Tax Bracket Quotes

The point was, Eve supposed, no matter who you were—sex, race, tax bracket—death leveled it all out.

People so entitled, so certain they won’t be caught that being caught—that very concern—doesn’t even occur to them. People who think the laws are written for people who make less than nine figures a year. People who think the laws are applicable only by race, or by tax bracket.” He

Bending Spring Ranch, Cole Valley, Colorado.” “What kind of a ranch is it anyway?” Dennis had asked Jules originally when the property had been purchased. “Cattle? Dude? I wasn’t really sure.” “No, it’s a tax ranch,” she’d said. “See, they raise little tax brackets there. It’s the only one of its kind in the world.

They would have the use of my moist and intricate cranial recesses, the joyous bicycle rides of my uninhibited psyche, but they were going to put me in a new tax bracket.

She was ready to fall in love with someone but she wanted to fall within the right tax bracket.

I supposed that was the thing about moving: A person could upgrade their location, their appliances, and even their tax bracket...and still find time to unpack their old habits.

The [carried-interest] loophole was in essence an accounting trick that enabled hedge fund and private equity managers to categorize huge portions of their income as ‘interest,’ which was taxed at the 15 percent rate then applied to long-term capital gains. This was less than half the income tax rate paid by other top-bracket wage earners. Critics called the loophole a gigantic subsidy to millionaires and billionaires at the expense of ordinary taxpayers. The Economic Policy Institute, a progressive think tank, estimated that the hedge fund loophole cost the government over $6 billion a year—the cost of providing health care to three million children. Of that total, it said, almost $2 billion a year from the tax break went to just twenty-five individuals.

Criminals. People so entitled, so certain they won’t be caught that being caught—that very concern—doesn’t even occur to them. People who think the laws are written for people who make less than nine figures a year. People who think the laws are applicable only by race, or by tax bracket.

We found it helpful to think of such cross-functional projects as a kind of tax, a payment one team had to make in support of the overall forward progress of the company. We tried to minimize such intrusions but could not avoid them altogether. Some teams, through no fault of their own, found themselves in a higher tax bracket than others. The Order Pipeline and Payments teams, for example, had to be involved in almost every new initiative, even though it wasn’t in their original charters.

According to the Urban-Brookings Tax Policy Center, for the fifty years following the Great Depression, the tax rate on the highest income bracket averaged 80 percent, redistributing much of the richest Americans’ wealth. Beginning in the 1980s with the advent of politicians like Ronald Reagan in the US and Margaret Thatcher in the UK, and with growth increasingly seen as the be-all and end-all of economics, far less was asked of the wealthy. The comparable tax figure for 2020 was 37 percent.

In terms of statistical categories, it is indeed true that both the amount of income and the proportion of all income received by those in the top 20 percent bracket have risen over the years, widening the gap between the top and bottom quintiles.9 But U.S. Treasury Department data, following specific individuals over time from their tax returns to the Internal Revenue Service, show that in terms of people the incomes of those particular taxpayers who were in the bottom 20 percent in income in 1996 rose 91 percent by 2005, while the incomes of those particular taxpayers who were in the top 20 percent in 1996 rose by only 10 percent by 2005—and the incomes of those in the top 5 percent and top one percent actually declined.

It was his fault.She could put the blame for this entirely on Brian Donnelly's shoudlers.If he hadn't been so insufferable,if he hadn't been there being insufferable when Chad had called, she wouldn't have agreed to go out to dinner.And she wouldn't have spent nearly four hours being bored brainless when she could've been doing something more useful. Like watching paint dry. There was nothing wrong with Chad, really.If you only had,say,half a brain, no real interest outside of the cut of this year's designer jacket and were thrilled by a rip-roaring debate over the proper way to serve a triple latte,he was the perfect companion. Unfortunately,she didn't gualify on any of those levels. Right now he was droning on about the painting he'd bought at a recent art show. No,not the painting,Keeley thought wearily. A discussion of the painting,of art,might have been the medical miracle that prevented her from slipping into a coma.But Chad was discoursing-no other word for it-on The Investment. He had the windows up and the air conditioning clasting as they drove. It was a perfectly beautiful night, she mused, but putting the windows down meant Chad's hair would be mussed. Couldn't have that. At least she didn't have to attempt conversation. Chad preferred monologues. What he wanted was an attractive companion of the right family and tax bracket who dressed well and would sit quietly while he pontificated on the narrow areas of his interest. Keeley was fully aware he'd decided she fit the bill,and now she'd only encouraged him by agreeing to this endlessly tedious date.

