What Really Grinds my Gears this month? You guessed it Doing Taxes. To some that hold a US citizenship/permanent status such as green card this is the reality every year , for others a brief window to a US Tax Code. While the amount of taxes you pay maybe subjective, my frustration is just how convoluted it can become very quickly. There are too many kinds of forms. I only began to scratch the surface but at this point I would not be surprised if there is a “form 1487-X ; income earned while juggling apples and oranges while whistling”. While private companies and tax accountants aid in this there isn’t any clear place in the state and federal websites that outlines the rules and forms clearly. To clarify if you read one of those said forms in the fine print at the bottom of the page to paraphrase “If they screw up it is still on you”. More on that later. Besides the confusing maze of forms, you must keep your receipts for possible deductions or additional income reporting. Some will count some will not, you won’t know until it is the moment to file your taxes reinforcing the previous point. Then you have the whole qualified deduction and qualified child, relative credits in some cases 19 years or older disqualifies them in some cases 20-23 is fine if they live at home unless your dead broke as in made less than $4300 in a year. Though in that situation I was called worse than a “Qualified Relative”. Another item to consider in relevant tax deductions and credits is that it can led to a massive rabbit hole where you either face major limits or have to rewrite your entire taxes to contour that qualifier to work, so often than not some things are not worth the effort. For example, single, married, married filing separately (basically same rates as single), then Head of Household. Last one gives the most deductions for a single filer, but you have to claim a dependent to be living with you. That is something one might consider though as qualified deduction can peg you down one tax bracket. Reason being single people earning marginally livable salary get slammed as the tax code hasn’t figure out that earning a dollar over $40,000 does not make you rich. Yes, full disclosure I am single. How else would I have time to run this mediocre website? Not saying that because “boo who I pay too much in taxes” like some of these other spoiled whimps. Seriously the nerve on some of them but I’m detracting from my point. The brackets are as follows for the 2020 tax Year for Single people in comparison to Head of Household: Tax rate Single Head of household
10% $0 to $9,875 $0 to $14,100
12% $9,876 to $40,125 $14,101 to $53,700
22% $40,126 to $85,525 $53,701 to $85,500
24% $85,526 to $163,300 $85,501 to $163,300
As you see any income there is a huge jump if you make $40,126 that happens 12%-22%! I know it is our tax bracket “builds up” to each bracket but it makes that “gig job” a non-starter as it will be taxed at your highest level. To clarify how the tax bracket builds up. If you make $45,000 you take the 1st bracket for the $9,875 you earned the year so far at 10% you have $987.50 then you take $9876 to $40,125 portion which is 12% amounting to $3600, then you take the remaining $40,126 to $45,000 which is $4874 mind you and that gets taxes at 22% which gives you $1072.28! So, Uncle Sam is asking you for $5659.78 not including Social Security and Medicare. Also, we’re not done yet as you state might be asking you to open your purse/wallet. This is where it gets extra muddy, some states have zero income tax while others go the other extreme like in California. In a US Territory like Puerto Rico things are even less clear although as a result it is cheaper to be a billionaire there and you are on US soil. Don’t get me started on investments. Let's start with the basics, if you own stocks or other securities and you sell on the 365th day, then the above bracket applied if you hold that same stock/security for an extra 24 hours below bracket applies.
Tax Rate Single Married Head of Household
0% $0 - $40,000 $0-$80,000 $0-$53,600
15% $40,000-441,450 $80,001-$496,600 $53,601-$469,050
20% $441,451 or more $496,601 or more $469,051 or more Did I mention that this is counted separately now from your regular income? Do you see anything wrong with this picture? Speaking from experience it wasn’t the investing and the Gig job that blew my taxes upside down, it was my W2\W4. That’s right the one place where I thought the deduction would be on point. Employers don’t deduct enough from your paychecks which leads to surprises. Given the convoluted setup I’m not surprised most HR people are the way they are. This would drive a person nuts, not to mention the other things they have to take care of. Don’t worry about screwing it up though. The worst that can happen is you would face time in a federal prison. That’s right don’t screw up otherwise prison time …. No Pressure. Think you’re safe because a tax guy prepped your form? Think again and read that 1040EZ (“EZ”, but hardly is) at the bottom. It says you are still liable.
Solutions? Surely like that guy at the Infomercial says in a squeaky high-pitched voice like a teenager whose voice just cracked “There’s gotta be a better way!” Surely enough here’s what I propose.
For simple W2/W4s and gigs the taxes should be auto submitted the only time you should fill out a tax form should be to submit amendments to it in form of deductions or sold investments
This would solve 90% of the convoluted system and free up IRS to do to advanced taxes and persecute real tax dodgers and not Aunt Irma, because she flipped a digit.
Federal Government should have better calculators on the IRS Website so you can better forecast your taxes.
It can be done. Healthcare .gov may have suffered issues starting up, but once running it was clear concise and easy to follow.
Fix that dang 12-22% jump. Someone earning 41,000 dollars would be irritated that they must give $200 on that last $1000 whereas someone at 85,000 dollars can absorb that dent better split that into a 17% and 23% that way it jumps 5% equally.
If anything else, that needs to be a 1st . A person Earning $85,000 is earning more than twice what a person earning $41,000 so taxing them at the same rate is downright cruel. Only time will tell hopefully this particular blog entry become irrelevant and outdated. One would hope anyway.