Friday, August 15, 2008

Keeping More of MY Money

Since I retired in my forties in 2007, very little of my tax liability is withheld, since I don't have a full time employer. Therefore, I file estimated tax payments, which requires me to approximate my tax liability for the year on a going basis.

Because calculating estimated taxes is similar to doing one's taxes, I already have an indication of how much I will pay in taxes in 2008. Here are some of the interesting statistics (well, interesting to me, at least).

  • In 2008, my income will be 33% of the 2007 income, with the majority being non-wage (e.g. interest, dividend, capital gains, and Roth IRA conversion) income. However, my after tax income will be 50% of the 2007 after tax income.

    Thus, I made 3 times more money in 2007, but only ended up with 2 times more after taxes.

  • In 2008, my federal income taxes will be only 5% of the 2007 taxes, for a 95% reduction. For reference, in 2008, federal income taxes will be 3% of income. In 2007, federal taxes were 24% of income.

    The primary reason is that in 2008, we will now qualify for certain tax credits/deductions and the 0% long term capital gains tax rate.

  • Since most of my income is non-wage, I am paying 25% of of the FICA tax paid in 2007. Of course, this will also cause my Social Security benefits to be lower.
  • These statistics were very interesting. While I was working, I would never have considered reducing my income to reduce taxes. However, I now realize that I was working about 100 times harder for that additional income, only to have a significant portion wasted, in my opinion, by those in Congress.

    Thus, for now, I am happily making less and paying less taxes to support what I consider wasteful spending by Congress, such as earmarks, bailouts and constant income redistribution.

    For more on Reaping the Rewards, check back every Friday for a new segment.

    This is not financial, tax or retirement advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

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