Twenty Four Years of Taxes

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ColoradoRob
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Twenty Four Years of Taxes

Post by ColoradoRob »

Hello Bogleheads. This post is for anyone who is interested in gaining an awareness of what they really pay in taxes. With the recent increase in my downtime during the covid, I stupidly dug through old archives of documents, tax returns, and others, and I created a spreadsheet to track every tax dollar that my wife and I have paid since 1996. I did this exercise because I was interested in finding out what my own overall tax picture looked like and when I finished, I thought that maybe there were some others who would want to generate a similar awareness of their own tax picture. Certainly your numbers will look different than mine, but maybe you can also gain some insight. What I learned was interesting.

First off- this post is not a boast at how much we’ve made in salary and paid in taxes. We are / have been regular average working wage-earners. Except for five years of the 24 years in this data-set, our combined salaries never exceeded six figures (that is, we earned less than $100k). Further, this post is not a complaint about taxation- take those comments elsewhere. I believe in fair taxation for all and that all should pay their taxes fairly.

Next, some caveats:
I was very conservative in my identification of taxes paid; I only included those items that I could definitively determine to have been a tax paid for which I had some sort of paper/scanned receipt or statement.

I created five basic tax categories: toll roads, real estate/property, income, vehicle and sales.

Tolls is exactly that- toll roads. I suppose I could have included other governmental regulatory fees such as professional licenses and permits (building/hunting/fishing etc), but I did not. Tolls may or may not be a tax, but since the state is the beneficiary of this fee that is collected, I chose to include it.

Property tax was simply a collection of all of the state property tax bills that we have paid to the (four different) states where we have lived. We were fortunate in that we were able to always pay our property taxes directly to the state (and not though escrow via our mortgage companies).

Income tax calculation was based on a simple formula. I reviewed all of our 1040s that were filed for a given year. I took Federal Withheld (usually 1040 line 68), added Social Security and Medicare contributions (info taken from W2s), then subtracted any refund received (usually 1040 line 69) or added tax due (usually 1040 line 72) and then did the same for State. We always owed for State income tax. That formula for each year’s income is: (FW+SS+MC-FederalRefund (or+amount due))+(SW-StateRefund (or+amount due))=Total Total income taxes paid for federal, state and local, including social security and medicare. I even accounted for any government stimulus payments as a “negative tax payment” accounted for by listing it as a positive amount withheld.

Vehicle taxes: I identified the annual Tags/Registration, bill that gets paid to the state so that I don’t get pulled over by the police for an expired license plate. I don’t know what every state calls it, but it is essentially the annual Vehicle Registration Notice/Bill. And before you ask- we’ve only ever owned boring utilitarian vehicles. I did not include drivers licenses fees.

Even though I have a category for “sales taxes,” it is not an accurate representation of the sales taxes paid over the years. I did NOT (I could not accurately) include sales taxes on retail or everyday-purchases ranging from things such as consumer goods to gasoline. These tracked sales taxes were for taxes-paid for our four automobile purchases and some large appliances, since these big purchases had the taxes paid listed on the receipts that I still have. I can’t even imagine how much retail sales taxes that we’ve paid on every day items, so please do not ask me.

At first, I thought I made a mistake since these figures seem to be so high, so I went back and redid everything- three times. But the results kept coming back the same. Also, before anyone attacks me for paying so much income tax, you may please note that until I discovered Bogleheads in 2015, I wasn’t very smart about money.

Some of the main lessons I learned include how all those yester-years of when I foolishly thought I was getting a tax refund- I actually was NOT, once social security and medicare taxes were accounted for. For example, we received a federal tax refund of $1,000, but didn't take into account the $6,000 of social security and medicare that was paid.

Also, I realized (while this may be obvious to you) that my wife and I each had social security & medicare taken out from each of our paychecks and neither our tax filing status (single or MFJ) or number of dependents impacted those amounts taken out. Tax filing ended up becoming a process to squabble with the government over what was left AFTER social security and medicare already got their cut. I understand that social security and medicare are flat rate payroll taxes, but I didn't make the connection of how those played into my total tax bill until I did this little exercise.

A final lesson was that the tax plans proposed by politicians probably really do not matter much, since State, social security and medicare taxes take a huge amount out of each paycheck and are (for the most part) invisible to the average taxpayer and are not really factored in to the "tax bill".

Lastly, I hope this does not devolve into a one-ups-manship thread.


Results:

I only have records going back to 1996. Since 1996 these are the taxes that we have paid:
Tolls_______________$1,388.45
Real Estate________$84,327.88
Income Taxes____$325,696.96
Vehicle_____________$9,823.33
Sales Taxes_________$8,087.10

Total $429,323.72
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arcticpineapplecorp.
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Re: Twenty Four Years of Taxes

Post by arcticpineapplecorp. »

interesting post. thanks for sharing!
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inverter
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Re: Twenty Four Years of Taxes

Post by inverter »

What state do you live in?

