Are income taxes really too high? Should we be worried about income taxes? Should we focus on ways to reduce income taxes?
There is enough debate on personal and business income taxes these days on almost all the news channels and websites. They have now become a talk point for the upcoming elections.
Should we really be scared about our taxes and focus on findings ways to reduce our taxable earnings and thus focus on getting in on the lower tax bracket. Well, I don't think so.
We pay income taxes only if we are making a profit. That is the first principle. So, let us assume that we are making $100 in profit and we are in 20% tax bracket. That means for every $100 we generate in profit, we keep $80 and give away $20 in taxes.
So, should we focus on saving $20 somehow by findings loop holes in tax codes, manipulating our expenses and somehow lowering our tax brackets or should we focus on generating hundreds more in profits thus keeping $80 for every $100.
If I were to choose, I would certainly focus on growing my business to be able to keep $80 out of every $100 I generate in revenue. Even if my tax goes to $30, I am still keeping $70 out of every $100, I am generating in profits.
So, unless my taxes are more than 51% of profits, I would still focus on growing more earnings for my family. Simply because, controlling taxes is not in my hands but exploring ways to generate more income certainly is.
As we see clearly, With more earnings, the tax bracket went up and so did the taxes. When we had $100,000 as taxable earnings, we were paying $20,000 in taxes. When we jumped to $150,000, our taxes went to $45,000.
However, the key point here is that when we had $100,000 in earnings, we took home only $80,000. When our business did good or we got promoted resulting in earnings to $150,000, we took home $105,000 which is a lot more than $80,000.
To conclude, I would prey for my income tax to increase and not decrease. Because if my income tax has increased, that simply means my income has grown too. I have more money to keep now.
I know we can go on and on on this topic but I would just say it is the way we look at things in our life. Opportunity comes in difficult times. Rather than getting depressed about the rise in income tax, I think about ways to add more income and writing blogs is one way to do that :)
There is enough debate on personal and business income taxes these days on almost all the news channels and websites. They have now become a talk point for the upcoming elections.
Should we really be scared about our taxes and focus on findings ways to reduce our taxable earnings and thus focus on getting in on the lower tax bracket. Well, I don't think so.
We pay income taxes only if we are making a profit. That is the first principle. So, let us assume that we are making $100 in profit and we are in 20% tax bracket. That means for every $100 we generate in profit, we keep $80 and give away $20 in taxes.
So, should we focus on saving $20 somehow by findings loop holes in tax codes, manipulating our expenses and somehow lowering our tax brackets or should we focus on generating hundreds more in profits thus keeping $80 for every $100.
If I were to choose, I would certainly focus on growing my business to be able to keep $80 out of every $100 I generate in revenue. Even if my tax goes to $30, I am still keeping $70 out of every $100, I am generating in profits.
So, unless my taxes are more than 51% of profits, I would still focus on growing more earnings for my family. Simply because, controlling taxes is not in my hands but exploring ways to generate more income certainly is.
Taxable Earnings
|
Tax Bracket
|
Taxes
|
After Taxes
|
100000
|
20
|
20000
|
80000
|
110000
|
22
|
24200
|
85800
|
120000
|
24
|
28800
|
91200
|
130000
|
26
|
33800
|
96200
|
140000
|
28
|
39200
|
100800
|
150000
|
30
|
45000
|
105000
|
As we see clearly, With more earnings, the tax bracket went up and so did the taxes. When we had $100,000 as taxable earnings, we were paying $20,000 in taxes. When we jumped to $150,000, our taxes went to $45,000.
However, the key point here is that when we had $100,000 in earnings, we took home only $80,000. When our business did good or we got promoted resulting in earnings to $150,000, we took home $105,000 which is a lot more than $80,000.
To conclude, I would prey for my income tax to increase and not decrease. Because if my income tax has increased, that simply means my income has grown too. I have more money to keep now.
I know we can go on and on on this topic but I would just say it is the way we look at things in our life. Opportunity comes in difficult times. Rather than getting depressed about the rise in income tax, I think about ways to add more income and writing blogs is one way to do that :)
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