Taxation - we cannot get away from it, at least in the United States (and, I assume, everywhere else in the world. That I know of, Mars is still tax-free). Even if you live in a state that does not have state tax, you still pay property tax (which can be as bad or worse as state taxes), sales taxes, fuel taxes. You pay taxes on every utility bill for "things" (up to not all that long ago, we continued to pay a tax based in the Spanish- American War, thus proving that taxes never, ever, really die). That, of course, is on top of the Federal income tax paid above a certain threshold (and for which threshold of being "wealthy" keeps slipping downward every year).
So no-one can get away from taxation. Theoretically at least, some level of taxation is necessary to pay for "things", although there is quite a vigorous discussion about what "things" we should pay for (and this goes to both parties, of course: do not tell me how much you will reduce taxes, tell me how much you will reduce spending. Tax reduction will follow the second option naturally). And add to that, I am one of those individuals that sees my tax forms in black and white with no grey: if there is a hint of "it might be income", I will put it on there.
So if I cannot change taxation and I should not (and will not) practice "creative writing" in them, the only logical thing to do is look at lowering my taxable base.
I write that it as if it is an easy thing. It is not, of course: it requires a huge change in lifestyle and a great deal of consideration and planning.
(Disclaimer here: I am not a tax professional. Any tax related planning should be done in conjunction with a qualified accountant, tax planner, or CPA. I am just a guy with a blog that has thoughts on things).
For 2023, the published lowest federal tax bracket level (10%) for married folks is $22,000 Adjusted Gross Income (AGI). The next cut off (12%) is $89,450.
Then add on states. Here, there can be a difference: In Texas, Florida, or Nevada, the tax bracket level is 0%, as there is no state tax. In California, $22,000 will see you paying 2% and $89,450 will see you paying 9.3% (a fixed amount plus a percentage over $61,214). In Montana (2022 brackets), it is 6.9% for anything over $18,000 AGI.
(Fun list of all 2022 state tax rates and brackets is located here)
To recap, depending on where one lives, one can pay 0% state income tax to 22% state income tax - not accounting for other factors of course, like cost of living, property tax rates, and local quirks. Nor - on the Federal Level - does this account for something like the Alternative Minimum Tax, which was originally designed to insure high income earners with low "taxable" income paid something commensurate with their holdings, which has been opened up over time to the larger population.
This gives me data points. If I lived in X, how much would I need to make to live there? What is the minimum amount I could make to live and minimize my tax burden?
It comes down to choices, of course: our society and our entire system is geared towards more and even in the great minimalist sub-culture that is currently enjoying popularity, I do not hear any sense of minimize income to minimize taxes. We all have our accustomed modes of living, and every one of us considers some things as defensible luxuries or slightly "really needed" necessities.
But for me at least, such an exercise manages two things. The first is that it engages me on actively thinking about the next phase of my life, what I really "want", and and what I really need. The second is that this inherently appeals to my inner "government is far too large" thoughts by addressing the fact that if I provide less, there is less for them to work with.
Economizing our lives. Not just good for us as individuals, good for us as citizens in a government.
If one has access to an unlimited amount of money, i.e. taxpayers, you can bet they will always find ways to spend more money.
ReplyDeleteI am always amazed locally how on one hand the local government can get so many people to voluntarily increase their tax load in various ways for the latest "must need" and then on the other hand, wonder why we can never attract people or businesses to move here. Our tax levy has been maxed out for many years but they finally found a way around that by adding a franchise tax to our utility bills and that tax has no upper limit set by law. I'm guessing I know where it will be heading in the future.
Knowing you are contemplating a move from new home to old home perhaps sometime in the future, the tax situation will probably play a role. I'm not familiar with either location, but if I had to bet, I'm guessing the taxes at old home are probably a lot higher.
Ed, it is rather stunning. In New Home, there was no theoretical upper limit to the increase on property taxes. The Legislature finally managed to put an upper limit on what could be increased without putting it to a vote. All future increases will, likely look like x.9%, thus not going over that "voting" limit.
DeleteLocal fire districts seem very prone to this as well, and it is harder as they are obviously a needed service. It seems like almost every election now has an "needed" increase beyond what is on the current bill.