Edit: Ahh -- username checks out. Colorado, right?
Kookaburra
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Re: Twenty Four Years of Taxes

Post by Kookaburra »

Interesting.
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Picasso
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Re: Twenty Four Years of Taxes

Post by Picasso »

I wish I had the motivation to do this much digging, but since I do not I am glad that you analyzed and shared. Good perspective and take always.
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ColoradoRob
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Re: Twenty Four Years of Taxes

Post by ColoradoRob »

inverter wrote: Tue Jan 19, 2021 9:23 pm What state do you live in?

Edit: Ahh -- username checks out. Colorado, right?
Colorado is current state of residence, but we lived in four other states over this time period - one southern state, the rest were east-coast / mid-Atlantic states.
GuyInFL
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Re: Twenty Four Years of Taxes

Post by GuyInFL »

ColoradoRob wrote: Tue Jan 19, 2021 9:13 pm I believe in fair taxation for all and that all should pay their taxes fairly.
I think most people agree with that. They just have different opinions about what's fair. ;)

I'd split payroll (social security+Medicare) and income tax. I'd probably split state and federal as well. Did you count your employer contribution to social security and Medicare?
Pandemic Bangs
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Re: Twenty Four Years of Taxes

Post by Pandemic Bangs »

What was the surprise here?

Did you think tolls were going to be a lot higher? :D

Is it that income tax is a big number? I bet income is 4X higher.

My two-decade income:real estate tax ratio is probably very close to my annual one, which I review every year.
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ColoradoRob
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Re: Twenty Four Years of Taxes

Post by ColoradoRob »

GuyInFL wrote: Tue Jan 19, 2021 10:50 pm
ColoradoRob wrote: Tue Jan 19, 2021 9:13 pm I believe in fair taxation for all and that all should pay their taxes fairly.
I think most people agree with that. They just have different opinions about what's fair. ;)

I'd split payroll (social security+Medicare) and income tax. I'd probably split state and federal as well. Did you count your employer contribution to social security and Medicare?
No, I did not count or even consider employer contributions; I only wanted to know what we have paid in taxes.

I did split out each and every category (income tax, social security, medicare, state tax) for my analysis but did not include those with this post as it was too granular and only wanted to show how I learned that my income tax is more than just what is on the 1040. Those three/four tax amounts lumped together make quite an unexpectedly large sum over time.
Pu239
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Re: Twenty Four Years of Taxes

Post by Pu239 »

We do something similar on an annual basis with a large spreadsheet and have been since we were married, which predates 1996 by a significant bit. To put taxes paid into perspective, you might add up total income for the period and calculate your effective income tax rate. People tend to focus on their marginal tax bracket but the effective rate is lower and reflects what was actually paid. Don't knock paying for ss and Medicare. You will need them.
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ColoradoRob
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Re: Twenty Four Years of Taxes

Post by ColoradoRob »

Pandemic Bangs wrote: Tue Jan 19, 2021 10:55 pm What was the surprise here?

Did you think tolls were going to be a lot higher? :D

Is it that income tax is a big number? I bet income is 4X higher.

My two-decade income:real estate tax ratio is probably very close to my annual one, which I review every year.
The real surprise for me was that an average working couple paid close to a half-million dollars in taxes over nearly 25 years.

I wish my income was 4X higher. With the exception of 5 years, we have had very average income over the years.

Since we lived in many different places over the years, it wasn't useful for me to compare property taxes over the locations to income. I was only looking for the amount paid over the years. But, the big lesson for me was the amount paid in total for owning modest houses, was surprising.
Pandemic Bangs
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Re: Twenty Four Years of Taxes

Post by Pandemic Bangs »

ColoradoRob wrote: Tue Jan 19, 2021 11:12 pm
The real surprise for me was that an average working couple paid close to a half-million dollars in taxes over nearly 25 years.
Got it.

So what was your average tax rate and how different was that from expectation? So you never made six figures but you are sure that your average income tax rate is > 20%? I don't know your state but you are only paying < $14K annually in income tax which does not seem crazy-high to me. You just have lived a long time. :D
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livesoft
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Re: Twenty Four Years of Taxes

Post by livesoft »

ColoradoRob wrote: Tue Jan 19, 2021 11:12 pm The real surprise for me was that an average working couple paid close to a half-million dollars in taxes over nearly 25 years.s, was surprising.
I wonder about the phrase "average working couple" because to some extent we all think we are average because we tend to live among our peers.

Maybe you are not average?

