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Federal, state, county, city and local governments all impose taxes on their citizens. Taxes have been levied for at least as far back as the 17th century 'to help pay for healthcare, social security, unemployment, education, welfare and other public programs which are beneficial, useful and often necessary for the common good of the general population.'
Despite the well intended purposes and benefits of taxation, it has long been a burden on everyone, and at times, so excessive as to at least appear to be some form of slavery. For example, although current federal income tax rates in the US are at 10-35%, maximum income tax rates between 1913 and 2009 (over a period of 96 years) exceeded 50% for 65 years, and were over 90% for 14 years! If such unnecessarily excessive tax rates have been levied in the past, then it is very possible that similar rates could be levied again. At these rates, we would be better off with no money at all.
Reducing taxes helps you to save money and increases the level of freedom you have in choosing for yourself how, when and where your earnings are spent, the endeavors it supports, who it benefits and how, while limiting the ability of others to make those choices for you. Though less federal tax revenue generally means less money for federal and US government funded public programs, it doesn't prevent states, counties, cities, non-profit foundations, trusts and organizations from offering charitable programs to provide things such as free or reduced rates on electricity, heat, transportation, clean water, food, medicine, healthcare, housing, research, education and emergency services to the public. Neither does less federal tax revenue prevent citizens from benefiting from charitable public programs and services that are not funded with tax dollars, or from reducing their taxable income by donating to them.
Empty Words, Empty Accounts
'Lucky for rulers that men do not think.' ~ Adolf Hitler
Our government tells us the amount and purpose for which our tax dollars are used, but it does so at its own discretion. Federal tax revenues are deposited into, and government expenses are paid out of an account the US Treasury keeps with the Federal Reserve. Federal tax revenue that is earmarked for specific purposes (such as public programs and services) is then transferred and held in federal trust fund accounts, which are used quite differently than trusts used by the public. In the private sector, a person uses their own assets to fund and create a trust for specific purposes, and anyone may be chosen as trustee/s to manage trust funds according to stipulations of the trust, for the benefit of another or others. The government on the other hand, uses income and assets earned by the public to fund and create a trust, the trust corpus of which may be (but does not have to be) used for specified purposes, and trust funds are managed by themselves, for the public and themselves. Trustees for federal trust fund accounts do not have fiduciary responsibilities to trust beneficiaries (in this case the public), and may use their slight of hand trickery to change trust purposes by changing laws, or transferring trust funds from one account to another via 'intra-governmental transfers.'
Now You See It, Now You Don'tIntra-governmental transfers are one way the government loans money to itself (from one department to another), then charges itself interest, and the public pays for it. The departments receiving federal trust funds then report such transfers as income, thereby making it appear as though there is a surplus in certain federal trust fund accounts, such as that for social security. These accounts cannot legally have a surplus however, because income and assets not spent each year for specified purposes of federal trust funds must be either 'invested' in government securities issued by the US Treasury, which are reported as assets but are actually recognized as part of the national debt, or transferred to another or other departments for other uses, which again, results in more public debt. In other words, federal trust funds represent government debt at the People's expense, not money that actually exists. You may for example, assume that money you pay in taxes for social security is actually set aside for you to use later, but really this money is being spent right now, on current recipients. Therefore, when it comes time for you to receive social security, the money won't be coming from some account set aside for you in the past, but rather from current taxpayers after you retire -- if social security still exists. In short, it doesn't matter what the government tells us they are doing with our tax dollars because in the end, it will be spent whenever and however they wish, no matter the said purposes for federal and government tax revenues.
Income and Capital Gains TaxesAnything of value that is received in exchange for labor, products or services associated with regular business activity is held liable for state and federal income taxes. Some states (such as Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) do not tax personal income, but federal income taxes apply in every state, and are due every year for all taxable income earned the year before.
Individual employees and independent contractors generally have a relatively high level of financial privacy, are not personally responsible for the financial success of the company/ies they work for, and depending on income levels, pay the least in income taxes. Private business owners typically have a moderate level of privacy, more business related responsibilities and expenses than individual employees, and more income taxes such as payroll, worker's compensation, unemployment, social security, FICA (government employee wages and retirement) and Medicare taxes, depending on the number of employees they have (if any). Corporations generally have little privacy, but often pay the most in business expenses, and are expected to pay the most in income taxes. Most large corporations however, tend to pay less taxes than anyone, because they can afford to pay lawyers to help them avoid paying their said share. Non-profit organizations have little privacy, but may receive tax deductible donations and are generally exempt from income, sales, property and other taxes. Tax exempt charitable trusts may be private or public, may in most cases receive tax deductible donations, and like non-profit organizations, may be exempt from income, sales, property and other taxes.
