An inside look at the latest trends in federal housing regulation and policy, featuring the 2022 Vanguard Honoree, Faith Schwartz
Several of the 2022 HousingWire Vanguard honorees shared their insights on whatâs happening at the federal level
Several of the 2022 HousingWire Vanguard honorees shared their insights on whatâs happening at the federal level
Youâve probably heard unemployment rates talked about often in the news, especially over the last year, as the COVID-19 pandemic brought the economy to a halt, and tens of millions of Americans ended up without work. Many people also have personal experience with unemployment, whether because they lost a job themselves or someone close to
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Imagine youâre standing on the bank of a river. The bank youâre standing on represents your current financial status, and the opposite bank is the amount of wealth you need for retirement. The river itself is the difference between how much wealth you currently have and what must be accumulated to reach your retirement goals.
When we look at bridging this wealth gap, itâs important to factor in anything that could get in the way of reaching our goals. Thatâs why taxes are so important. You canât have an accurate calculation without understanding how taxes impact your wealth gap. You see, taxation plays a significant role in our ability to accumulate wealth. If you went through your whole life without utilizing any of the tax breaks available to you, you would have built substantially less wealth than someone who understood the Internal Revenue Code (IRC) and took advantage of its many tax-saving benefits.
In fact, one of my colleagues often calls the Internal Revenue Code âthe greatest wealth creation tool in the United States.â Heâs not wrong. The IRC is a tool for wealth creation. As such, it can be the difference in whether taxes impact your wealth gap in a negative way. You see, much of the IRC is pages and pages of information on how you can legally minimize taxes.Â
Let me be absolutely clear, I am not offering tax advice. Nor am I advocating for illegal or unethical means of avoiding the payment of taxes. You should always consult a professional before employing any of the strategies found within the IRC to ensure that you are compliant with the law.
The top marginal income tax rate of 37% affects taxpayers with a taxable income of $539,900 or more for single filers. Likewise, it impacts married couples filing jointly, with a taxable income of $647,850 and above. But what does that mean for you? Will taxes increase? Will tax brackets expand, or decrease? The only way to truly opine the answers to these questions is to look back at historical tax brackets.Â
In 1984, the lowest bracket was up to $3,400 for married couples. The highest tax bracket began at $162,400 (the 1984 values are the base upon which inflation indexing began). However, the brackets began to spread in the 1990s. In fact, the highest bracket floor in 1994 rose to $250,000 while the lowest bracket ceiling remained around $38,000. So, there began to be a âspreadâ between the tax rates of high-income earners and those with less income. That spread has become an albatross in the modern era.
To better put into context how taxes impact your wealth gap, letâs look at some of these numbers through a tax rate calculator. Using this calculator, if you were making $50,000 (in todayâs dollars) in 1913 you would have paid around 1% in taxes. However, that same $50,000 earnings in 1942 would have landed you in a 20% tax bracket. So, what happened? Well, that would have been about the time that the government needed to fund the war effort for WWII. Since that time, there hasnât really been a whole lot of movement. If youâre a single filer earning $50K today, youâre going to be taxed at about 22%.
However, most of the clients I work with earn much more taxable income than $50K. So, letâs go with a more realistic figure. We will enter $500K into the calculator. Keep in mind, the effective tax rate made a considerable change between 1937 and 1942. In 1944, a person earning $500K (in todayâs dollars) would be taxed at the bracket rate of 51%. That number rose to as high as 58.9% in the early 1980s.
Famed historian and co-documentarian of the PBS series Prohibition, Lynn Novick attributes the creation of the federal income tax to Prohibition in the United States. Novick states, âI had no idea how important liquor was to the federal government. It started in the Civil War with the levy on beer and whiskey to help fund the war, and it never really went away. Some 30% to 40% of the governmentâs income came from the tax on alcohol. So, Prohibitionists realized that the only way theyâre going to have a ban was through income tax, which was a progressive cause and was really supposed to distribute wealth and to make things equitable during the robber baron era, where the wealth was being accumulated in a very small segment of the population.â
In 1913, the top tax bracket was 7% on any income over $500,000 ($11 million in todayâs dollars). The lowest tax bracket was 1%. But so much has happened since then. Weâve experienced WWI, WWII, the Great Depression and so much more. Each of these events has played a major role in how we are taxed. For instance, the New Deal carried an inflation-adjusted price tag of $856.1 billion in 1933. Then from 1943 to 1982, the average tax bracket for the taxpayer earning $500,000 jumped from 14% to an average of 50% +/-.
Similarly, the Great Recession saw an economic stimulus that totaled $1.8 trillion. As a result, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 maintained the 35% tax rate through 2012. And recently, we saw the largest stimulus package in our nationâs history, with the CARES Act, which checked in at a staggering $3.6 trillion. As we have seen in the past, we could reasonably anticipate another increase in federal income taxes because of this.
According to the old adage, there are two certainties in this life: death and taxes. With that in mind, I wanted to get you thinking about how taxes will likely impact your wealth gap. I want you to be confident in your personal plans and direction. You know what you want out of retirement and how long you have to build the wealth that will fund it. Donât let something like taxes throw off your calculation.Â
To ensure that youâre not overpaying on taxes, you should have a CPA helping with your annual tax filings. But thatâs not all. You should also be meeting with your CPA and CFP® about proactive strategies to mitigate your tax burden. The less you pay in taxes, the more you can save for retirement. Both will help you to close your retirement wealth gap sooner than later.
Student loan debt and education continue to go hand in hand. According to the latest figures from the Federal Reserve, 30% of U.S. adults had student loan debt upon leaving school. Federal student loan relief under the CARES Act, which is set to end in May 2022, has paused monthly federal student loan payments, enacted […]
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Total student loan debt has reached nearly $1.75 trillion, affecting 46 million Americans. According to Student Loan Hero, 55% of the class of 2020 took out student loans and graduated with an average of $28,400 in student debt. With student loan debt such an overarching problem, more companies are offering student loan repayment assistance to [â¦]
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If someone offers you assistance in paying off student loans, your immediate answer might be âGo for it!â but itâs important to understand the implications. While a parent, grandparent, employer, or even a mysterious benefactor could pay off your student loans, they may be responsible for a gift tax if they contribute more than the […]
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The average federal tax refund so far this year is $3,305 ��� up 12.9% from the same period in 2021. But instead of using the money for a summer vacation, many people who are struggling with rising inflation will need to use their refunds to pay for gas and groceries.
If you’re fortunate enough to have the essentials covered, you may be tempted to treat yourself to dinner at your favorite restaurant or a nice bottle of wine. Fine. But once you’ve scratched that itch, consider these ways to put the rest of your tax refund to work for you.
Tax season is here. And if you’re one of the millions of Americans who received unemployment benefits last year, you’re probably wondering if you have to pay taxes on those payments. When it comes to federal income taxes, the general answer is yes. Uncle Sam taxes unemployment benefits as if they were wages.
But when it comes to state income taxes, it depends on where you live. Most states fully tax unemployment benefits. However, some states don’t tax them at all (sometimes because the state doesn’t have an income tax), and a handful of states will only tax part of your benefits. Plus, a few states made temporary special exceptions to their general rules to help people who lost their job during the COVID-19 pandemic.
Where does your state stand when it comes to taxing unemployment benefits? Read on to find out. Then, as a bonus, we outline each state’s income, sales, and property tax levels â and provide a link to the state’s page in our State-by-State Guide to Taxes on Middle-Class Families â so you can get a sense of the overall tax burden where you live.
Have you been laid off because of coronavirus? Don’t panic, this guide lays out the next steps, including applying for benefits and health care.
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