More On Tax Planningfrom The Advisor's Professional Library
- Charitable Giving Charitable giving can reduce your clients’ tax liabilities. However, the general and verification rules for the deduction of charitable gifts must be understood in order to take full tax advantage of such gifts.
- IRAs: In General Individual Retirement Accounts are highly popular tools for contributing funds that grow on a tax deferred basis. Depending on the type of IRA, the accumulation can be tax free.
Break out the tricorn hats and the Lipton tea bags.
With a William Wallace-style cry of “Freedom!” millions of tax payers will today reach a milestone far more pleasant than April 15, although it also involves taxes.
Tax Freedom Day arrived Thursday, the 108th day of 2013, according to the Tax Foundation’s annual calculation. The—ahem—“nonpartisan” research organization reports Americans will work well over three and a half months, handing over about 29% of their income, before they have earned enough money to pay this year’s tax obligations at the federal, state and local levels. Both higher federal taxes and rebounding incomes contributed to this year’s date, which it notes is five days later than in 2012.
In the new Tax Foundation study, “Tax Freedom Day 2013,” economists William McBride, Ph.D.; Elizabeth Malm; and Kyle Pomerleau also calculate how long Americans would have to work in order to close the federal budget deficit. In order to pay for all spending in the current year, the government would need to raise an additional $833 billion in taxes, pushing Tax Freedom Day to May 9.
“This year, Americans will work five days later than in 2012 to pay all of their taxes. The total tax bill at all levels comes to approximately $4.2 trillion, or 29.4% of their total income,” McBride said in a statement. “That means Americans will pay more in taxes in 2013 than they will spend on food, clothing and housing combined.”
The foundation adds the total tax burden borne by residents of different states varies considerably, not only due to differing state tax policies, but also because of the progressivity of the federal tax system. This means higher-income states celebrate Tax Freedom Day later: residents of Connecticut (May 13), New York (May 6) and New Jersey (May 4) face a significantly higher federal tax burden than lower-income states. Residents of Mississippi and Louisiana will bear the lowest average tax burden in 2013, with Tax Freedom Day having arrived for them on March 29. Also early is Tennessee, where Tax Freedom Day arrived April 2.
Historically, the date for Tax Freedom Day has fluctuated significantly. The latest-ever nationwide Tax Freedom Day was May 1, 2000— meaning that Americans paid 33% of their total income in taxes. A century earlier, in 1900, Americans paid only 5.9% of their income in taxes, meaning Tax Freedom Day came on Jan. 22.
According to the organization, five major categories of taxes dominate the tax burden. Individual income taxes—including federal, state and local—require 40 days of work. Payroll taxes take another 24 days of work. Sales and excise taxes, mostly state and local, take 15 days to pay off. Property taxes take 12 days, and corporate income taxes take another nine.
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