Benjamin Franklin famously said “….but in this world, nothing can be said to be certain, except death and taxes.” And while taxes are certain, the amount an individual pays in the United States can vary greatly, with a larger percentage of the income tax burden traditionally falling upon the shoulders of people who have more money than others. That is what is called a progressive tax system, and that is the type of tax system we have in the United States.
The fact that higher-income taxpayers shoulder most of the federal income tax burden may fly in the face of current perceptions held by many U.S citizens. Ask a random group of taxpayers, “Who bears the brunt of the federal income tax burden?” and some will likely say it’s the middle class and/or lower income Americans giving a disproportionate share of their hard-earned money to the government. While these perceptions are understandable in our ever-changing economy, middle and lower incomes actually take a bigger hit through payroll taxes for Social Security and Medicare, along with stagnant wages and/or rising costs for housing, goods, and services (prevalent for the past several years) rather than federal income taxes.
Data from the IRS (paired with number-crunching from the not-for-profit Tax Foundation) shows higher-income taxpayers pay a significantly higher amount of income tax: the top 1 percent of taxpayers paid about 37 percent of federal income taxes in 2016 with the top 10 percent paying around 70%.
With that said, the current tax system allows for deductions, exclusions, and tax credits, which many Americans believe will benefit the wealthy. As tax professionals, we know these tax savings vehicles are highly-attractive to the wealthy, as well as middle-class taxpayers who routinely use them to reduce their taxable income. In the case of low-income taxpayers, some have seen their income reduced to zero or a negative tax liability through refundable credits from the IRS. As part of the tax code, tax savings strategies in a variety of forms are available to all Americans in all income brackets. Even with deductions and credits, wealthier Americans making over $500,000 a year or more, are still paying the highest income tax rates in the country.
Bottom line - the more wealth you amass, the more money you will have to pay in the form of income taxes to Uncle Sam. But that’s not to say you cannot take advantage of various tax savings strategies. The Internal Revenue Service encourages taxpayers to review their tax situations and routinely provides updates on tax changes at www.irs.gov.
If you are interested in tax savings strategies, call Tax Saving Professionals at 772-257-7888 or use our convenient Contact form to schedule an appointment. And remember, at Tax Savings Professionals, “It’s your money. We’ll help you keep it.”