And when I take the above statement out of context like I did, anybody reading it would be thinking "income taxes" and not all the taxes combined that you were careful to include.
I only have records going back to 1996. Since 1996 these are the taxes that we have paid:
Tolls_______________$1,388.45
Real Estate________$84,327.88
Income Taxes____$325,696.96 <-- Can you please split this into Federal, State, AND Payroll (FICA/medicar) taxes?
Vehicle_____________$9,823.33
Sales Taxes_________$8,087.10
As far as Federal individual income taxes go, I found this short PDF from the Tax Foundation interesting (I have linked it before):

https://files.taxfoundation.org/2020022 ... Update.pdf Basically, Federal income taxes are quite progressive and a significant fraction of folks do not pay Federal individual income taxes. Giving tax breaks is not going to help people who do not pay income taxes in the first place.
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jharkin
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Re: Twenty Four Years of Taxes

Post by jharkin »

ColoradoRob wrote: Tue Jan 19, 2021 11:12 pm
Pandemic Bangs wrote: Tue Jan 19, 2021 10:55 pm What was the surprise here?

Did you think tolls were going to be a lot higher? :D

Is it that income tax is a big number? I bet income is 4X higher.

My two-decade income:real estate tax ratio is probably very close to my annual one, which I review every year.
The real surprise for me was that an average working couple paid close to a half-million dollars in taxes over nearly 25 years.

I wish my income was 4X higher. With the exception of 5 years, we have had very average income over the years.

Since we lived in many different places over the years, it wasn't useful for me to compare property taxes over the locations to income. I was only looking for the amount paid over the years. But, the big lesson for me was the amount paid in total for owning modest houses, was surprising.
Average working couple earns about 60k household. You said you earned just under 100k. So figure you made close to 2 million cumulative over those 25 years. 300k of tax on 2MM income (ie 15%) isn’t bad at all, especially considering it’s fed and state combined. Probably lower than every other 1st world country.

I don’t see he problem here?
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Re: Twenty Four Years of Taxes

Post by livesoft »

jharkin wrote: Wed Jan 20, 2021 7:17 amI don’t see he problem here?
In fairness to the OP, I don't think it was stated that there was a problem. :)
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Retired2013
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Re: Twenty Four Years of Taxes

Post by Retired2013 »

I haven't tracked my income taxes paid but I have tracked the Real Estate taxes. We built our home, 2,500 sqft colonial in 1993 for $165k and as of today, we have paid $175k in Real Estate taxes. Yet we live in a LCOL area.
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Harry Livermore
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Re: Twenty Four Years of Taxes

Post by Harry Livermore »

livesoft wrote: Wed Jan 20, 2021 7:24 am
jharkin wrote: Wed Jan 20, 2021 7:17 amI don’t see he problem here?
In fairness to the OP, I don't think it was stated that there was a problem. :)
I agree. I think he presented it more as an interesting exercise.
Much as I think cost of ownership (houses, cars, etc.) are drastically underestimated by folks who don't track spending, I think that most middle- and middle-high earners might be surprised at the amounts and variety of taxes they pay.
Good question upthread about FICA. Being self-employed, I have always generally paid both halves (some employers have paid me through payroll over the years) but the employer's half is generally hidden to employees.
I could replicate the OP's study, as I have all my tax returns going back to the year I graduated college. But it seems like a lot of work and I bet I would be grumpy afterwards.
Anyway, it is what it is... death and taxes and all that...
Cheers
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ClevrChico
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Re: Twenty Four Years of Taxes

Post by ClevrChico »

Very interesting! I wish I had kept my early tax records.

You could work in Data Science! :-)
59Gibson
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Re: Twenty Four Years of Taxes

Post by 59Gibson »

Harry Livermore wrote: Wed Jan 20, 2021 8:14 am
livesoft wrote: Wed Jan 20, 2021 7:24 am
jharkin wrote: Wed Jan 20, 2021 7:17 amI don’t see he problem here?
In fairness to the OP, I don't think it was stated that there was a problem. :)
I agree. I think he presented it more as an interesting exercise.
Much as I think cost of ownership (houses, cars, etc.) are drastically underestimated by folks who don't track spending, I think that most middle- and middle-high earners might be surprised at the amounts and variety of taxes they pay.
Good question upthread about FICA. Being self-employed, I have always generally paid both halves (some employers have paid me through payroll over the years) but the employer's half is generally hidden to employees.
I could replicate the OP's study, as I have all my tax returns going back to the year I graduated college. But it seems like a lot of work and I bet I would be grumpy afterwards.
Anyway, it is what it is... death and taxes and all that...
Cheers
+1 Folks, don't go digging up old returns, RE tax bills, vehicle purchase agreements ..etc. Why torture yourself. It is what it is. Rightly or wrongly I look at each year as a snapshot and try to minimize the damage as best as possible and move on.
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Re: Twenty Four Years of Taxes

Post by prd1982 »

