Do You Really Know What You're Up Against?
By J. J. Childers, Trump University, The Official Guides to Real Estate
Eye-opening financial wisdom from Trump University Asset Protection 101, the latest book from Trump University
Many of us spend more on taxes each year than on food, clothing, and shelter combined. Yet, amazingly, we really don't know much about taxes.
If you've received a paycheck, you know that your employer holds taxes out of your pay. But my guess is that you don't know exactly what types of taxes are held out and at what rates. The amounts are huge, but most of us continue to focus only on our "net" income. I've often said that if we wanted true tax reform in America, we would do away with employer withholdings and make every taxpayer actually write a check to Uncle Sam for what normally comes out of his or her check. Try signing that check every week and now see how excited you are to reduce your tax bill.
What You Are Up Against
If you analyze the taxes that come out of your check, you will generally see four types of withholdings:
1. Federal income tax.
2. Social Security.
3. Medicare.
4. State income tax.
In some states, there are additional taxes that are withheld, but for the purposes of this article, we will focus on these four.
Federal income taxes are withheld based on how you fill out the W-4 form you receive from your employer. Current federal individual tax rates range from zero percent all the way up to 35 percent. The factors that determine your personal tax rate are your marital status, number of dependents, and itemized deductions including mortgage interest, state and local taxes, and charitable contributions.
Social Security tax is currently held out of your paycheck at the rate of 6.2 percent on your first $97,500 in wages. So for the majority of taxpayers, the full amount (6.2 percent) of Social Security tax is withheld. Your employer has the obligation to match this amount dollar for dollar.
You pay 6.2 percent. Your employer pays 6.2 percent. Combined, that is 12.4 percent. If you happen to own your own business, you are both the employee and the employer. Therefore, you must pay 12.4 percent in Social Security tax before you pay a dime in income tax.
Medicare tax is currently held out of your paycheck at the rate of 1.45 percent. Unlike Social Security tax, Medicare tax is not capped at a certain earnings threshold. Every dollar you earn is subject to Medicare tax. Your employer is required to match these taxes as well. Therefore, self-employed individuals must pay 2.9 percent of Medicare tax on their entire earnings. Once again, this is before paying the first dime in income tax.
The combination of Social Security and Medicare tax, or Federal Insurance Contributions Act (FICA), is 7.65 percent for the individual and 7.65 percent for the employer. Combined, that equates to a tax of 15.3 percent for self-employed individuals. This is referred to as the self-employment tax.
Many of you reading Inside Trump Tower today are looking for new ways to bring in income and build wealth. Often, you will begin that process while maintaining your full-time job in order to keep your personal cash flow intact until such a time as your new business can support your lifestyle.
Let's assume for the moment that you are in the 25 percent tax bracket (where most working Americans end up) and that you have started your own business to supplement your employment. Your self-employed earnings will start being taxed at a federal rate of 25 percent because that is where your other earnings and deductions have left you. Add to that the 15.3 percent self-employment tax on your business earnings and you are now paying 40.3 percent. Depending on what state you live in, you may have additional income tax to pay.
You see, it doesn't take long at all before taxes are climbing close to 50 percent of your income. The worst part about it is that you are really not making a lot of money if you are in the 25 percent federal income tax bracket.
Of course, simply gaining a working knowledge of taxes withheld from your paycheck will not solve your problem.
You have to learn what you need to know so that you can take action to reduce your taxes. I have opened your eyes to the problem in this article. Now I'd urge you to take the next step, by ordering my new book, Trump University Asset Protection 101.
It has already helped thousands of readers slash their taxes and keep more of their hard-earned dollars. Couldn't you use that level of help too?
J. J. Childers is an attorney dealing primarily with the topics of asset protection, estate planning, and tax reduction. He travels the country extensively working with individuals and companies to help them with their small business wealth http://artandrevolution.net/six-very-simple-things-you-can-do-to-save-wayne-lippman/ structuring. He is author of the new book Trump University Asset Protection 101.
http://www.selfgrowth.com/print/590182
Eye-opening financial wisdom from Trump University Asset Protection 101, the latest book from Trump University
Many of us spend more on taxes each year than on food, clothing, and shelter combined. Yet, amazingly, we really don't know much about taxes.
