getting spring fever.
With graduation on the horizon, it’s hard not to think about what is coming next. Whether your student is finishing kindergarten, graduating high school, or currently in college, it’s always a wise idea to be thinking about a plan for higher education.
It’s never too late to start saving, but just like planning for retirement, the earlier the better. These days there are a lot of options available for consideration including Section 529 plans, education savings bonds, Coverdell education savings accounts, and education loans. As the cost of college continues to increase it is important to be prepared. According to the Project on Student Debt, two-thirds of college seniors in the class of 2010 graduated with loans, and the average debt carried was $25,250.
The cost of college continues to be on the rise. Make sure you look into all your options for investing in your child’s future as well as for deducting your current costs.
If your student is already in college or will be starting this year, make sure your CPA is making the most of education deductions and credits. For those that meet the requirements, student loan interest can be deductible on a qualified education loan. Taxpayers may also be able to claim a deduction for qualified tuition and fees. Education credits include the American Opportunity Tax Credit and the Lifetime Learning Credit . These deductions and credits should be coordinated to maximize the tax benefit. While taking this all into account, it is also important to review the dependency exemption and determine when it is the optimum time for your child to no longer be claimed as a dependent.
It’s always interesting to get a look into somebody’s finances, and who better to snoop at than President Obama. He released his 2011 tax return, which can be viewed at: http://s3.documentcloud.org/documents/336093/bidens-and-obamas-release-2011-income-tax-returns.pdf.
I always like to deduce how much somebody has in the bank, and by using Obama’s $10,694 in interest income, assuming he is getting a 1.5% return, that implies he has $713,000 in the bank. This is somebody who has made $1.8 million in 2010, $5.5 million in 2009, $2.7 million in 2008, $4.1 million in 2007, $983,826 in 2006 and $1.7 million in 2005 for a total of $18 million over 7 years. With this much income, I find Obama’s saving rate atrocious.
But what is the sense of saving when you can expect hundreds of millions of dollars in income after you leave the presidency? For example, Bill and Hilary Clinton have made over $109,000,000 from 2000-2007 after his two terms were up as President for activities such as speeches and book sales. So I’m sure Obama will be making boatloads of cash after he has left the Presidency, and there is always the few hundred thousand he has contributed to self-employed retirement plans that are tax deferred.
Next, looking at Obama’s itemized deductions shows he paid over $47,000 in mortgage interest. Assuming he refinanced recently and is getting a 4% interest rate, this means his principal balance is over $950,000 thousand. He has more in mortgage debt than he has in the bank and has made $18 million just in the last 7 years. But at least he isn’t underwater. According to Zillow, the value of his Chicago home is $1,052,100. But, since he purchased it for $1,650,000 in 2005 it appears he’s hurting like the rest of us.
People invest in this asset by purchasing gold bars, gold company stocks or gold electronic trading funds. These electronic trading funds, commonly called ETFs, have proliferated as evidenced by the ETF with the symbol GLD. This is a fund that started in 2005 and now has over 64 billion dollars of investors money under management. This ETF, as all precious metal ETFs do, purchase the metal for the investor so the investor doesn’t have to worry about storing or purchasing it. These ETFs can allow the investor to have a position in metals like gold, silver, copper or platinum.
But there’s a catch when investing in these, and many people don’t realize this until after their positions are sold or maybe even have calculated wrong on their tax returns. Capital gains on these precious metal ETFs, and also physical holdings of gold, silver or any other precious metal, are taxed at a rate of 28%, significantly higher than most other capital assets, including most stocks which are taxed at a rate of 15%. So assuming that you have a $1,000 gain on the sale of GLD you will have a tax of $280. In contrast, if you have a $1,000 gain from the sale of Newmont Mining Corp., a company that primarily mines gold, your tax will be $150. This is a significant tax burden that can come unexpectedly from investing in precious metal ETFs like GLD. When deciding whether to invest in precious metals or precious metal ETFs this higher tax rate should come into consideration.
This year could be the last year before the Bush tax cuts expire and the tax rates increase. If these cuts expire, single people and married people alike will have higher taxes. A single person with taxable income making $100,000 will have a tax bill of $23,805 and an average tax rate of 23.8% come 2013 when these changes go into effect.
Giving the federal government 23.8% of your income, or over 30% when combined with FICA may seem like a lot, so let’s go back in time to compare:
Take a look at a decade (the 1970’s) when Stairway to Heaven was blasting on the radio and Don Vito Corleone was the most popular Halloween costume. Adjusting for inflation, $100,000 today equals about $41,800 in 1972. In 1972, the tax bill for a single person making $41,800 would have been $8,261 or 20%. We’ve all heard about the exorbitant tax rates of the past so this is a little surprising that the tax, adjusted for inflation, is actually lower. In analyzing the tax rates, adjusted for inflation, tax rates for single people don’t top out at 40% until $118,095 in income. Then rates start to skyrocket. At $171,774 the tax rate jumps to 50%, at $236,189 to 60%, and above $536,793 to 70%!
High taxes of the past were brought to my attention by the television series Mad Men, about an advertising agency company based in the 1960’s. There is an opening scene where the Head of Television is talking about getting a raise. He ends up saying he never wants to make more than $36,000 because then your just working for “them”. “Them” is the IRS and back in 1961 if you made between $36,000-$40,000, you were paying 53% in taxes. Adjusting for inflation that is equivalent to someone making a little over $270,000 in todays dollars. If the Head of Television was talking about a raise today, that conversation never would have happened, as he would be paying 33% in taxes and max out at 35%.
In 2013 when the Bush cuts expire that maximum is still only 39.6%. Can you imagine what the partners of the agency were paying in 1961? The maximum tax bracket in 1961 was 91%. For every dollar in income above $200,000 (in 1961 dollars) they would only be taking home 9 cents! So if taxes go up in 2013, just remember that taxes could be worse.