Anything of value that is received in exchange for capital assets such as precious metals or real estate is also held liable for capital gains taxes, no matter what state you live in. Capital gains from assets that have been owned for less than one year are considered short-term capital gains, and are currently taxed at ordinary income tax rates. Long-term capital gains from assets which have been owned for at least one year are taxed at 0-28%, depending primarily on the level of income and tax bracket. Capital gains taxes are not due until the year capital assets are traded or sold.
There are a number of simple ways to reduce income and capital gains taxes however, such as for example:
The general rule of thumb is -- so long as labor, products, services, assets or anything else of value is not sold or exchanged for more than the original investment, expense or value, there is no 'profits' or 'gains' to tax.
Gift, Estate and Inheritance TaxesGift taxes are taxable to the donor at rates of up to 45%, and apply to gifts given during a donor's lifetime in exchange for nothing in return. A gift must be of 'present interest', meaning recipients must be able to benefit from the gift that year, rather than some time in the future. The first $1,000,000 can be deducted from the unified credit, but this is used for both gift and estate taxes. If estate taxes are owed at death, the unified credit deduction is reduced by the amount already deducted from gift taxes during one's lifetime. Gifts for medical or educational expenses of another or gifts to a spouse, political or tax-exempt organization are generally not taxable, and a gift is not taxable as income (only income derived from a gift is considered income), so income taxes do not apply. Donors can give up to the annual exclusion amount (which is currently at $13,000) to as many individuals as they wish, gift and income tax free, and recipients are likewise not usually held liable for associated gift or income taxes.
Estate and/or inheritance tax rates are usually about 45-55% of taxable estates (i.e., all money and assets combined) transferred to heirs upon one's death. Property left to a surviving spouse however, is exempt from federal and state estate and inheritance taxes, and in most cases, other close relatives pay nothing or a low rate. In addition to the federal estate tax, some states including Connecticut, Delaware, Illinois, Indiana, Kentucky, Iowa, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont and Washington impose estate and/or inheritance taxes on properties of the deceased, at their own rates. The unified credit amount (currently at $3.5 million) is deductible from a taxable estate however, so if the total taxable estate plus all taxable gifts during one's lifetime add up to less than the unified credit amount, there is no federal or state estate or inheritance tax liability. Estate, inheritance and gift taxes, as well as probate can also be avoided entirely, by holding real estate, money, precious metals, antiques, life insurance policies and other assets in trust. Giving children and loved ones what you want them to have (each year, worth up to the annual exclusion amount for gifts during one's lifetime) before death may also be an effective and affordable method of reducing or even eliminating gift, estate and inheritance taxes.
Sales, Excise, Use and Toll TaxesSales, excise and use taxes are imposed upon many goods and services, such as food, tobacco, alcohol, and petroleum products, often by adding these taxes to retail prices. All states except for Alaska, Delaware, Montana, New Hampshire and Oregon, collect sales taxes. All states collect excise taxes on gasoline, diesel fuel and gasohol. Toll taxes are also sometimes charged for the use of roads, bridges and tunnels. Avoiding sales, excise, use and toll taxes generally requires avoidance of buying or using products and services that levy such taxes. We could for example, buy goods and services in states that do not levy the sales tax, produce our own goods, and take alternate travel routes (which is likely to cost more than paying toll taxes).
Property TaxesTaxes on land and the buildings on it are the biggest source of revenue for local governments. Property taxes are levied by counties, cities, townships, school districts or other assessing jurisdictions of every state. Rates vary from one state to another, and are based on local real estate market values and rates set by each state. All states, as well as some counties and municipalities, offer tax relief programs however, such as property tax credits or homestead exemptions that limit the value of assessed property subject to property taxes, freezes that lock in the assessed value of your property once you reach a certain age, tax deferral programs for low income elderly homeowners until the homeowner moves or dies and their property is sold, and so on. Properties within federal jurisdiction (such as federal enclaves, federally patented and issued homesteads, mining or desert claims), or which are leased, owned or otherwise controlled by governments, tax exempt charitable foundations, trusts or organizations, are also usually (or may be) exempt from property taxes. In addition, forested lands and properties with a certain percentage of land used to grow timber, may be classified, claimed and recorded as tree farms in the local county records office. Tree farms are generally liable for income taxes on timber sales, but exempt from property taxes.
The Simple Dollar
Financial talk for the rest of us
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