Death and Taxes, 2016 version

[Mulligan9111]

While making up 17% of those returns filed. Which is ridiculous IMO that <20% pays almost 80% of the taxes. If I understand the graph correctly.

Common sense says that people making more money will obviously have the higher percentage of total taxes paid in, even with a flat tax rate.

Take two families, one making $1,000,000 a year and one making $100,000 a year. Say we put a flat tax rate of 25%. $1,000,000 X 25% = $250,000. $100,000 x 25% = $25,000. $250,000 + $25,000 = $275,000. $250,000/$275,000 = .9091 or 90.91%.

I work in a CPA firm and prepare taxes for clients from both sides. I see the real high earners and I see the ones who are just barely getting by. When you start looking at the effective tax rates (the actual percentage paid in to the IRS compared to the amount of money they made for the year), the higher earners often have the lower effective rates.

Take Warren Buffet for example. His effective tax rate was lower than the effective tax rate of his secretary. So yes the tax code is messed up and needs serious revamping, but I don't think the high earners are going to like the way it goes once the revamp happens.

Also for those who worry about having to pay in each year. You can file your taxes in January and if you owe money, you don't have to pay it until April 15th, or the filing deadline for that year (it can change if the 15th falls on the weekend or holiday).

 

[Den60]

I have a small business which is a subchapter S corporation. Can't do my own taxes, with all the required forms the thing is about 1/2" thick once done, so I have to pay my accountant $650 or so to do it for me. Just about each year I have to file an extension so I have to make sure I pay more in than required.

 

[Reframmellator]

Common sense says that people making more money will obviously have the higher percentage of total taxes paid in, even with a flat tax rate.

Take two families, one making $1,000,000 a year and one making $100,000 a year. Say we put a flat tax rate of 25%. $1,000,000 X 25% = $250,000. $100,000 x 25% = $25,000. $250,000 + $25,000 = $275,000. $250,000/$275,000 = .9091 or 90.91%.

I work in a CPA firm and prepare taxes for clients from both sides. I see the real high earners and I see the ones who are just barely getting by. When you start looking at the effective tax rates (the actual percentage paid in to the IRS compared to the amount of money they made for the year), the higher earners often have the lower effective rates.

Take Warren Buffet for example. His effective tax rate was lower than the effective tax rate of his secretary. So yes the tax code is messed up and needs serious revamping, but I don't think the high earners are going to like the way it goes once the revamp happens.

Also for those who worry about having to pay in each year. You can file your taxes in January and if you owe money, you don't have to pay it until April 15th, or the filing deadline for that year (it can change if the 15th falls on the weekend or holiday).

You are correct, but the millionaire is also earning 90.91% of the income (1/1.1), so taxes as a percentage of income are the same - the definition of a flat tax. See my post above - the top 1% make 19% of the AGI and pay 38% of the income tax. That's not right. Neither are regressive taxes like FICA, sales taxes, property taxes, etc, although I would be willing to look at a consumption tax in lieu of the income tax.

 

[golfinFF]

Common sense says that people making more money will obviously have the higher percentage of total taxes paid in, even with a flat tax rate.

Take two families, one making $1,000,000 a year and one making $100,000 a year. Say we put a flat tax rate of 25%. $1,000,000 X 25% = $250,000. $100,000 x 25% = $25,000. $250,000 + $25,000 = $275,000. $250,000/$275,000 = .9091 or 90.91%.

I work in a CPA firm and prepare taxes for clients from both sides. I see the real high earners and I see the ones who are just barely getting by. When you start looking at the effective tax rates (the actual percentage paid in to the IRS compared to the amount of money they made for the year), the higher earners often have the lower effective rates.

Take Warren Buffet for example. His effective tax rate was lower than the effective tax rate of his secretary. So yes the tax code is messed up and needs serious revamping, but I don't think the high earners are going to like the way it goes once the revamp happens.

Also for those who worry about having to pay in each year. You can file your taxes in January and if you owe money, you don't have to pay it until April 15th, or the filing deadline for that year (it can change if the 15th falls on the weekend or holiday).