This was an interesting thread. I looked at our Fed & State taxes since 2000. I then adjusted the yearly numbers to put in 2020 dollars. It showed that we (2 people) paid $29,267 fed and $9,927 state each year. We are an upper-middle / lower rich couple. For comparison I searched this forum for ACA costs, and it looks like $22,000 a year for a couple (unsubsidized).
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Re: Twenty Four Years of Taxes

Post by livesoft »

Retired2013 wrote: Wed Jan 20, 2021 8:02 am I haven't tracked my income taxes paid but I have tracked the Real Estate taxes. We built our home, 2,500 sqft colonial in 1993 for $165k and as of today, we have paid $175k in Real Estate taxes. Yet we live in a LCOL area.
We have similar prop taxes, but they paid for 12 years of public school for 2 of our children, plus many other services. Or if one prefers: They kept our kids off the streets and from stealing from the neighbors and generally becoming vandals for many years, so that they could work in food service and retail serving older customers before they went away to college.
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oldfatguy
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Re: Twenty Four Years of Taxes

Post by oldfatguy »

Aren't tolls more of a user fee than a tax? Either way, if you include tolls, then should also estimate how much gas tax you paid.
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Re: Twenty Four Years of Taxes

Post by Bullhead5829 »

Interesting thread. For comparison, it is often said that a mortgage is the largest single expense for most people. As a single guy all my life, federal and state income taxes have been my largest single expense. In my peak earning period during the last ten years before I retired, my federal and state income taxes were 3x the annual mortgage payments on my first house. In the twelve years of my retirement, my federal and state income taxes are more than 2x the annual mortgage payments on my first house.
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KneePartsPro
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Re: Twenty Four Years of Taxes

Post by KneePartsPro »

ColoradoRob wrote: Tue Jan 19, 2021 9:13 pm Total $429,323.72
...And that doesn't include any of the excise taxes such as those on a gallon of gas, bottle of wine, etc.

Yikes!
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Re: Twenty Four Years of Taxes

Post by student »

I also did an exercise of looking at taxes that I have paid some time ago. I more or less have the record back to 1997. I only keep track of fed tax and state tax.
redmaw
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Re: Twenty Four Years of Taxes

Post by redmaw »

ehhh multiplying anything by 25 results in a big number. someone making 40k/year made a million dollars in that time frame.
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White Coat Investor
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Re: Twenty Four Years of Taxes

Post by White Coat Investor »

ColoradoRob wrote: Tue Jan 19, 2021 9:13 pm

A final lesson was that the tax plans proposed by politicians probably really do not matter much, since State, social security and medicare taxes take a huge amount out of each paycheck and are (for the most part) invisible to the average taxpayer and are not really factored in to the "tax bill".
Fun exercise.

However, this is really all about income. Income is the main driver of how much you pay in taxes. Your income has been relatively low compared to those who pay most of the income taxes in this country, so you have concluded that income taxes and income tax policy don't matter much. But someone with a much higher income pays dramatically more in federal income taxes than you. For example, a really high earner may pay more in a single quarterly estimated tax payment than you have paid in your entire career in federal income taxes. The federal income tax system is quite progressive, with 40 something percent paying literally nothing (or even getting money back) and the top 10% of earners paying 70% of taxes and the top 1% paying 38.5% of taxes.

As you might imagine, income tax policy matters a whole lot more to those folks.
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ColoradoRob
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Re: Twenty Four Years of Taxes

Post by ColoradoRob »

I apologize if my lack of explicit and detailed tax payments information has been frustrating to some readers. To be clear, when I added in medicare & social security (to my income tax), I was surprised to learn how much taxes we have actually paid. That is the real tricky part that was not obvious to me from my tax returns alone---hence the lesson that I learned.

The post was not a complaint about taxes or an attempt to calculate my marginal tax rate or any ratio. The post was an attempt to possibly motivate one of you -the reader- to do a similar exercise yourself…and not get you to calculate some sort of marginal tax rate or to even post your results for others to examine.

I can only say that some of the best Boglehead posts that I’ve read were the ones that stirred me to action in my own life; posts that educated me or caused some examination of my financial life.

So if you choose to do this exercise: go get your tax returns, -AND- your W2s. Add up your and your spouses social security and medicare contributions (from your W2s), and then add in your state income taxes, then factor in any refunds (or bills) and see what you get. That is all I was writing about—that the social security and medicare payments were previously invisible to my tax examinations. Thank you.
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ColoradoRob
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Re: Twenty Four Years of Taxes

Post by ColoradoRob »

White Coat Investor wrote: Wed Jan 20, 2021 10:02 am
ColoradoRob wrote: Tue Jan 19, 2021 9:13 pm

A final lesson was that the tax plans proposed by politicians probably really do not matter much, since State, social security and medicare taxes take a huge amount out of each paycheck and are (for the most part) invisible to the average taxpayer and are not really factored in to the "tax bill".
Fun exercise.

