The Accidental Philanthropist; But Uncle How Many Times Can You Tax The Same %$#n Dollar!
War On Wealth Series – Taxes
With every tax dollar you pay you move further along the road of becoming an Accidental Philanthropist. Since the first income tax in the United States was imposed (under Article I, section 8, clause 1 of the U.S. Constitution) in 1864 during the Civil War, there has been an internal war raging in this country. That war, “The War On Wealth”, has been increasing with such intensity, that now we could be looking at a full blown armeggeden. That first tax that was imposed in 1864 was discontinued in 1872 but was imposed again in the 1890s, and again after the Sixteenth Amendment was ratified in 1913. Since then our government just stopped trying to fool themselves and us. They decided to come out of the closet.
We live in a system where the same dollar can be tax 3-4 times so getting yourself into the mindset of being aware of this and aligning yourself with professionals who can help you optimize your tax situation is all to important.
I do not advocate escaping taxes all together as this wonderful infrastructure needs to be paid for and maintained. If you do not believe me just think what it would be like to travel from west to east on dirt roads. Yes, our infrastructure needs to be paid for, I just want to only pay “My fair share”. Jim, my neighbor is a nice guy but he can pay his share.
Let’s talk about each tax situation our dollar goes through on the Federal Level;
Tax #1: The federal Income Tax
We are hit 28 percent to 35 percent with the Federal Income Tax and when the Bush tax cuts expire in 2011 it is slated to go from 36 percent to 40 percent. You might say well, its the top 5 percent of the highest earning Americans that pay more that 60 percent of all income taxed paid (according to the latest IRS statistics) so that’s okay. But heres the thing, you only need total household income over $153,000. The top 10 percent who pay over 71 percent of all income taxes paid only need to exceed $108,000. Wow! The bottom 50 percent pays less than 3 percent of the tax burden. Don’t we all use the same freeway!
Tax #2: Investment Income Tax
Try investing those after-tax dollars that were taxed heavily with Tax #1 into corporate america and you will pay tax on whatever you earn from that enterprising endeavor. Corporate Bonds and Annual Bond income is taxed at your ordinary income tax rate. Dividend’s from stocks will be taxed at the current dividend tax rate of 15%. Investing in Real Estate or other exotic funds will not allow you to escape the tax man either. Munincipal bonds and Over-funded Life Insurance Contracts are the only things to put your after tax dollars and escape paying income tax. After checking the latest returns on Munincipal Bonds in my opinion that only leaves Over-funded Life Insurance Contracts.
Tax #3: Capital Gains Tax
89 percent of all capital gains tax (15 percent) paid is paid by people who earn more than $154,000 per year (top 5 percent of wage earners). That tax is scheduled to go up to 20 percent in 2011.
Let’s take a look at the first three tax situations. First you pay 40 percent tax on the income that you earn. Then you take some of that remaining income and use it for investments. For that endeavor you pay 20 to 40 percent per year on whatever is generated. If what you invested in actually appreciates yoo will pay another 20 percent when you sell it. Please! take me out of this misery.
Tax #4: Federal Estate Tax
so you have been taxed taxed taxed and just when you think you are done with everything, including living, you are taxed one last time. Everything in your estate over $3,500,000 activates the Estate Tax of 45 percent. The problem with this tax is it is not a tax on income earned, but I call it the “Just because tax”. Everything you own is valued at current market prices (even stuff inherited from other family members that have already been subjected to the Estate Tax) and taxed heavily one last time. You might say that because this tax only applies to the top 2 percent of all Americans each year, it is not that big of a deal. However it accounts for more than $22 billion in tax revenue. The Estate Tax is just a “redistribution of wealth” if I have ever seen it.
Tax #5: Tax on Qualified Accounts (retirement plans)
Ah Ha! Just when you thought I was done! The worst of all these taxes is the tax on all those wonderful retirement plans that Americans so deligently and painstakingly funded all those years. All of your “Qualified Plans”, IRA’s 401(k)’s, SEP’s, SIMPLE’s, TSA’s and 403(b)’s are all lumped together as “qualified retirement plans”. The entire value of your IRA is included in your estate tax. With or without the federal estate tax, the full value of the IRA must be declared as ordinary income. If you intend to skip your kids or give your IRA directly to your grandkids, the generation-skipping transfer tax (46 percent) is added to the estate and income taxes. The lease amount of taxes you will pay on your IRA distribution is 35 percent to 40 percent and could pay as much as 63 percent to 70 percent!
There are a much greater possibility of taxes that you can be hit with. I did not inlcude them as one it would make this post a book, and also because they vary depending on your location. For the most part, a lot of those incidental taxes can be controlled by where you live, taking mass transit, being less of a consumer (sales tax) etc,. At least those taxes are based on what kind of lifestyle we want to live. The taxes that I talked about in the post were just for breathing and trying to earn money.
Are You Sick Yet! Well do not worry, as there are ways to protect yourself in this “War On Wealth”. In further posts I am going to teach you how to fight back. I am going to teach you about Asset Optimization and especially the power of Charitable Leverage, so please register at our blog so you do not miss any of this. I am going to teach you how to:
- Self-direct dollars you would normally lose to causes and organizations of your choosing.
- Take the same dollars and use them to generate more personal wealth.
- Direct formerly lost dollars to your own Private family Foundation.
Other Posts In This Series are:
War On Wealth – A Primer (Introduction)
The Accidental Philanthropist; but Uncle Sam! How Many Times Can You Tax The Same @#$% dollar?
How Not To Turn $20 Into A $75,000 Disaster
Maximizing The “Bank Of You Concept”; Setting Up Your Own Private Bank
Life Insurance As An Estate Planning Tool
Private Retirement Plans Vs. Employer Sponsored Retirement Plan Options
Special Valuations For Intra-Family Transfers, Gift Taxes And Lifetime Transfers
Why You Should Start A Personal Business?
Advantages And Disadvantages Of Investing In Annuities
How Owning Real Estate Can Help Me Save Taxes
How To Reduce Your Real Estate Taxes
Annuities, How They Work And Their Tax Advantages
The Three Proactive Strategies Of Asset Protection
Trusts – A Basic Foundation
So make sure to register at our blog to get all of this education.
Webinar Opportunity – Minimize Taxes, Empower your Retirement, etc..
We have a webinar on Wednesday from 12:00pm-1:00pm called: “Isn’t It Time You Became Wealthy”, in which we will teach how to minimize taxes, how to make money even in a down market, and how to empower your retirement. Register for the webinar by going to http://becomewealthy.info/leon/Webinars.html
Leon Williams Financial Strategist LUCA Financial Services http://leonsblog.leonwilliams.me (916) 489-5822 (ofc.) firstname.lastname@example.org http://leon.becomewealthy.info