Part of the problem - at least in my view - is that the tax increase is divorced from the people paying taxes. As a renter, tax increases often funded by utility increases or property taxes were always invisible, because I did not have to pay for them. Except that I did, every time rent increase came around. And as you point out, companies make rational choices based on taxes. I am willing to invest good money that some very large recent relocations have just as much to do with reducing the tax liability as with other features.
In fact, taxes are a consideration about the move - but in the totality of the consideration. It is not as straightforward a choice as I would wish it to be.
I agree. I especially like your "if I provide less, there is less for them to work with" thought, although as Ed points out, they usually come up with obscure fees and other devious way of getting more of our money. And I suspect that folks who voice support for tax increases have already figured out ways to get out of paying them.
ReplyDeleteWhile none of us are tax experts (and here, I can't resist but point out that tax laws have become so complicated that I suspect even the "experts" have trouble with them), it's still left to us to figure out how to do the best we can with what we've got. Lowering income was the only viable option for Dan and me, since we never had the means to invest for retirement. Of course, that meant a huge change in lifestyle, which has its own learning curve. But it's doable in baby step, plus has multiple other rewards which make it well worth it.
As I see it, the biggest part of problem is that government is totally irresponsible with how they spend their (our!) tax revenues. If they would evaluate and eliminate failing programs, or even attempt to think a proposal through before hand (instead of politicizing it), then maybe there would be some hope. But it seems they mismanage everything they put their hand to. I wish there was a way to change all that.
Leigh, one of the more darkly amusing things I am finding coming up now is the fact that Low Emission Vehicles are no longer quite looked upon as favorably and are beginning to be seen as a taxable opportunity. As this freedom from gas taxes and favored tax status was seen as a selling point, I can imagine the angst that this will cause.
DeleteEd's example is a great one. The ability to add on minor fees is endless, and always presented as "this is such a small amount for each individual". To my way of thinking, even $0.01 is too much.
Hopefully it is not a surprise that I have been walking through some of the steps you have indicated you and Dan went through. Part of it, of course, is just the realization that my income is destined to drop, sooner or later - they all do. And it occurs to me that making these sorts of plans now before we have to is a feature, not a bug.
I note that just yesterday the Pentagon failed its fifth budget audit in as many years. Were this an actual company, there would be significant penalties for the company and even for specific individuals at those companies. As it is the Federal Government, nothing will happen. Until we fix this accountability issue, nothing will change.
Tax rates provides $ for politicians to spend. Calling it "investment" shows how important terminology is. Deciding where to live at the end of your life is an important decision and looking at tax rates is a big part of that. Good luck TB.
ReplyDeleteNylon12, it is always for "investing in the future", yet it never seems to yield dividends.
DeleteI believe I have one chance to get this right - partially because I am at a point where one can redo decisions less and less, and partially because - frankly - I hate moving and only want to do it one more time.
About ten years ago, I got to visit a kid I hadn't seen since he was about twelve. He grew up poor, but his dad didn't allow the boys to watch TV. They had to find things to do. All of the boys are moguls now. He owns about a 100 properties and most are low rent houses in a very pretty place. He also has several commercial buildings.
ReplyDeleteWe talked at length about his business model, and one quote made all the sense in the world to me. "There is no reason in the world why everyone shouldn't have a business of their own." I have been working to that end since that time. I always had side work, but never was willing to the do the paperwork required to make it "official". I finally did last year. I made more last year on side work than ever in my past. And I paid less taxes on that than I did ever before (on less income). Keeping track of expenses made the difference. It was amazing.
If you move, leverage your new place. Make it work for you. Figure out a way to minimize your exposure and maximize your book keeping skills. I am not being creative at all with my book keeping. I am following the rules. Like you, if there is a bit of gray, I make sure it's in their favor, not mine.
That book, "Rich Dad, Poor Dad" really opened my eyes to how I was viewing money and work opportunities. And I wasn't doing a very good job in years past. I met a welder two years ago, and spent a week's vacation helping out around his place. He had an opportunity show up he wasn't able to work on and passed it on to me. The short term wasn't too bad. The long term plan to support the work didn't pan out. All in all, it was good experience for the future. Opened my eyes to a different way of thinking, and I'm all about learning and clarity of vision.
STxAR - Kiyosaki went off the rails later, but his first book was definitely eye opening: "Buy assets, not liabilities". And having done the business route once before in real estate, it is quite amazing the change in how cash flows. As you say, track expenses.