However, this is really all about income. Income is the main driver of how much you pay in taxes. Your income has been relatively low compared to those who pay most of the income taxes in this country, so you have concluded that income taxes and income tax policy don't matter much. But someone with a much higher income pays dramatically more in federal income taxes than you. For example, a really high earner may pay more in a single quarterly estimated tax payment than you have paid in your entire career in federal income taxes. The federal income tax system is quite progressive, with 40 something percent paying literally nothing (or even getting money back) and the top 10% of earners paying 70% of taxes and the top 1% paying 38.5% of taxes.

As you might imagine, income tax policy matters a whole lot more to those folks.
Exactly! Good point. That is why I wrote that my numbers will not look like any one else's numbers. Yes, I am not a professional and not a business owner. I can't even imagine how much these people pay in taxes. My point about politicians and tax proposals is that this exercise got me to stop worrying about politics and tax proposals/discussions (arguments?). For a working couple like us with a basic, non-complex tax situation (no business income, or capital etc- just wages for the most part) does it matter if the tax brackets move an inch? For big earners with complex tax situations, it does. For us- with regular boring earnings/wages? I don't know. Thank you.
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White Coat Investor
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Re: Twenty Four Years of Taxes

Post by White Coat Investor »

ColoradoRob wrote: Wed Jan 20, 2021 10:15 am
White Coat Investor wrote: Wed Jan 20, 2021 10:02 am
ColoradoRob wrote: Tue Jan 19, 2021 9:13 pm

A final lesson was that the tax plans proposed by politicians probably really do not matter much, since State, social security and medicare taxes take a huge amount out of each paycheck and are (for the most part) invisible to the average taxpayer and are not really factored in to the "tax bill".
Fun exercise.

However, this is really all about income. Income is the main driver of how much you pay in taxes. Your income has been relatively low compared to those who pay most of the income taxes in this country, so you have concluded that income taxes and income tax policy don't matter much. But someone with a much higher income pays dramatically more in federal income taxes than you. For example, a really high earner may pay more in a single quarterly estimated tax payment than you have paid in your entire career in federal income taxes. The federal income tax system is quite progressive, with 40 something percent paying literally nothing (or even getting money back) and the top 10% of earners paying 70% of taxes and the top 1% paying 38.5% of taxes.

As you might imagine, income tax policy matters a whole lot more to those folks.
Exactly! Good point. That is why I wrote that my numbers will not look like any one else's numbers. Yes, I am not a professional and not a business owner. I can't even imagine how much these people pay in taxes. My point about politicians and tax proposals is that this exercise got me to stop worrying about politics and tax proposals/discussions (arguments?). For a working couple like us with a basic, non-complex tax situation (no business income, or capital etc- just wages for the most part) does it matter if the tax brackets move an inch? For big earners with complex tax situations, it does. For us- with regular boring earnings/wages? I don't know. Thank you.
Totally agree with you. For most Americans, things like a payroll tax holiday, gasoline taxes, property taxes, and sales taxes matter far more than income taxes.

I actually chuckle every time I see the words "Alternative Minimum Tax" that applies to higher earners when there is actually no minimum tax for most people. It's just my opinion, but I think everyone ought to pay something in federal income tax, even if it is only $100 a year. It makes it feel more like we're all in this together.
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redmaw
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Re: Twenty Four Years of Taxes

Post by redmaw »

ColoradoRob wrote: Wed Jan 20, 2021 10:07 am I apologize if my lack of explicit and detailed tax payments information has been frustrating to some readers. To be clear, when I added in medicare & social security (to my income tax), I was surprised to learn how much taxes we have actually paid. That is the real tricky part that was not obvious to me from my tax returns alone---hence the lesson that I learned.

The post was not a complaint about taxes or an attempt to calculate my marginal tax rate or any ratio. The post was an attempt to possibly motivate one of you -the reader- to do a similar exercise yourself…and not get you to calculate some sort of marginal tax rate or to even post your results for others to examine.

I can only say that some of the best Boglehead posts that I’ve read were the ones that stirred me to action in my own life; posts that educated me or caused some examination of my financial life.

So if you choose to do this exercise: go get your tax returns, -AND- your W2s. Add up your and your spouses social security and medicare contributions (from your W2s), and then add in your state income taxes, then factor in any refunds (or bills) and see what you get. That is all I was writing about—that the social security and medicare payments were previously invisible to my tax examinations. Thank you.
This is actually a great take away. No matter how low you get the number on your federal return, you are still paying significant payroll taxes on your income. I think it is not discussed much around here, because frankly there isn't anything you can do about (short of quitting). Of course this changes (as a percent) for the folks white coat is talking about, since potentially only a small fraction of their total income is subject to this tax, and the rest is subject to much higher income tax, so it become less significant.
NightFall
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Re: Twenty Four Years of Taxes

Post by NightFall »

That’s about $18K of taxes per year. You say combined income was about $100K, so let’s say 20%. Overall that’s not bad considering fica is almost 8%. You could try adding back the expected return from social security and/or the benefits from Medicare to make yourself feel better.
Dontridetheindexdown
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Re: Twenty Four Years of Taxes

Post by Dontridetheindexdown »

As retirees, our annual taxation, in decreasing order:

Federal income tax
State income tax
Local real estate tax
State sales tax
State excise taxes (other than fuel)
Federal excise taxes (other than fuel)
State fuel tax
Federal fuel tax
Local personal property tax
Local sales tax
Local utility tax

Total taxation is approximately 30%, with approximately half to Federal income tax, the other half to the rest of the list.