In 2006, researchers Brendan Nyhan and Jason Reifler created fake newspaper articles about polarizing political issues. The articles were written in a way that would confirm a widespread misconception about certain ideas in American politics. As soon as a person read a fake article, experimenters then handed over a true article that corrected the first. For instance, one article suggested that the United States had found weapons of mass destruction in Iraq. The next article corrected the first and said that the United States had never found them, which was the truth. Those opposed to the war or who had strong liberal leanings tended to disagree with the original article and accept the second. Those who supported the war and leaned more toward the conservative camp tended to agree with the first article and strongly disagree with the second. These reactions shouldn’t surprise you. What should give you pause, though, is how conservatives felt about the correction. After reading that there were no WMDs, they reported being even more certain than before that there actually were WMDs and that their original beliefs were correct. The researchers repeated the experiment with other wedge issues, such as stem cell research and tax reform, and once again they found that corrections tended to increase the strength of the participants’ misconceptions if those corrections contradicted their ideologies. People on opposing sides of the political spectrum read the same articles and then the same corrections, and when new evidence was interpreted as threatening to their beliefs, they doubled down. The corrections backfired. Researchers Kelly Garrett and Brian Weeks expanded on this work in 2013. In their study, people already suspicious of electronic health records read factually incorrect articles about such technologies that supported those subjects’ beliefs. In those articles, the scientists had already identified any misinformation and placed it within brackets, highlighted it in red, and italicized the text. After they finished reading the articles, people who said beforehand that they opposed electronic health records reported no change in their opinions and felt even more strongly about the issue than before. The corrections had strengthened their biases instead of weakening them. Once something is added to your collection of beliefs, you protect it from harm. You do this instinctively and unconsciously when confronted with attitude-inconsistent information. Just as confirmation bias shields you when you actively seek information, the backfire effect defends you when the information seeks you, when it blindsides you. Coming or going, you stick to your beliefs instead of questioning them. When someone tries to correct you, tries to dilute your misconceptions, it backfires and strengthens those misconceptions instead. Over time, the backfire effect makes you less skeptical of those things that allow you to continue seeing your beliefs and attitudes as true and proper.

In fact, for someone in the highest tax bracket, short-term Treasury bills have yielded a negative after-tax real return since 1871, even lower if state and local taxes are taken into account. In contrast, top-bracket taxable investors would have increased their purchasing power in stocks 288-fold over the same period.

I hope I have not upset you,” Mrs. Wattlesbrook said with an innocent smile. “I pride myself on matching each client with her perfect gentleman. But one cannot anticipate a woman’s every fancy, and so our talent pool runs deep. You understand?” “Very deep indeed.” Jane felt like a woman drowning, and she grasped for anything. And as it turned out, bald-faced lies are, temporarily anyway, impressively buoyant, so she said, “It will make the ending to my article all the more interesting.” “Your…your article?” Mrs. Wattlesbrook peered over her spectacles as if at a bug she would like to squash. “Mm-hm,” said Jane, lying extravagantly, outrageously, but also, she hoped, gracefully. “Surely you know I work for a magazine? The editor thought the story of my experience at Pembrook Park would be the perfect way to launch my move from graphic design to staff writer.” She had no intention of becoming a staff writer, and in fact the artist bug was raging through her blood now more than ever, but she just had to give Mrs. Wattlesbrook a good jab before departure. She was smarting enough to crave the reprieve that comes from fighting back. Mrs. Wattlesbrook twitched. That was satisfying. “And I’m sure you realize that since I’m a member of the press,” Jane said, “the confidentiality agreement you made me sign doesn’t apply.” Mrs. Wattlesbrook’s right eyebrow spasmed. Jane guessed that behind it ran her barrister’s phone number, which she would dial ASAP. Jane, of course, had been lying again. And wasn’t it fun! Mrs. Wattlesbrook appeared to be trying to moisten her mouth and failing. “I did not know…I would have…” “But you didn’t. The cell phone scandal, the dirty trick with Martin…You assumed that I was no one of influence. I guess I’m not. But my magazine has a circulation of over six hundred thousand. I wonder how many of those readers are in your preferred tax bracket? And I’m afraid my article won’t be glowing.” Jane curtsied in her jeans and turned to leave. “Oh, and, Mrs. Wattlesbrook?” “Yes, Jane, my dear?” the proprietress responded with a shaky, fawning voice. “What is Mr. Nobley’s first name?” Mrs. Wattlesbrook stared at her, blinkless. “It’s J…Jonathon.” Jane wagged her finger. “Nice try.

