Albert Einstein and Our Tax Code
The great physicist and philosopher Albert Einstein once said, “The hardest thing in the world to understand is the income tax!” The man was a genius and even he couldn’t make sense of our tax code, and it’s only gotten worse over the years.
The Ever-Changing Tax Code
Since 1914, the tax code has changed every year. The current tax code is over 50,000 pages long. The Clinton/Gore administration took a really good stab at reducing the tax code with the Tax Reduction Act, but, like all others before and after them, they failed miserably in their efforts to simplify the tax code.
It’s Like a Horror Film
Sometimes it seems that the tax code is like that old Steve McQueen movie “The Blob”. Every time you try to kill it, it gets bigger and bigger. Yet, in this mess we call our tax code, there are options and opportunities to be had by taxpayers who are willing to pay attention and do a little extra work.
After all, as American humorist Arthur Godfrey once said, “I’m very proud to pay taxes as an American, but I could be just as proud to pay half as much.”
What should I do?
I am 63 years old and still working. I have accumulated a fair number of assets and am in the 25% tax bracket. Do you know of any tax tips that might help me reduce my future burden?
Dear Please Help,
There are too many opportunities to list in full, but here are a few of the more basic rules that can be used to reduce taxes:
1. Check and see if your municipal bond interest is causing your check to be taxed at a higher rate. If the interest comes from an activity the government has ruled to be private, it now exacerbates your Social Security taxes.
2. Remember that charitable contributions can be written off as deductions. Time is not deductible, but expenses that contribute in some way to charitable organizations are. Please note that your total deductions have to exceed the standard deduction before taking effect.
3. Add to your IRA. If you have an IRA, and you put money in it, that money is pre-tax. That lowers your taxable income, which means less burden that you have to pay. Keep in mind, however, that IRA’s are tax-deferred, not exempt, so when you start taking distributions it will be taxed as income. So a standard IRA can help knock your taxes down now, but they still have to be paid eventually.
Of course, these are only a few of the opportunities available that may reduce your current and/or future tax burden.
Taxes aren’t straightforward. There are loops all over the place, and handfuls of different conditions that need to be met for each exemption and percentage. The first thing to do is add up any sort of income that you can think of that you have, and go from there. Start at the top and research what you may qualify for. And don’t be afraid to ask for help! We know it’s hard to even find the information you need in the tax code, let alone fully understand it. That’s why we suggest you speak with a tax professional, (we do not provide tax or legal advice) who can walk you through all of your options, especially as tax season rolls around.