This time of the year Americans are preparing to file their taxes. Although many will argue, you have to pay taxes in some way, shape, or form. It is not only necessary to fund the infrastructure around us but it’s also against the law to not pay.
How much tax you owe is very simple. You take your total income from all sources, subtract expenses and credits allowed by the IRS and take that total and multiply by a percentage to come up with a total tax owed. If during the year you paid taxes from either employment or investments and it is more than the IRS required you to pay, they will refund you the difference. However, if the amount you paid during the year is not enough to cover the amount required to pay, you owe them the difference all at one time. That’s the scenario taxpayers hate.
Here is the most important thing to understand. Many taxpayers fall in a range that there is not much you or any CPA can do about lowering your taxes. For example, most W-2 employees and many retirees. You receive an income; you subtract your deductions and that’s it. So, the only way you are going to pay less taxes are to either make less income or spend more money so that you may have more deductions.
Business owners and investors have more flexibility in calculating their taxes owed because the IRS has many rules for deducting expenses that allow you to generate income. Therefore, a business owner can make the same amount of income as a W-2 employee but will usually pay much less in taxes.
So why does this happen? In summary, businesses and investors stimulate the economy by providing housing, jobs, and energy; and that risk gets rewarded for doing what the government wants. Employees are primarily consumers and therefore heavily taxed.
What to pay less taxes? Let’s talk about what changes you need to make. Contact me.