Sec. Particulars Amount 80C Tax saving investments1 Maximum up to Rs. 1,50,000 (from FY 2014-15) 80D Medical insurance premium-self, family Individual: Rs. 15,000 Senior Citizen: Rs. 20,000 Preventive Health Check-up Rs. 5,000 80E Interest on Loan for Higher Education Interest amount (8 years) 80EE Deduction of Interest of Housing Loan2 Up to Rs.1,00,000 total 80G Charitable Donation 100%/ 50% of donation or 10% of adjusted total income, whichever is less 80GGC Donation to political parties Any sum contributed (Other than Cash) 80TTA Interest on savings account Rs. 10,000 1              Tax saving investments includes life insurance premium including ULIPs, PPF, 5 year tax saving FD, tuition fees, repayment of housing loan, mutual fund (ELSS) (Sec. 80CCB), NSC, employee provident fund, pension fund (Sec. 80CCC) or pension scheme (Sec. 80CCD), etc. NRIs are not allowed to invest in certain investments, such as PPF, NSC, 5 year bank FD, etc. 2              Only to the first time buyer of a self-occupied residential flat costing less than Rs. 40 lakhs and loan amount of less than 25 lakhs sanctioned in financial year 2013-14 Clubbing of other’s income Generally, the taxpayer is taxed on his own income. However, in certain cases, he may have to pay tax on another person’s income.  Taxpayers in the higher tax bracket (e.g. 30%) may divert some portion

For any investor, income tax matters. The effect of tax on the return is very important and material, especially for the investors in the highest tax bracket due to tax drag

Thus, an investor in the highest tax bracket of 30.9% would be able to save Rs. 46,350 in taxes and earn 8% tax free return simultaneously

His whole family was depending on him to eat, and Farren understood taking care of your loved ones if you’re able to, but since Kool had entered a new tax bracket, if she was not mistaken, no one in his family worked anymore. She

Guess what? ★ Without grand programs, Harding and Coolidge presided over one of the most economically prosperous times in America’s history. ★ Under Treasury secretary Andrew Mellon, the top income tax rate fell from 73 percent to 40 percent and later to 25 percent, but the greatest proportional reductions occurred in the lower income brackets, where people saw most of their income tax burden eliminated altogether.

Louisiana’s fiscal troubles can be traced to the economic boom that followed Hurricane Katrina in 2005, when rebuilding efforts, insurance payouts and federal money pushed cash into the state budget. Many lawmakers expected the heady times and increased revenue to last, and they made the bold decision to cut income taxes by roughly $700 million annually for the highest brackets — a decision some are now second-guessing.

I came into the Big Money making pictures during World War II,” [Reagan] would always say. At that time the wartime income surtax hit 90 percent. “You could only make four pictures and then you were in the top bracket,” he would continue. “So we all quit working after about four pictures and went off to the country.” High tax rates caused less work. Low tax rates caused more. His experience proved it. These

it’s almost impossible for anyone to acquire and hold on to wealth without understanding the real value of money. To people in all tax brackets, one dollar saved is almost always worth more than two dollars earned, which underscores the fact that $10,000 saved is worth at least $20,000 earned.

TAX TIP: Put your family to work. Make your business a family business. Then when you travel for business, your family’s travel is deductible. And you can shift income from your higher tax bracket to their lower tax bracket. This creates permanent tax savings.

So I say call me a Nigga despite not fitting this popular sterotype— despite my lack of a criminal record, my light-skin privilege (I’ve been called a yellow nigga, a sand nigga, and a Spic), my Ivy League diplomas, my respectable salary befitting the occupant of Roy P. Crocker Chair at the University of Southern California Law School, my residence in Black Beverly Hills, my three sons who attended exclusive private high schools and colleges, my respectable rims, my fluency in “talking White,” and my red-headed Irish Catholic mom. Thanks to my lighter shade, academic pedigree, chaired professorship, tax bracket, ZIP code, speech patterns, and mixed ancestory, I am not what cognitive science would call a “prototypical” nigga.

As a rule of thumb, you should always put money into your 401(k) up to the employer match, but nothing more.