I understand our tax structure is screwed up and cutting out the ability to lower effective tax rate needs to happen.

I also understand that even with a flat tax the richer you are the more $$$ you'll pay, with that though everyone will pay the same % of income earned in taxes. Buffet shouldn't pay a less effective tax rate than his secretary because he has the money to do so.

Everybody should put in their fair share no different then at work everyone has to pull their weight or the company sinks.

 

[Mulligan9111]

You are correct, but the millionaire is also earning 90.91% of the income (1/1.1), so taxes as a percentage of income are the same - the definition of a flat tax. See my post above - the top 1% make 19% of the AGI and pay 38% of the income tax. That's not right. Neither are regressive taxes like FICA, sales taxes, property taxes, etc, although I would be willing to look at a consumption tax in lieu of the income tax.

Consumption tax would tax the 1% even more than the current income tax rate does.

 

[lopsta5]

I was just curious do you guys not pay tax weekly/fortnightly in your pay? I always see that you are doing your own taxes and stuff.

 

[captaincaution]

I was just curious do you guys not pay tax weekly/fortnightly in your pay? I always see that you are doing your own taxes and stuff.

People who aren't self-employed do through pay withholding. Self employed people pay quarterly estimated payments. Doing our taxes calculates the final bill and what we owe or overpaid through the whole year.

 

[lopsta5]

People who aren't self-employed do through pay withholding. Self employed people pay quarterly estimated payments. Doing our taxes calculates the final bill and what we owe or overpaid through the whole year.

Oh ok so its only self employed that do it, i just thought everyone did it.

 

[captaincaution]

Oh ok so its only self employed that do it, i just thought everyone did it.

Oh no. Everyone does it. Withholding usually takes too much money, thanks to all of the various deductions we are allowed to take. It's complicated.

 

[Girardcorp]

Haha "do witholding" like we have a choice in the matter. All I know is id rather pay at the end of the year and have 25% more in my paycheck today. Works fine for property taxes...


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[Mulligan9111]

Oh ok so its only self employed that do it, i just thought everyone did it.

It's not just self-employed. If you have investments, rental properties, etc. which generate enough income to warrant paying in quarterly estimates, then generally estimates are made as well as the normal withholdings.

 

[Reframmellator]

Consumption tax would tax the 1% even more than the current income tax rate does.

How so? If anything, I would think it would be the other way around.

 

[Den60]

Consumption tax would tax the 1% even more than the current income tax rate does.

I would be all for a "consumption tax" as long as there was a Constitutional Amendment to eliminate taxes on income. Government never feels like they get enough in taxes so adding a national sales tax would likely end up to be an addition to, rather than a replacement of, income taxes. A consumption tax is also the fairest. If you buy a Toyota Corolla you would pay tax on $20K or so. If you buy a Bentley you would pay the same tax rate yet your would be doing so on a $180K car which would be 9 times the amount the guy buying the Corolla would pay.

 

[lightningbolt44]

I would be all for a "consumption tax" as long as there was a Constitutional Amendment to eliminate taxes on income. Government never feels like they get enough in taxes so adding a national sales tax would likely end up to be an addition to, rather than a replacement of, income taxes. A consumption tax is also the fairest. If you buy a Toyota Corolla you would pay tax on $20K or so. If you buy a Bentley you would pay the same tax rate yet your would be doing so on a $180K car which would be 9 times the amount the guy buying the Corolla would pay.

I would love a consumption tax unfortunately I don't think we will ever see one.

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[goodearth]

Flat tax for me!!! and EVERYONE pays!!!! even the poorest need to have skin in the game

 

[PiratePenguin]

I try to tweak things through the year to get back less than $50. Had to build a spreadsheet to do it. We had some problems with owing large amounts a few years in a row so I got really into cracking the code.

This year? Refund of $21. Boo yah.

#taxationistheft

 

[Reframmellator]

Flat tax for me!!! and EVERYONE pays!!!! even the poorest need to have skin in the game

Not exactly, under most flat tax proposals. Only income above $xx,000 is taxed at the flat rate. Back in the late 60s, William F Buckley Jr :clapproposed a flat tax structure but with a negative income tax for the lowest levels. This wa a few years before George McGovern floated a very different version of that idea.

