As Americans, we are deluged by taxes. From taxes on income, investments and gifts to business earnings, capital gains, and retirement withdrawals. It wasn’t always this way. When America was first established, taxation was slim to none. But as the country grew, the taxes steadily piled on.
ORIGIN OF ESTATE TAXES
To understand our current taxes, we must investigate when each of these tax categories began and why.
One of America’s oldest and still standing taxes is the estate tax. It was constituted in 1797 to support the creation of our Navy. In 1916, the Revenue Act changed the purpose of the tax to what we know today. The estate tax was proposed as an alternative to the death taxes that were collected to fund political efforts such as wars.
income taxes for war efforts
In 1913, the federal income tax was imposed to fund war efforts. This new and scary income tax proposed a 1% collection on net incomes of at least $3,000 (about $80,000 today) and 7% on incomes of at least $500,000 (about $13,000,000 today). Over the years, the US added tiers of taxation based on increasing levels of wealth. It fluctuated from sky-high to unbelievably low until it became what we have today.
THE DAWN OF THE SALES TAX
Americans saw a trend of new tax laws in the 1920s and ‘30s. The most notorious, sales tax, is still implemented today. This tax is hidden everywhere—in your bottle of soda, your vacation, and even hygiene products! Virginia became the first state to impose sales tax in 1921. It didn’t take long for other states to join the bandwagon. Delaware, Alaska, Montana, Oregon, and New Hampshire are the only 5 states that resisted the sales tax trend.
SOCIAL SECURITY TAX
The Social Security Act is another hefty tax many Americans pay. It stands to be one of the most controversial Acts to date as there are mixed opinions on whether it was a failed experiment or innovative plan. Signed in 1935, the first Social Security taxes were collected in January 1937, but benefits were not distributed until January 1940. Today, many Americans have a misconception of this plan. Though it is possible to live off social security, it can be very difficult.
Americans pay so many taxes that it’s easier to make a list of things we’re not taxed on than recite all the taxes we pay. In 2009, the Tax Foundation determined the average American pays over a quarter of their yearly income to just taxes. Do you think all these taxes are justified? Do we pay too much? What if we told you there were creative things you could do to reduce them.
HOW CAN I REDUCE MY TAXES?
The most efficient way to do this is through tax planning. I don’t mean tax preparing for tax season. I mean advanced, proactive tax-planning. Rather than simply looking for deductions, our strategies look for the workaround and fund reallocations to optimize tax-efficiency in your portfolio. It’s clear to us that a little planning on this side of time can yield huge savings down the road.
To get more information on tax reduction strategies, schedule a time to talk with one of our tax-focused advisors. Our clients keep coming back when they see exactly how much they can save based on certain strategies.
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(Income Tax Reduction Analysis)
One of our most requested offerings is our proprietary Income Tax Reduction Analysis. With advanced software, we can calculate future tax savings based on the particular tax-reduction strategy employed. This is one of our favorite tools to use with clients because it really illustrates the possibilities.
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