Hence if the investor was in a maximum tax bracket higher than 30% he would have a net saving after taxes by choosing the municipal bonds; the opposite, if his maximum tax was less than 30%.

some cryptoassets are commodities, this could open them up to different tax treatment than if they were considered solely as property. Commodities fall under the 60/40 tax ruling, meaning 60 percent of the gains on a commodity transaction are treated as long-term capital gains and 40 percent are treated as short-term capital gains. This is different from taxing stocks where profitably selling an equity after 12 months is classified as a long-term capital gain with a current tax rate cap of 15 percent. Selling prior to 12 months would be considered a short-term gain with the tax ramification based on an investor’s income bracket.

The candidates promised to cut taxes for those in the highest brackets, preserve Wall Street loopholes, tolerate the off-shoring of manufacturing jobs and profits, and downgrade or privatize middle-class entitlement programs, including Social Security. Free trade was barely debated. These positions faithfully reflected the agenda of the wealthy donors, but studies showed that they were increasingly out of step with the broad base of not just Democratic but also Republican voters, many of whom had been left behind economically and socially for decades, particularly acutely since the 2008 financial crash. Trump, who could afford to forgo the billionaires’ backing and ignore their policy priorities, saw the opening and seized it.

Net wages: “It’s not what you make, but what you net” after paying the FIRE sector, basic utilities and taxes. The usual measure of disposable personal income (DPI) refers to how much employees take home after income-tax withholding (designed in part by Milton Friedman during World War II) and over 15% for FICA (Federal Insurance Contributions Act) to produce a budget surplus for Social Security and health care (half of which are paid by the employer). This forced saving is lent to the U.S. Treasury, enabling it to cut taxes on the higher income brackets. Also deducted from paychecks may be employee withholding for private health insurance and pensions. What is left is by no means freely available for discretionary spending. Wage earners have to pay a monthly financial and real estate “nut” off the top, headed by mortgage debt or rent to the landlord, plus credit card debt, student loans and other bank loans. Electricity, gas and phone bills must be paid, often by automatic bank transfer – and usually cable TV and Internet service as well. If these utility bills are not paid, banks increase the interest rate owed on credit card debt (typically to 29%). Not much is left to spend on goods and services after paying the FIRE sector and basic monopolies, so it is no wonder that markets are shrinking. (See Hudson Bubble Model later in this book.) A similar set of subtrahends occurs with net corporate cash flow (see ebitda). After paying interest and dividends – and using about half their revenue for stock buybacks – not much is left for capital investment in new plant and equipment, research or development to expand production.

Because he was leaving Liberia, Chris had tried selling his Italian made, Vespa motor-scooter. It had seen a lot of use and I know that he didn’t buy it new, but it ran and was transportation for him. ‘I’ll give you fifty for it.” I said. “The hell you will,” was his curt reply, “One hundred and fifty makes it yours.” “Don't make me laugh; it's not worth the fifty I'm offering.” I could see his face turn beet-red knowing that I had him over a barrel. “Tell you what Chris, let's cut it in half and depart friends.” I offered. I don’t think he could believe his good luck, as he was quick to accept. “Done,” he said “but you pay the taxes and license!” Of course I knew that these charges were mine but I pretended to groan anyway. With the deal done I was now the proud owner of the motor scooter. Right after the license was transferred, I rode it into a backyard body shop and had it cleaned up and painted bright red. No longer would I have to depend on a taxi or others for transportation. I was free to zip here and there at will. From now on it was the first thing off and the last thing onto the ship. I had Bo-Bo Ben, the ship’s carpenter, make a cradle to secure it and had brackets welded to the main deck behind the house, to lash it down. It still left enough elbow-room for the crew to fish off the stern.

In a married couple’s joint tax return, the couple must ‘stack’ their wages. The higher earner (given the gender pay gap this is usually the man) is designated the ‘primary earner’, and their income occupies the lower tax bracket. The lower earner (usually the woman) becomes the ‘secondary earner’, and their income occupies the higher tax bracket. To return to our couple earning $60,000 and $20,000, the person earning $20,000 will be taxed on that income as if it is the final $20,000 of an $80,000 salary, rather than all she earns. That is, she will pay a much higher rate of tax on that income than if she filed independently of her higher-earning husband.