DeleteOne thing that my parents did not have to do that I will is understand how to make the land "work" for us. There are several possibilities; I just need to spend time seeing them.
We have, for many years, referred to taxes as "Paying our tribute to the Great Khan". We pay our tribute, and he leaves us alone for another year. I have no more loyalty to Leviathan than that.
ReplyDeleteA long time ago, we had good friends who joined a tax revolt group which had decided that the 16th Amendment was not legitimately ratified. The IRS went after them, and they both ended up doing prison time for it. What angered me most was the fact that they had young boys at the time. It's fine to be a martyr for a cause you deeply believe in, but I could not see doing that to one's family. I have always taken a much more pragmatic view of our reality, and I do not see the individual as having any effect on the machinations of state.
In our state, property taxes are quite high as we have no sales tax to feed the state coffers. That means to me that we cannot truly "own" real estate. We in effect, lease it, with the burden every year of paying our rent or risk foreclosure. With that reality, we have sought to retire with as small a real estate burden as we can reasonably afford. We worked long and hard to retire debt free, and I am obsessive to the point of paranoia to remain that way. We pay not one dime of interest to anyone for anything.
As far as Social Security is concerned, I have for decades said that I have five words for that: "I want my money back!" Uncle Sugar has been doing government sanctioned extortion of my wages since 1968, and I have every intention of being mean enough, and tough enough, to live long enough to get my money back. Ponzi scheme that it is will not be my concern.
I believe it was Oliver Wendal Holmes who said (I paraphrase from long faded memory) that we are only obligated to pay as little tax as we can within the law. For your old home ranch, do consult a good tax accountant about means to reduce the tax liability for it. There may be "Timber Reserve" status or "Wildlife Corridor" provisions that could be enacted, or other means we do not even know about at this time. I do hope you are able to retain the ranch, it is from your pictures, a gorgeous parcel of paradise.
Greg - "Paying our tribute to the Great Khan". I love this and, with your kind permission, am stealing this.
DeleteThe government may brook many insults, but anything that involves taxes, they will be merciless. Thus, my utter and complete transparency on my return. Far better, using your quote from Holmes, to pay as little tax we can within the law (understanding, of course, entities will always find a reason to raise them as Ed enumerated above).
The real estate burden is real; ours literally shoots up every year for no discernable reason. It is one of the reasons that, even if The Ranch is not a final destination, some other location is: I cannot be at the mercy of a taxing authority that will mechanistically raise value without my income doing the same. The comments about ways to reduce taxes are appreciated and I think - at least here - we would have a strong possibility of doing that.
Like you, I intend to be healthy, ornery, and stubborn enough to make Social Security owe me, not the other way around.
When your making you Pro/Con list I will assume your parents had a "over 65" tax reduction exception on the home and acreage. Once a deed is filed that will up the tax base. With the big move this summer I had to change the utilities and the electric company here has a $30 customer charge and the garbage pick-up has a $35 'green' fee. As someone who had to read tax returns for a living and saw a lot of AGI's well over a millions or more these people pay a Lot of taxes.
ReplyDeleteGL - That is a good point and yes, I assume you are correct (although this being a different state, who knows).
DeleteAll of the expenses would likely go up as a result of moving. I am not sure how, if property is inherited, that will change things but I assume so, and for the negative.
If you file no deed until such time as your Mom passes and the entire estate of both are done there is no need for a deed to pass except as the last of the paperwork. All states have "old people" exception and most have a veteran benefit also. Working for a real estate atty. for 7 years and later in life auditing files from across multiple states gave me a lot of bits and pieces of all things real estate. Lots of very strange state laws regarding land dating from the 1800's that are still on the books. If there is water on the land does the acreage have riparian rights and or all mineral rights?
ReplyDeleteGL - Thank you. That is good to know. We are already starting to revisit everything post my father' death (legal, financial, etc.). Likely a trip to the lawyer in our near future.
DeleteYou got Tennessee wrong brother. There is no state income tax. That's one reason so many people retire to TN.
ReplyDeleteThank you very much for the correction. I have updated the post accordingly.
DeleteAs is credited to Marcus Tullius Cicero, 85% of what you get on the Interweb is true 75% of the time...