This year marks the tax code’s 100th birthday. So – what do you get for the Tax Code that has (quite literally) everything under the sun already?
Back in February, 1913, Delaware ratified the 16th Amendment giving birth to what we now affectionately know as the IRS; however, the very first US income tax was much earlier (1861) and was passed to finance the Civil War. After the war it was dropped and then reinstated in 1893 until our admirable Supreme Court ruled that a tax on income was unconstitutional.
Just for fun, here’s a comparison of the income tax then and now:
|Started at 3% on more than $800 on income ($20,000 in 2013 dollars)||Starts at 10% on income of taxable income of $8,925|
|Maxed at 5% on income over $10,000 ($250,000 in 2013 dollars)||Maxed at 39.6% of taxable income over $400,000 although the phase-outs of exemptions and deductions, together with the new onslaught of Medicare income taxes, can convert this to an effective rate of 44 to 46%|
So far, this is anything but a fun birthday party. What’s the point that we can learn from this history lesson?
If we add state income taxes (3% to 10% depending upon the state), sales taxes (4% to 8% ), real estate taxes, etc., it becomes painfully clear that even a middle class family with two wage earners may be paying 45-55% of their total income in taxes. The more tax you pay – the less you have left to save and invest. Therefore, why not maximize the tool that gives you the best of both worlds?
We help business owners set up the type of tax-advantaged plans such as 401(k)s and IRAs that yield an immediate tax deduction (remember the less tax – the more you can save) and the earnings are tax-deferred (less tax paid during your working years means more money available for retirement).
If you’re not using this one-two punch of current tax reduction and tax-deferred growth, the above rates may make it almost impossible to achieve your retirement goals.
Would you like to see exactly how much difference this can make? Click here for a comparison.
- Estate Planning under the Biden Administration:
What's changing and how to react- April 7, 2021
- Thanksgiving Items - November 25, 2020
- Do you receive Social Security, Civil Service, or VA Benefits:
There's some good news and some bad news- November 23, 2020