An arguably successful man once told me "you're not making any money until you're going 50/50 with the government."
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TomatoTomahto
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Re: Twenty Four Years of Taxes

Post by TomatoTomahto »

I’ve told this story before, and much too often to my kids, but anyway...
My father didn’t particularly like paying taxes, but he was very appreciative that the USA gave him a second chance as a 50-year old immigrant who didn’t speak English when he arrived with no money and a patchwork educational and employment history. One year he told me very proudly that he had paid as much in taxes that year as he had earned the previous year.

While I try to keep my father in mind, I am glad that I never kept records of how much we have paid in taxes. I am sure that it’s a stunning number.
I get the FI part but not the RE part of FIRE.
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ipdiddly
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Re: Twenty Four Years of Taxes

Post by ipdiddly »

Years ago, when I filed a copy of my completed tax return, I would attach a post-it note to the front of the return itemizing all of our taxes paid for the year: Fed income, state income, real estate, auto excise, soc sec tax, medicare tax - just the big items. When you add it all up, the total is a real scary number. Most people are unaware of how much we pay to fund government. I stopped the practice several years ago.
I remember the day, as a young man, when I realized I paid more Federal tax than I earned in my first professional job.
As retiree's, our annual taxes are far and away are greatest expense.
After a lifetime of paying significant Medicare tax, we now have the pleasure of paying approximately $12K per year in Medicare premiums - i.e., more than our health insurance premiums when we worked.
protagonist
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Re: Twenty Four Years of Taxes

Post by protagonist »

ColoradoRob wrote: Tue Jan 19, 2021 11:12 pm
The real surprise for me was that an average working couple paid close to a half-million dollars in taxes over nearly 25 years.

Why is that a surprise?

I don't know how much the couple earned, but:

If they earned $100K x 24 yr= $2,400,000, about 17-18% went to taxes.

That doesn't seem very surprising to me. If anything it seems lower than I would have expected, if it includes SS, sales tax and all other taxes.

That said, we don't know how much they earned over 24 years.
Shallowpockets
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Re: Twenty Four Years of Taxes

Post by Shallowpockets »

Yeah, we need to know how much you earned to pay the taxes you did.
That is a big data point you left out.
Then we can figure out your overall effective tax rate.
As others have stated here by extrapolation, you seem to be about 20% of your income paid in taxes. That's not too bad - is it?
shess
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Re: Twenty Four Years of Taxes

Post by shess »

TomatoTomahto wrote: Wed Jan 20, 2021 10:47 am I’ve told this story before, and much too often to my kids, but anyway...
My father didn’t particularly like paying taxes, but he was very appreciative that the USA gave him a second chance as a 50-year old immigrant who didn’t speak English when he arrived with no money and a patchwork educational and employment history. One year he told me very proudly that he had paid as much in taxes that year as he had earned the previous year.

While I try to keep my father in mind, I am glad that I never kept records of how much we have paid in taxes. I am sure that it’s a stunning number.
Based on this thread, I went to Quicken and pulled up a report for category:Tax and set the timeframe to "Earliest to Date", and, *gulp*, the number on the bottom line was an amount I once would have considered retirement money!

That said, that number implies that I have done very well, from modest beginnings. I know people who are definitely NOT doing so well from similar beginnings. I do not prefer that some of my income is siphoned off for random activities, but I really do understand that some of it is necessary (not all of it!), and I am in a position to feel the pain less than others. This is the same reason I endeavor to tip well, my experience with waitstaff friends is that the waitstaff appreciates that extra dollar WAY more than it pains me to part with it. Likewise, it doesn't give me joy writing those checks to the government, but it's not affecting what I can afford to eat or whether I can pay for medication, so it could be worse, and is worse for some.

For my first ten years out of college, I worked independently and all my income was via 1099, so all my taxes were paid via estimated payments. THAT was a real learning experience, I was driving a real beater and writing quarterly checks to the government which would have individually bought me a decent vehicle. It was a way different experience than my friends, who had their taxes siphoned off via withholding.