 

[goodearth]

In my perfect world a flat tax would be one every dollar earned, no bottom or top exemptions.

Not exactly, under most flat tax proposals. Only income above $xx,000 is taxed at the flat rate. Back in the late 60s, William F Buckley Jr :clapproposed a flat tax structure but with a negative income tax for the lowest levels. This wa a few years before George McGovern floated a very different version of that idea.

 

[tahoebum]

Common sense says that people making more money will obviously have the higher percentage of total taxes paid in, even with a flat tax rate.

Take two families, one making $1,000,000 a year and one making $100,000 a year. Say we put a flat tax rate of 25%. $1,000,000 X 25% = $250,000. $100,000 x 25% = $25,000. $250,000 + $25,000 = $275,000. $250,000/$275,000 = .9091 or 90.91%.

I work in a CPA firm and prepare taxes for clients from both sides. I see the real high earners and I see the ones who are just barely getting by. When you start looking at the effective tax rates (the actual percentage paid in to the IRS compared to the amount of money they made for the year), the higher earners often have the lower effective rates.

Take Warren Buffet for example. His effective tax rate was lower than the effective tax rate of his secretary. So yes the tax code is messed up and needs serious revamping, but I don't think the high earners are going to like the way it goes once the revamp happens.

Also for those who worry about having to pay in each year. You can file your taxes in January and if you owe money, you don't have to pay it until April 15th, or the filing deadline for that year (it can change if the 15th falls on the weekend or holiday).

Certainly our tax system needs serious reform but Warren Buffet is a bad example as he is super rich even compared to those from the top 0.1% that earn about $1,900,000 per year.

Normal dual income people like my wife and me are taxed at a ridiculous rate living in California. For 2015 we paid 44%(11.7% CA income tax) of our gross wages in Federal, State, and FICA/Medicare taxes. If you add in property and sales tax we pay about 50% to the government. We have a huge incentive to retire early to a low tax state and reduce our income and effective tax rate to about 17% - we will do exactly that in the next couple years at age 53 or 54. I've calculated that our savings from not having to pay state income tax would pay all of our non-housing related living expenses(including golf) when we retire to Florida. We enjoy our careers but are tired of working 6 months every year for the government. We know several other couples who are checking out of the work force fairly young and fleeing to tax friendly states for the same reason.

Fleeing a high tax state for a lower one is accelerating but politicians in states like California, New York, and Illinois will be the last to figure it out. Thankfully we live in a country where people can move if they don't like their current state and local taxes.

 

[Smallville]

My Federal refund should be in my bank on April 25. It's not huge (I don't ever want it to be a lot), but coupled with my State will pay for most of our house and car insurance in May.

 

[LSMO]

My Federal refund should be in my bank on April 25. It's not huge (I don't ever want it to be a lot), but coupled with my State will pay for most of our house and car insurance in May.

That works out well!

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[Smallville]

That works out well!

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Especially since I get commission on it, haha.

 

[LSMO]

Especially since I get commission on it, haha.

I know what you mean there!

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[McLovin]

I have a small business which is a subchapter S corporation. Can't do my own taxes, with all the required forms the thing is about 1/2" thick once done, so I have to pay my accountant $650 or so to do it for me. Just about each year I have to file an extension so I have to make sure I pay more in than required.

you're getting a helluva deal, or that CPA has a measly billing rate, or they aren't putting much effort into preparing it or reviewing for accuracy after preparation.

 

[Mulligan9111]

How so? If anything, I would think it would be the other way around.

Sorry, I should have worded that better and said that the consumption tax would increase the difference in amount of taxes paid compared to everybody else than our current income tax rates does. Usually what happens is the more money people make, the more money they spend. It's obviously a generalization and won't apply to everyone, but I personally feel it holds pretty true for most.

I think the biggest difference is that people just won't see the total they are paying to the government as they do with filing an income tax return, so it might not be as big of a "shock" to them.