As one longtime New York realtor once said of conspicuous wealth, "It was considered un-American." The rich were also, as they likely would be in a lower-consuming economy, simply less rich. According to the Urban-Brookings Tax Policy Center, for the fifty years following the Great Depression, the tax rate on the highest income bracket averaged 80 percent, redistributing much of the richest Americans' wealth. Beginning in the 1980s with the advent of politicians like Ronald Reagan in the US and Margaret Thatcher in the UK, and with growth increasingly seen as the be-all and end-all of economics, far less was asked of the wealthy. The comparable tax figure for 2020 was 37 percent.

Case #6 Sandy and Bob Bob is a successful dentist in his community. In the 15 years since he established his own practice, he has established a reliable base of patients and has built a thriving business in a great location. A couple years ago, he brought his wife, Sandy, a business expert with an MBA, on board to help him oversee the business end of the dental practice. She had recently left her job at a financial services firm, and Bob knew that Sandy’s business acumen would be helpful in getting his administrative house in order. She brought on new employees, developed effective new processes, and enhanced the office’s marketing efforts. Within a few months, Sandy’s improvements had managed to make the dental practice a well-oiled machine. Now she could turn her attention to their real estate portfolio. Bob and Sandy owned three small apartment buildings around town, as well as one small commercial center that was home to a nail salon, a chiropractor’s office, a coffee house and a wine shop. Fortunately, Bob’s dental practice was a success and their investments earned a nice passive income for them. Unfortunately, because Bob earned on average $250,000 per year, the couple couldn’t use passive loss, which in their case came to about $100,000, from their investments to offset his high earned income. Eventually, they would be earning sheltered profits—when the mortgages on their properties were paid off and the rentals made pure profit, or if they were to sell a property. When those things eventually happened, they could use their losses to shelter those profits. But until that time, the losses were going unused. Sandy made an appointment with their CPA to discuss the situation and see how they might improve their tax situation. The CPA asked, “What about becoming a real estate professional?” He explained to Sandy that if she spent 750 hours per year, or about 15 hours a week, on the couple’s real estate investments, she would be considered a real estate professional by the IRS. This would enable the couple to write off 100 percent of their passive losses against Bob’s high income, which would bring his taxable income down to $100,000. This $100,000 deduction brought Bob and Sandy into a lower tax bracket, saving them roughly $31,000 in taxes. Sandy already devoted a large percentage of her time to overseeing their investments, and when she saw the tax advantages, her decision became clear: She would file the Section 469(c)(7) and become a real estate professional.

As one longtime New York realtor once said of conspicuous wealth, "It was considered un-American." The rich were also, as they likely would be in a lower-consuming economy, simply less rich. According to the Urban-Brookings Tax Policy Center, for the fifty years following the Great Depression, the tax rate on the highest income bracket averaged 80 percent, redistributing much of the richest Americans' wealth. Beginning in the 1980s with the advent of politicians like Ronald Reagan in the US and Margaret Thatcher in the UK, and with growth increasingly seen as the be-all and end-all of economics, far less was asked of the wealthy. The comparable tax figure for 2020 was 37 percent.

The top income tax rate for the wealthiest was cut from 70 to 50 percent in 1982. It would’ve been prudent to stop there for a while and see how that worked out. But no: in the second Reagan term, the top rate was cut again to 38.5 percent, then once more to 28 percent—along with a large reduction of the income threshold for the highest bracket, which meant that somebody making $1 million or $10 million a year would now be taxed at the same rate that a teacher or plumber was taxed on everything they earned above the equivalent of $40,000.

The greatest of these unfunded obligations is the universal healthcare system for seniors implemented as part of Lyndon Johnson’s “Great Society” domestic programs of the 1960s. Medicare suffers from the same demographic challenges as Social Security. As of 2017, it costs the government over $590 billion per year, and these costs continue to spiral out of control. According to Walker, the fiscal strain of these two programs alone could bankrupt the United States of America.

Consider the following example: If you have $100,000 in a CD and it grows 2%, you have a taxable event. You will have $102,000 in your account at the end of the year, but you will have to pay federal and state tax on every last bit of that 2% growth. So, $2,000 gets thrown right on top of all your other income and is taxed at your highest marginal tax rate. Assuming marginal tax rates of 30% (24% federal, 6% state), you would owe the IRS $600. So you didn’t really experience $2,000 of growth, you only experienced $1,400. Thus, your after-tax rate of return on that $100,000 is only 1.4%. This annual taxation is one of the perils of the taxable bucket.