(Of course, in this situation I didn't just learn valuable lessons about taxes, I also learned valuable lessons about health insurance, and buying your own equipment, and keeping reserve funds against income droughts, etc. As a result, I'm not in that group of people who spent their early years dreaming of someday running a business for themselves! I'll run a business if necessary to accomplish an underlying goal, but it's most definitely not a goal in and of itself.)
ddurrett896
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Re: Twenty Four Years of Taxes

Post by ddurrett896 »

ColoradoRob wrote: Wed Jan 20, 2021 10:15 am My point about politicians and tax proposals is that this exercise got me to stop worrying about politics and tax proposals/discussions (arguments?). For a working couple like us with a basic, non-complex tax situation (no business income, or capital etc- just wages for the most part) does it matter if the tax brackets move an inch? For big earners with complex tax situations, it does. For us- with regular boring earnings/wages? I don't know. Thank you.
It might matter. Without looking at the tax brackets, take the standard deduction for married couple filed joint for example.
2015: $12,600
2020: $24,800
Difference: $12,200

If you land in the:
12% tax bracket: +$1,464 in new tax
22% tax bracket: +$2,684 in new tax
24% tax bracket: +$2,928 in new tax
A couple making a combined $100K would pay an additional $2,096 in federal tax each year. That's keeping the tax brackets where they are today.

Plug your salary in to the 2015 federal tax bracket and see how it compares to 2020. The brackets did change and our tax went up $1.3K/month, if we max out of 401K it went up $900/month.
ColoradoRick
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Re: Twenty Four Years of Taxes

Post by ColoradoRick »

OP & others - mine is a post of gratitude. My wife and I our first 10 years probably earned below median household income, and after that 50-100% more than median household income. I'm aware of taxes and don't want to pay extra. Turbo tax gives you your effective tax rate, and the last 5 years its been less than 10%. Now we don't pay SS taxes, have retired and the kids are gone. We live on about 70% more than 2019 household median income and feel we live VERY well. We had many years in my career where we paid 5 digits in Federal Income Tax. (My income was lumpy.) I'm aware with college/housing/hidden inflation/taxes/peer pressure/parents that many couples struggle while earning low 6 figures. I do not denigrate that and think it's admirable the faith, struggles and perseverance of many families who do the right thing.

My ex-father-in-law spends a lot of time and resources minimizing his USA taxes, but made a comment about 7 years ago that took me aback. His first 30+ years were in Brazil, he married an American and moved here and is now 70+. His neighbor had a heart attack and the EMT truck got there in 4 minutes. He marveled, saying it still takes 30 minutes in Brazil. He said that costs something.

I often send a thank you along with my estimated taxes to IRS. I think there is a reason USA stock market has outperformed int'l and it is my OPINION (many disagree) that it will continue because of inherent market advantages in this country. Actionable: if you live oversees and want an excellent value, come to the US and pay our taxes and invest in our stock market. Best in world in my OPINION.
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Harry Livermore
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Re: Twenty Four Years of Taxes

Post by Harry Livermore »

shess wrote: Wed Jan 20, 2021 12:14 pm
I was driving a real beater and writing quarterly checks to the government which would have individually bought me a decent vehicle. It was a way different experience than my friends, who had their taxes siphoned off via withholding.
I have experienced this too.
I suspect many taxpayers fail to grasp their total tax obligation due to incremental withholding. It's also a different experience due to thinking of taxes as a "bill", like anything else. Many of my employee friends could not grasp this. I suspect their "gross" was just some number to them.
Anyway, best not to dwell on it, as I said before. Pay up, be happy, and move on in life!
Cheers
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Re: Twenty Four Years of Taxes

Post by crefwatch »

I want to observe that almost by definition, someone who dislikes taxes should like (or at least, prefer) user-fees. Bridges and roads have to get built and maintained somehow. And politicians have begun to neglect infrastructure because of fear of being accused of reckless spending. In general, vehicle taxes tend to be user fees, but some states don't dedicate the income to roads and bridges. (I once lived in MA, which had an asset-based auto tax.)

The benefits of modern civilization are not free.
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ipdiddly
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Re: Twenty Four Years of Taxes

Post by ipdiddly »

ColoradoRick wrote: Wed Jan 20, 2021 12:52 pm OP & others - mine is a post of gratitude.
. . . I often send a thank you along with my estimated taxes to IRS.
You have it backwards. The IRS and, more particularly, Congress should send you and every taxpayer a warm Thank You! You are paying their salaries, their staffs, their offices and their travel expenses.
deserat
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Re: Twenty Four Years of Taxes

Post by deserat »