If you've received a paycheck, you know that your employer holds taxes out of your pay. But my guess is that you don't know exactly what types of taxes are held out and at what rates. The amounts are huge, but most of us continue to focus only on our "net" income. I've often said that if we wanted true tax reform in America, we would do away with employer withholdings and make every taxpayer actually write a check to Uncle Sam for what normally comes out of his or her check. Try signing that check every week and now see how excited you are to reduce your tax bill.
What You Are Up Against
If you analyze the taxes that come out of your check, you will generally see four types of withholdings:
1. Federal income tax.
2. Social Security.
3. Medicare.
4. State income tax.
In some states, there are additional taxes that are withheld, but for the purposes of this article, we will focus on these four.
Federal income taxes are withheld based on how you fill out the W-4 form you receive from your employer. Current federal individual tax rates range from zero percent all the way up to 35 percent. The factors that determine your personal tax rate are your marital status, number of dependents, and itemized deductions including mortgage interest, state and local taxes, and charitable contributions.
Social Security tax is currently held out of your paycheck at the rate of 6.2 percent on your first $97,500 in wages. So for the majority of taxpayers, the full amount (6.2 percent) of Social Security tax is withheld. Your employer has the obligation to match this amount dollar for dollar.
You pay 6.2 percent. Your employer pays 6.2 percent. Combined, that is 12.4 percent. If you happen to own your own business, you are both the employee and the employer. Therefore, you must pay 12.4 percent in Social Security tax before you pay a dime in income tax.
Medicare tax is currently held out of your paycheck at the rate of 1.45 percent. Unlike Social Security tax, Medicare tax is not capped at a certain earnings threshold. Every dollar you earn is subject to Medicare tax. Your employer is required to match these taxes as well. Therefore, self-employed individuals must pay 2.9 percent of Medicare tax on their entire earnings. Once again, this is before paying the first dime in income tax.
The combination of Social Security and Medicare tax, or Federal Insurance Contributions Act (FICA), is 7.65 percent for the individual and 7.65 percent for the employer. Combined, that equates to a tax of 15.3 percent for self-employed individuals. This is referred to as the self-employment tax.
Many of you reading Inside Trump Tower today are looking for new ways to bring in income and build wealth. Often, you will begin that process while maintaining your full-time job in order to keep your personal cash flow intact until such a time as your new business can support your lifestyle.
Let's assume for the moment that you are in the 25 percent tax bracket (where most working Americans end up) and that you have started your own business to supplement your employment. Your self-employed earnings will start being taxed at a federal rate of 25 percent because that is where your other earnings and deductions have left you. Add to that the 15.3 percent self-employment tax on your business earnings and you are now paying 40.3 percent. Depending on what state you live in, you may have additional income tax to pay.
You see, it doesn't take long at all before taxes are climbing close to 50 percent of your income. The worst part about it is that you are really not making a lot of money if you are in the 25 percent federal income tax bracket.
Of course, simply gaining a working knowledge of taxes withheld from your paycheck will not solve your problem.
You have to learn what you need to know so that you can take action to reduce your taxes. I have opened your eyes to the problem in this article. Now I'd urge you to take the next step, by ordering my new book, Trump University Asset Protection 101.
It has already helped thousands of readers slash their taxes and keep more of their hard-earned dollars. Couldn't you use that level of help too?
J. J. Childers is an attorney dealing primarily with the topics of asset protection, estate planning, and tax reduction. He travels the country extensively working with individuals and companies to help them with their small business wealth http://artandrevolution.net/six-very-simple-things-you-can-do-to-save-wayne-lippman/ structuring. He is author of the new book Trump University Asset Protection 101.
http://www.selfgrowth.com/print/590182
