Overview of the Income Tax System
Who pays the taxes?
What happened to Willie Nelson?
Why learning about taxes is a good investment
Who pays the taxes?
Taxes are one of your biggest expenses - about 25 percent of your entire budget
Where the federal government gets its money
- 50 percent from income taxes
- 35 percent from Social Security and Medicare taxes
- 11 percent from corporate income taxes
- 4 percent other
The US has a multi-bracket tax system
You should know your tax bracket
If you're in the 15 percent bracket, you shouldn't worry about taxes too much
You've got other things to worry about
A multi-bracket (sometimes called "progressive") system tax system may seem "fair" but it makes for a complicated and invasive system
Even with large exemption you'd have a progressive system
Who pays income taxes?
Top 10 percent pay nearly half of all income taxes
Bottom half pays 5 percent of all income taxes
But note that lower income people pay a stiff Social Security tax
Most lower income people pay more in Social Security taxes than they do in income taxes
Percentile ranked by income Adjusted gross income Percentage of total income taxes paid Top 1% above $169,000 25% Top 10 above $81,000 44 Top 50 above $20,000 95 Bottom 50 below $20,000 5
What happened to Willie Nelson?
Got involved in tax shelters that greatly reduced his reported income
IRS later disallowed losses from these shelters
Willie wound up owing a lot in back taxes
Don't use questionable tax shelters
Why learning about taxes is a good investment
Learning about our tax system is the best way to reduce your taxes!
Most people don't understand taxes
Learning a little can save you a lot
There are plenty of perfectly legal ways to reduce your tax bill
But you have to put some time into learning about the tax system