That Time of Year, AGAIN!
“Let me tell you how it will be. There’s one for you, nineteen for me.
Cause I’m the Taxman” The Beatles – 1966 Revolver Album
It is coming. You can see it in your email inbox or mailbox. You hear the commercials on TV and radio. No, not the Oscars, Golden Globes, or People’s Choice Awards. It is
TAXES!
You get a 1099-B from your investment management company, though not as soon as you would like, and it will be amended later.
If you work for a company as an employee, like most Americans, you get a W-2 from your employer.
If you are a consultant or self-employed you get a 1099 and/or a K1. Some of your investments may issue K1s also, which rarely come before April 15.
If you are retired with a pension, or have taken money out of your IRA, you get a 1099R.
In addition, as mandated by the Affordable Care Act, you get a form 1095-A, 1095-B, or 1095-C.
Most of us receive these “standard” forms. There are literally hundreds depending on the complexity of your financial life.
What is a non-CPA to do? As a financial planner, I work with numbers every day and I still find the whole process lengthy, complicated, and exasperating. Therefore, I use an accountant who brings sanity, order, and yes, more expense to the process.
I review my financial records, answer his questions, and hand it all over. He organizes and enters the information on the appropriate forms (I hope) and voilà. I pay whatever amount of money the Internal Revenue Service demands. It makes me feel a little safer that an accountant’s name is on the forms as “preparer,” although I am not sure how much solace I should take from that.
“The IRS interrogation room is from a film noir whodunnit. Bright lights, hard backed chair, stale cigarette smoke, and the smell of fear hanging in the air. Two burly guys, sleeves rolled up, fists and teeth clenched, grilling me about that meal I say I bought a client at Hard Times Cafe. ‘Was it really $37.50 or did you pad the bill?’ they growl. ‘The tip looks suspicious!’”
I am obviously not a tax professional and I am not offering advice. I am pointing out some of the basic taxes. How does paying roughly 40% of your income in taxes affect your lifestyle? Um, 40% is too high, you say? In addition to federal income tax, you pay:
Social Security (S.S.) in the form of Federal Insurance Contributions Act, FICA. 6.2% of all income up to $127,000 (in 2017).
Medicare is 1.45% of all earnings with no limit.
Together they total $9,715.50, when applied against the 2017 income cap or 7.65% of $127,000.
Your employer pays an equal amount to S.S. and Medicare. Money she could pay you.
So whatever your federal tax bracket is, add the 7.65%. Say you are in a 28% joint Federal bracket ($151,901 - $231,450) plus 7.65% = 35.65%. Add state, 5.75% = 41.40%. That is just income! The general sales tax in Virginia is 5.3% but cities like Arlington and Alexandria and maybe your city too have additional taxes on prepared foods.
Have you ever added up what you pay in fees and taxes? Not just income taxes but also all of the fees and taxes. It is so sobering it will drive you to drink!
“If you drive a car, I’ll tax the street.” (Tolls, Gasoline tax)
“If you try to sit, I’ll tax your seat.” (Bus fare, Metro, Cab, Uber, Lyft)
“If you get too cold, I’ll tax the heat.” (And the cool. Read your utility bill.)
“If you take a walk, I’ll tax your feet.” (Coming soon to a municipality near you.)
Here are the Beatles on YouTube.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.