When you contribute money to a tax-deferred account, it’s a bit like going into a business partnership with the IRS. The problem is, every year the IRS gets to vote on what percentage of your profits they get to keep.

If you’re like most Americans, you have the lion’s share of your wealth accumulated in the first two buckets—the taxable and the tax-deferred. If that’s the case, don’t despair, because there is a third bucket. Some people call this final bucket tax-advantaged, some tax-preferred, still others tax-exempt, but for our purposes, we will call it the tax-free bucket.

How can you tell if your investment is taxable? The tip-off is the love letter you get from the financial institution at the end of every year. It’s called a 1099. Simply put, it’s a tax bill. It tells the IRS how much taxable income you earned from a given investment.

The tax-deferred accounts with which Americans are most familiar are 401(k)s and Individual Retirement Accounts (more commonly known as IRAs). Other tax-deferred accounts, such as 403(b)s, 457s, SIMPLES, SEPs, and Keoghs, have different rules that apply to them, but they all generally have two things in common: Contributions are tax-deductible. Generally, when you put money into this bucket, you get a tax deduction. For example, if you make $100,000 this year, and you put $10,000 into your 401(k), your new taxable income is $90,000. Distributions are treated as ordinary income. When you divert a portion of your income to a tax-deferred investment, all you’re really doing is postponing the receipt of that income until a point in time much further down the road. When you take the money out, you pay taxes at whatever the rate happens to be in the year you make the distribution. For that reason, the IRS calls these distributions ordinary income and taxes them accordingly.

Contributions to the Roth IRA are made with after-tax dollars, meaning that you do not get a tax deduction at the time of contribution. However, once your money is in a Roth IRA, your dollars grow tax-free and are tax-free upon distribution as long as you’re at least 59½.

Today, there are no longer 42 people contributing to Social Security for every one person who takes money out of the program. The ratio has fallen to 3 to 1.*1 And in another 10 years, it’s going to be closer to 2 to 1. Compounding the problem, Americans can now draw Social Security as early as 62 and, due to advancements in science and medical technology, retirees are living longer than ever. The reality is, if you start drawing on Social Security at 62, you’ll keep drawing it, on average, until age 85. In fact, octogenarians are the fastest-growing segment of our population!

The tax-deferred bucket has become the default investment account for most Americans, primarily because of the ease with which contributions are made. In the case of a 401(k) and other employer-sponsored plans, money gets zapped right out of your check and into a mutual fund portfolio. Out of sight, out of mind—what could be better? Throw in a matching contribution from your employer and it seems like a no-brainer.

Because many of the itemized deductions phase out before retirement, most retirees are stuck with the standard deduction. So, if you need $120,000 per year of income in retirement and your deductions are only $24,000, then your taxable income would be $96,000 per year. That puts you at a marginal federal tax rate of 22%. Throw in another 6% (on average) for state tax, and you’re looking at a marginal tax rate of 28%. That’s a lot higher than most retirees are anticipating!

The Rock: You have to remember that the IRS wants to tax you on your money so badly that, at a certain point, they will force you to take money out. This happens at age 70½, and it’s called a Required Minimum Distribution (RMD). If you forget or choose not to take the money out, the IRS imposes what’s called an excise tax. In reality it’s a penalty, and it’s an astounding 50% of your RMD. In other words, if you were supposed to take out $10,000 but didn’t, you would get a bill in the mail for $5,000. And that doesn’t even include the income tax! Throw in another 30% (24% federal and 6% state) for that, and you’re looking at forfeiting 80% of whatever you were supposed to take out but didn’t. As you can see, the IRS is pretty serious about getting their money. The Hard Place: Now we understand what happens if you don’t take enough money out of your tax-deferred investments. But what happens if you take out too much? Beyond paying increasingly higher amounts of tax, the IRS says that as much as 85% of your Social Security becomes taxable. What?! you may be thinking. Social Security felt like a tax when it came out of my paycheck, and now they’re going to tax it before I get it back? That’s like a double tax! Sadly, you read correctly.

While it might take a bit of math to figure out, there is generally a perfect amount to have in the tax-deferred bucket by the time you retire. In short, you want RMDs at age 70½ to be equal to or less than whatever your deductions happen to be in that year (which is $24,000 in today’s dollars).*4 In most cases, if you contribute only up to your employer match during working years, your 401(k) balance will be at or below this ideal amount by the time you retire.

