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Federal Taxes
Many people are surprised to find out that the Bostonians who dumped the tea in the harbor during the Revolutionary War era did so to protest a tax rate of a whopping 4 percent. In some countries, it is still possible to owe more in taxes than you earn, while the total burden on Americans today of all city, county, state and federal taxes comes to almost 50 percent of gross income. No wonder people are always arguing about them.
Over 90 years after the ratification of the 16th Amendment authorizing the modern income tax, there are still people insisting federal income taxes are patently unconstitutional and/or the amendment was never properly ratified. At the fringes, there are armed militias, concentrated in the South and West, for whom anti-federal sentiment is a prerequisite to membership. Taxes are not exactly popular with anyone (except politicians) but they are a fact of life, and it’s easier to deal with them than raise an armed rebellion.
Tax planning
Of course, federal taxes target more than just income. Corporate taxes, excise taxes and Social Security taxes are just a few more of the many ways that the national government funds its operations. In effect, import duties are a tax on business, too, and for financial planning purposes that’s a good way to look at all kinds of fees and administrative costs imposed both directly and indirectly by the government.
In fact, the more you learn about taxes, federal and otherwise, the better you can modify personal and business behaviors to minimize their bite. The larger a company gets, the more of this kind of financial planning it needs to do, but the same is true for individuals as they progress through their careers, add spouses and children, buy homes and accrue wealth and property. Whether you’re General Motors or a newly married manager of a furniture warehouse, you need to take stock of your financial situation on a continuous basis.
Tax avoidance the wrong way…
There are smart, effective and legal ways to minimize your federal taxes, and every other kind, but it takes a lot of work to keep up on the changes. The more complicated your situation, whether personal or corporate, the more you will have to rely on expert assistance. Make sure to stick with advisors who are in the mainstream of the accounting and tax professions, as the “activist” type can get you in trouble. Just look at Irwin Schiff.
Irwin Schiff became convinced, through reading just a little too much about the conspiracy theory of history, that federal income taxes could be ignored without peril. He is still in federal prison. Despite this fact, his books on tax resistance are still selling to the credulous. It should be clear enough, through his experience and that of countless others, that the federal government takes taxes, and collecting them, very seriously.
…and the right way
This is the age of specialization, among other things, so not just any accountant, financial planner, tax preparer or attorney will do when you are seeking an expert on federal taxes. Shop around and make sure the person (or persons) you choose to assist you are specialists in their respective areas. Get referrals from people and companies you trust.
Depending on the complexity of your situation and the various planning, investing and reporting requirements, you may need help from several professionals – a financial planner, an accountant and a tax preparer, perhaps – but every situation is unique. Do your homework, get good information, seek help if you need it and remember that death and taxes (federal, state and otherwise) may be two certainties in an uncertain world – but the former is the same as always while the latter changes every year!
Topics: Taxes |