Harry Livermore wrote: Wed Jan 20, 2021 12:59 pm
shess wrote: Wed Jan 20, 2021 12:14 pm
I was driving a real beater and writing quarterly checks to the government which would have individually bought me a decent vehicle. It was a way different experience than my friends, who had their taxes siphoned off via withholding.
I have experienced this too.
I suspect many taxpayers fail to grasp their total tax obligation due to incremental withholding. It's also a different experience due to thinking of taxes as a "bill", like anything else. Many of my employee friends could not grasp this. I suspect their "gross" was just some number to them.
Anyway, best not to dwell on it, as I said before. Pay up, be happy, and move on in life!
Cheers
Taxes (federal of all stripes) are my largest expense and have been for many years. As for that experience of writing a 5 digit quarterly check to the IRS, been there, done that. I've always made the comment that if most people had to write quarterly checks to the IRS for those amounts, they would think hard about what they want from their government(s). Being self-employed can open one's eyes quite widely to the percentages the government(s) require to be a citizen. As for what government should/should not fund/be responsible for, that's another probably banned thread here.

BL: One needs to be aware of *all* expenses in their life - if you are an employee, it is a good exercise to see how much you and your employer are paying in taxes.
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goodenyou
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Re: Twenty Four Years of Taxes

Post by goodenyou »

Citizens wouldn’t gripe about taxes if we (the government) were better stewards of our money like the members of this forum. When you are in charge of other people’s money, and you can benefit from it, all bets are off.
"Ignorance more frequently begets confidence than does knowledge" | “Do you know how to make a rain dance work? Dance until it rains”
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Re: Twenty Four Years of Taxes

Post by Ron »

Also interesting as related to taxes are SS taxes/contributions as part of FICA through the working years and how it's related to benefits down the road, many years later.

Just for giggles, I took the total $$$ contributed by me, along with my various employers over the years to come up with a number. At the same time, I added up the monthly gross SS benefits I've received so far over the years, starting at my FRA (as claimed by my wife during the old file/suspend rules) until today me at the ripe old age of 73 🧙‍♂️ ...

While the OP did not adjust the various taxes paid for inflation over the years, I did the same for SS contributions & benefits received. In my case, I'll exceed what I/employers paid into my "account" in July of this year, some 6.5 years after I started receiving benefits. In my wife's case, her SS benefit will exceed her total contributions (she/employers) around mid-year in 2022 when she turns 74, starting her own benefit at the age of 70.

Again, just using raw numbers rather than accounting for inflation each year gives you an imperfect picture, but it's another "fun with numbers" exercise.

- Ron
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Re: Twenty Four Years of Taxes

Post by smitcat »

Ron wrote: Wed Jan 20, 2021 2:15 pm Also interesting as related to taxes are SS taxes/contributions as part of FICA through the working years and how it's related to benefits down the road, many years later.

Just for giggles, I took the total $$$ contributed by me, along with my various employers over the years to come up with a number. At the same time, I added up the monthly gross SS benefits I've received so far over the years, starting at my FRA (as claimed by my wife during the old file/suspend rules) until today me at the ripe old age of 73 🧙‍♂️ ...

While the OP did not adjust the various taxes paid for inflation over the years, I did the same for SS contributions & benefits received. In my case, I'll exceed what I/employers paid into my "account" in July of this year, some 6.5 years after I started receiving benefits. In my wife's case, her SS benefit will exceed her total contributions (she/employers) around mid-year in 2022 when she turns 74, starting her own benefit at the age of 70.

Again, just using raw numbers rather than accounting for inflation each year gives you an imperfect picture, but it's another "fun with numbers" exercise.

- Ron
"In my wife's case, her SS benefit will exceed her total contributions (she/employers) around mid-year in 2022 when she turns 74, starting her own benefit at the age of 70."
Had she never worked she would have exceeded the funds contributed with her first benifits check.
LittleMaggieMae
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Re: Twenty Four Years of Taxes

Post by LittleMaggieMae »

Income Taxes____$325,696.96

That's less than 14K per year over 24 years. Double it for your employer's contribution... And I'm betting you will be getting more than you (and your employer) paid in over your (and your wife's) lifetime. Especially in medical care in your twilight years.

As a Married - you have paid less in taxes than a Single (that would be me. I'll try not to play the world's smallest violin at this point.)

Have you thought about all the tangible and intangible goodness you (your family and neighbors) got from paying those taxes?
TravelGeek
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Re: Twenty Four Years of Taxes

Post by TravelGeek »

Bookmarked for future update.

I still have all my tax returns and a to-do list item to scan (and shred) them when we have a cold snowy/rainy day. Will use this thread as an inspiration to create a spreadsheet.
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ipdiddly
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Re: Twenty Four Years of Taxes

Post by ipdiddly »

TravelGeek wrote: Wed Jan 20, 2021 3:07 pm
I still have all my tax returns and a to-do list item to scan (and shred) them when we have a cold snowy/rainy day.
You only need to save six years of returns. What's the point in keeping more?

If you did your own taxes with tax software, you could have saved each one as a pdf file. I save both the pdf and .tax files in case I ever need them.
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