Second, money distributed from a truly tax-free investment cannot count as provisional income. In other words, true tax-free investments do not contribute to the thresholds that determine whether your Social Security benefits get taxed. Not to pick on municipal bonds again, but interest on these bonds does count as provisional income and may cause a portion of your Social Security to be taxed. So, an investment vehicle widely touted as tax-free doesn’t even satisfy the two litmus tests required of a truly tax-free investment.

Once you approach the $189,000 income threshold for a married couple ($120,000 for singles), your ability to make Roth IRA contributions begins to phase out.

To determine if your tax-deferred balances are already too big, you must calculate the number of years until retirement, your contributions, employer match, and the rate of growth you anticipate on your investments. If your balances are too big, you’ll need to employ some of the shifting strategies we will discuss in the next chapter. A good tax-free retirement specialist armed with the appropriate software should be able to help you determine the ideal balance in this bucket today

It is true that the interest from municipal bonds is free from federal tax, but it’s not always free from state tax. To avoid state tax, you have to buy a bond issued by the municipality in which you live.

The United States currently spends roughly 76 cents of every tax dollar it brings in on four items: Social Security, Medicare, Medicaid, and interest on the National Debt.*3 Absent any action on the part of Congress, however, the percentage of the government’s revenue required to pay for these four big-ticket items could balloon to 92 cents of every tax dollar by the year 2020.*4 As these four expenses grow and compound, they begin to crowd out all other government expenditures.

Critical to your journey toward the 0% tax bracket is an understanding of the three basic types of investment accounts. For our purposes, we’re going to refer to these three accounts as buckets of money. The three buckets are taxable, tax-deferred, and tax-free.

Social Security Taxation To further complicate matters, when you don’t limit your investment in the taxable bucket, it can have unintended consequences for your Social Security benefits. In 1983, President Ronald Reagan and House Speaker Tip O’Neill helped pass a law that would tax Social Security benefits in order to ensure the long-term viability of the program.* Under this legislation,

the IRS created income limits, or “thresholds,” that determine whether or not your Social Security benefits will be taxed. The types of income that contribute to these thresholds are collectively referred to as provisional income. Any growth which you experience in your taxable bucket counts toward these thresholds and could potentially cause your Social Security benefits to be taxed.

since the pre-tax investment income from CDs is counted as provisional income, this couple was unwittingly causing their Social Security benefits to be taxed. Not only were they surrendering a portion of their investment growth to taxes, they were surrendering a portion of their Social Security as well.

Tax brackets rarely keep pace with real inflation, so you could find yourself in a much higher tax bracket just from inflation.

A deduction in a high tax bracket is always better than a deduction in a low tax bracket.

your real estate investment doesn’t just give you tax-free cash flow. It actually reduces your taxes on your salary and/or business income, because while there is positive cash flow of $7,000, the depreciation deduction of about $27,000 gives you a tax deduction against your other income of $20,000 ($27,000 less $7,000 to offset real estate income). That $20,000 additional deduction against your other income is worth $6,000 of reduced taxes on your other income in a typical 30% ordinary income tax bracket.

Remember that depreciation is a deduction, not a credit, so your benefit is based on your tax bracket.

Let’s say you own rental real estate that earns $10,000 each year in cash flow. Depreciation on this property is $15,000, so you get to report a $5,000 loss on your tax return ($10,000 positive cash flow less $15,000 depreciation equals $5,000 tax loss). In a 40 percent tax bracket, this $5,000 loss is worth $2,000 in tax savings to you.

Put your family to work. Make your business a family business. Then when you travel for business, your family’s travel is deductible. And you can shift income from your higher tax bracket to their lower tax bracket. This creates permanent tax savings.

In my client’s 40 percent tax bracket, that $4,000 in pay to their daughter means a tax savings of $1,600.

Here’s an example that might prove valuable to you: a friend of mine recently bought a New York City bond where he’s getting a 4% return tax free—which, for someone in a high tax bracket, is the equivalent of an approximately 7% return in a taxable bond!

The evidence is confirmed by the Statistics of Income for 1961, which breaks down figures on payments according to bracket, and which shows that although 7,487 taxpayers declared gross incomes of $200,000 or more, fewer than five hundred of them had net income that was taxed at the rate of 91 per cent. Throughout its life, the rate of 91 per cent was a public tranquilizer, making everyone in the lower bracket feel fortunate not to be rich, and not hurting the rich very much. And then, to top off the joke, if that is what it is, there are the people with more income than anyone else who pay less tax than anyone else—that is, those with annual incomes of a million dollars or more who manage to find perfectly legal ways of paying no income tax at all. According

A taxable investment is one that requires you to pay taxes on the account’s growth each and every year. Included in this bucket are common, everyday investments like money markets, CDs, stocks, bonds, and mutual funds.

