Wealthy Americans contribute most of the levies collected from federal personal income. But that's not the whole story.
This post comes from Josh Barro at partner site Business Insider.
CNBC ran a story Thursday with the headline "The rich do not pay the most taxes, they pay ALL the taxes."
The story has thousands of Facebook shares. And its premise is completely false.
The article goes on to present data regarding the federal personal income tax, which is indeed paid almost entirely by people with high incomes. People with low incomes pay negative federal personal income taxes (that is, the government sends them checks) because of the earned income tax credit.
But "taxes" are not the same thing as "federal personal income taxes." The federal personal income tax only made up 28 percent of all U.S. government tax collections in 2012. Federal, state and local governments collected $4 trillion in taxes last year; just $1.1 trillion of that was federal personal income tax.
And people with low incomes who don't pay federal personal income tax do pay lots of those other taxes: payroll tax, state income tax, sales tax, property tax, excise taxes, and more. They pay other taxes indirectly: Workers bear the burden of employer-paid payroll taxes and part of the burden of corporate income taxes.
The IRS is struggling to combat identify thieves who file fraudulent tax returns in the names of older residents who don't need to file.
This post is by Kay Bell at Bankrate.com.
That was the consensus at a recent congressional hearing examining what the Senate Special Committee on Aging calls an epidemic of identity theft among seniors and other taxpayers.
Why the focus on older Americans? Because many of them aren't required to file a tax return. If a person relies solely on Social Security benefits, that money isn't taxed. Even if they supplement their golden years' earnings, as long as the amount doesn't exceed a certain threshold, the income is not taxable, meaning they don't have to worry about reporting it to Uncle Sam.
Taxpayers who forgot a deduction or credit don't have to live with the consequences. You can file an amended return and get a refund of your overpayment.
This post is by Kimberly Lankford at Kiplinger's Personal Finance Magazine.
Q. When I was doing my 2012 tax return this year, I realized that I could have claimed the child-care credit for my son’s summer camp expenses in 2011, but I didn’t know I qualified then. Is it too late to get the money?
A. It’s not too late. You have up to three years after the due date of your return to file an amended return and claim the credit.
The child-care credit is a frequently overlooked tax break for people who have kids under age 13 and pay for child care so they can work or look for work. The cost of a nanny, babysitter, day care, preschool, before-school and after-school care, and day camp during summer and school vacations can all count.
Some families that aren't required to file tax returns because of low incomes might want to file anyway to collect the earned income tax credit. It's not too late.
This post is by Tom Herman of The Wall Street Journal.
Answer: You might be missing out on a valuable federal program designed to help the working poor.
Welcome to the earned income tax credit, or EITC. It's known as a "refundable" credit because, unlike many other tax breaks, you can get money from Uncle Sam even if you don't owe a penny in tax.
But to collect, you have to file a tax return. Even though April 15 has come and gone, it isn't too late to act.
Now that your 2012 taxes are filed, it's time to re-examine your investments to determine if a different strategy would save you money on taxes.
This post is by Andrea Coombes of MarketWatch.com.
Planning for taxes is complicated, of course, and will vary depending on your situation. Consulting an expert makes sense, and now that the annual April 15 filing deadline is past, some tax pros may have more time to chat about a long-term strategy.
And don’t forget you’re at the whim of Congress, which can mean smaller changes are better than drastic ones.
"You don’t want to make a huge decision today that you think is going to be this great tax move and have the tax law change in 10 years," said Scott Halliwell, a certified financial planner with USAA, a financial-services firm for military personnel, in San Antonio. "With taxes, everything in moderation is better than all or none,” he said.
Many people have the urge to splurge with their once-a-year windfall. But how you use the money makes all the difference.
This post is by Richard Satran of U.S. News & World Report.
It's great news if you're like most Americans who have been strapped for cash. The average refund is just under that amount, surveys say. But millions of people use their refund in a way that virtually assures they'll have less cash in the future than they might have had — and for some, the money can be misspent and become a negative.
Studies of consumer behavior show that people spend money very differently depending on how it is acquired. In a well-known "windfall" study from 1994 at University of Michigan, students who earned money the hard way, pouring tar for a summer job, spent it at the same rate as suntanned lifeguards who spent their days toiling at the beach. But cash from "windfalls" like tax refunds or other kinds of "found" money were sometimes spent twice as fast as earned money.
With tax time behind you, it's time to look at whether you really need all those piles of papers you've been saving.
This post is by Kimberly Lankford at Kiplinger's Personal Finance Magazine.
This is the perfect time of year to go through your old files and shred financial records you no longer need. The IRS generally has up to three years after the tax-filing deadline to audit your return, so you can get rid of a lot of paperwork after April 15.
Don’t toss your tax returns (including your 1040 and supporting tax forms); you should keep them forever. They can provide important information in the future -- if, for example, you need to provide tax information when applying for a mortgage or getting disability insurance. You can keep the paper forms or digital copies.
But go ahead and ditch supporting documents three years after the tax-filing deadline. That includes credit-card statements, canceled checks or receipts to show deductions, letters from charities reporting gifts, and paperwork reporting mortgage interest or capital gains distributions. See IRS Publication 552 Recordkeeping for Individuals for more information about tax records.
If you didn't make the maximum contribution to your health spending account, you can still contribute and get a tax writeoff.
This post is by Ashlea Ebeling of Forbes.com.
Pay attention. You may still have a good way to cut your 2012 tax bill — and you probably don’t know about it. If you contributed less than the legal maximum to your HSA account through payroll deductions during 2012, you can still top out your 2012 contributions now and cut your 2012 taxes.
What? Your employer didn’t tell you about this? That’s not surprising, because you don’t make this after-year-end contribution through your employer. Instead, you send the money directly to the bank that holds the HSA account, just as you contribute directly to an individual retirement account. (If your HSA is administered through UnitedHealthcare and its Optum Bank, you may have gotten, and ignored, an email explaining how you can do this. Even if you didn’t get an email, your HSA administrator should be happy to take your money directly. If you can’t find directions on its site for how to do this, call and ask.)
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