All this unfettered taxation, of course, raises the question, “If these investments are 100% taxable, why have them at all?” The answer is liquidity. Generally speaking, it’s easy to get your hands on these investments, which means that they make for great emergency funds. Financial experts generally agree that we should have roughly six months’ worth of income in these accounts as a buffer against life’s unexpected emergencies. Having too little means that we can be forced to withdraw money from illiquid investments, incurring unwanted taxes or penalties. Having too much, on the other hand, means that we can be disproportionately affected by the rise of taxes over time. From a tax-efficiency perspective, therefore, investments in this bucket should be just the right amount: about six months’ worth of income.

Another reason to limit investment in this bucket is what I call the “double compounding effect.” As your balance in the taxable bucket grows, your 1099 (or tax bill) grows as well. To make matters worse, as tax rates rise, the amount of taxes you owe on that ever-increasing 1099 likewise increases. So, in a rising-tax-rate environment, your tax bill can increase at alarming rates!

It all comes down to deductions. Even if tax rates in the future are the same as they are today, you could still end up in a higher-income tax bracket in retirement than in your working years!

if you have a tax credit of $1,000, it reduces your taxes by $1,000, no matter what your tax bracket is.

if you’re going to have as much money when you retire as you do now, then you probably will be in a higher tax bracket than you are today. Why? Because you likely won’t have the deductions, exemptions, or credits that you currently enjoy for your children, for your house, or even for your business.

Inflation creates even higher tax brackets

In all likelihood, we could raise more revenue by increasing marginal tax rates on the highest income earners, for instance by introducing new tax brackets at the one-million- and ten-million-dollar levels of annual income.

I was about one demographic too old, one decade out of fashion, and two tax brackets too poor to hang with this crowd.

In these uncertain days, bond funds are an especially important option for investors. Unlike stock funds, they have high predictability in at least these five ways: (1) The current yields (on longer-term issues) are an excellent—if imperfect—predictor of future returns. (2) The range of gross returns earned by bond managers clusters in an inevitably narrow range that is established by the current level of interest rates in each sector of the market. (3) The choices are wide. As the maturity date lengthens, volatility of principal increases, but volatility of income declines. (4) Whether taxable or municipal, bond fund returns are highly correlated with one another. Municipal bond funds are fine choices for investors in high tax brackets, and inflation-protected bond funds are a sound option for those who believe that much higher living costs will result from the huge federal government deficits of this era. (5) The greatest constant of all is that—given equivalent portfolio quality and maturity—lower costs mean higher returns. (Don’t forget that index bond funds—or their equivalent—carry the lowest costs of all.)

As growth collapsed and economies went into recession, budget surpluses would disappear as taxation revenues fell and social security outlays rose to support the unemployed. This meant that government borrowing and public debt would increase.6 Budget deficits were now inevitable.7 But who would pay for these deficits in the long term? It wouldn’t be the financial institutions. No, it would once again be the little guy, the long-suffering taxpayer who, once economies eventually returned to growth, would see their taxes increase through ‘bracket creep’ until the debt was gradually retired.

I personally like the Roth flavor for a few reasons. The first: it’s like giving sixty-five-year-old me a little gift: “Here’s this lump sum of money that I already paid taxes on; go take Hot Luca on a trip to Costa Rica.” I also have no idea what the fuck tax rates are going to be when I retire. I’d rather pay them now than leave it up to chance. Also, most people’s salaries grow throughout their careers; I expect (hope!) that you’ll be making more in twenty years than you do today, so you could contribute and pay less in taxes now, when you’re in a lower tax bracket. In

The following is a list of the most common sources of provisional income: One-half of your Social Security income Any distributions taken out of your tax-deferred bucket (IRAs, 401(k)s, etc.) Any 1099 or interest generated from your taxable-bucket investments Any employment income Any rental income Interest from municipal bonds The IRS adds up all your provisional income and, based on that total and your marital status, determines what percentage of your Social Security benefits will become taxed. That percentage of your Social Security benefits is then taxed at your highest marginal tax rate. The provisional income thresholds are outlined below.