Tax Freedom Day is when you have paid up all your taxes for the year and you get to keep the rest. How much of the year do you have to work for the government?
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Speaker 1 (00:07):
And welcome back to 30 Minute Money, the podcast that delivers action-oriented smart money ideas and little bite-sized pieces. I'm Scott Fitzgerald in our luxurious, once again luxurious Bushnell's Basin Studio. Steve Wershing from Focused Wealth Advisors. Joining me, we're gonna talk about Independence Day.
Speaker 2 (00:25):
Speaker 1 (00:26):
Which growing up happy, happy Fourth as a kid, it was my favorite holiday because I blew stuff up. What
Speaker 2 (00:31):
Is that why? Oh yeah. Because you had to blow stuff up. Oh,
Speaker 1 (00:33):
Yeah. Yeah. Living in Florida now, I don't know. But did you grow up here? Did you grow
Speaker 2 (00:37):
Up in No, New Jersey.
Speaker 1 (00:38):
New Jersey? Well, so in Florida, the, the fireworks were always illegal, but for some reason, I could order them. And this was before online, you had to get the catalog. Oh, right, sure. And then could send away for it. I can order them from Blue Angel Fireworks in Ohio. Okay. And I can get bottle rockets, and I can get jumping jacks and firecrackers. Wow. Somehow. And I just remember sitting, sitting there at the door waiting for that big brown truck to come and deliver me my, uh,
Speaker 2 (01:06):
Speaker 1 (01:07):
Speaker 2 (01:08):
as I, I wish I could, I could wish I could remember this quote so I could remember who to attribute it to. But, um, I, the, one of the, one of my favorite quotes is that, that, that when men grow up, they have two great pleasures, two great satisfactions in life. One is taking a bunch of raw materials and creating something that wasn't there before. And the other is blowing it up. ,
Speaker 1 (01:30):
This is true . But so now, and so
Speaker 2 (01:33):
I wanted to have an Independence Day, uh, conversation today. I wanted to talk about freedom.
Speaker 1 (01:38):
Speaker 2 (01:39):
Uh, since that's what we will be celebrating is, is, uh, the, the birth of democracy on this continent. Um, so I wanted to talk about everyone's personal Independence Day. And by that I mean tax Freedom day. If you've never heard of the term Tax Freedom Day, it's a concept of calculating, um, how much you have to earn during the year to pay all of the taxes that you're going to owe before you start making money that you actually get to keep. Hmm. So if you took all of the taxes that you would owe through the year, and you took care of those first, when would you be done with that and start making money that you got to keep and that would be your tax freedom day?
Speaker 1 (02:22):
Interesting concept. That's, that's, so you're, you're talking about like basically out of income tax,
Speaker 2 (02:30):
Right? Well, yeah. I'm, I'm gonna lump a whole bunch of different taxes together.
Speaker 1 (02:33):
Speaker 2 (02:33):
All right. Hit me with it. And this is, and this is why I wanted to have this conversation, is because even the American Revolution was all about taxes, or a lot of it was about taxes. And so I thought this would be a good conversation. And one of the things that we can do by talking about it is talk about all the different ways that the government figures out how to take money from us. Because some of the, the, the more we can do about, the more of those, it's not just about federal income tax. They're all different kinds of taxes. Yeah. And the more you can do about 'em, the more you get to keep. Okay. So here's what we're gonna do. We're gonna take a hypothetical taxpayer and we're gonna calculate all the different things that, that, that that person has to pay. John Q Taxpayer, John Q Taxpayer, who happens to live in Pittsburgh Village, because we have to, you know, choose a location so that we can attribute property taxes and those kinds of things. So to
Speaker 1 (03:26):
The highest taxed places, Pittsburgh in New York, which is one of the highest taxed states in the,
Speaker 2 (03:33):
Well, it is one of the highest taxed states. I don't even, I'm not sure about Pittsburgh Village in terms of the area. I suspect it's probably, it's up there. Yeah, it's gotta be up there. It's up there. Yeah. . So let, let's take our John Q taxpayer and, and let's say that, that John makes about $150,000 a year and lives in Pittsburgh Village. So at $150,000 a year, um, he's going to owe federal tax, let's not be sexist about it. She's gonna owe, um, federal tax of about $33,000. Um, at 150. They're in the, uh, she is in the, um, 20 per 22% tax bracket. Um, she will owe New York State tax of about $10,000 if she's working for a paycheck. Then she has, uh, social security taxes that, you know, when you look at your pay stub, that's what's under F I C A, your FICA taxes, that's another 7.65%. So that'll be another 11,475 or so in Pittsburgh Village. Um, assuming that she owns a home that's about $250,000 in value. Mm-hmm. , then she's gonna owe in the ballpark of about a little over $10,000 in property taxes, 10,112. That includes village taxes, town taxes, and county taxes.
And then let's talk about some of the, um, some of the other taxes that, that are a little bit more invisible to people. One of the big ones is sales tax. So here in Monroe County, we, we pay combined sales tax of about 8% mm-hmm. . Now, on average in America, um, the, uh, the average savings rate for, for Americans is about 8%. So we spend about 92% of what we make. And so if you spend 92% of what you make, and you have to pay about 8% sales tax, this is a crude estimate. Obviously some things you don't pay tax on. And, you know, there, there's some other considerations, but just, just as a ballpark, let's say that you pay 8% on that $92,000, that's another $11,000 in tax that you've gotta pay. So the total taxes, now remember, you're bringing home, you're, you're bringing home a paycheck of $150,000 a year. Total taxes altogether. You adding this up as we're going, or you want me to give you the total? No, no, you do it because, you know, I'm the finance guy. I use Excel. Right, exactly. . So $75,902 is the total tax burden across federal income tax, state income tax, fica, real estate tax and sales tax. That's like
Speaker 1 (06:20):
Speaker 2 (06:21):
That's about a little, a little over here. A little
Speaker 1 (06:23):
Speaker 2 (06:23):
Speaker 1 (06:25):
I want half. That's what the government says. That's right. I want half of what you have.
Speaker 2 (06:30):
That's right. They would never say it
Speaker 1 (06:32):
Speaker 2 (06:33):
Way explicitly. Yeah. No, because then we would have another American Revolution. Right. Because
Speaker 1 (06:36):
Actually they want more than half. But ,
Speaker 2 (06:38):
They want as much as they can get, they want as much as they can get, because they, they like to spend money on programs anyway, that comes to just, just, you know, not quite 51% of that. So if we take 51% of the year that lands you on the 185th day of the year, that would be your tax freedom day in 2023. What date do you think is the hundred 85th day?
Speaker 1 (07:05):
Is it July 4th? It's
Speaker 2 (07:06):
July 4th. . Isn't that amazing? Actually, when I first calculated this, I didn't, I wasn't setting out to do that. And it popped up. Yeah. I did the calculations. I was like, come on. Seriously.
Speaker 1 (07:17):
But yes. That's funny.
Speaker 2 (07:18):
And it was very funny. So yes, July 4th is the nation's birthday. The, the day that we got our independence. And for this hypothetical Jane Q taxpayer in Pittsburgh, it would be her Independence Day to her tax freedom day. So just keep that in mind when we think about how important managing taxes is. Mm-hmm. , you know, when you put it all together, when you add up all the different ways we pay tax, you know, it's, it's, you easily could be paying over half of what you make to the government through all the different kinds of taxes.
Speaker 1 (07:51):
So now what, what's the catch? Is there a catch? Is there a plan ?
Speaker 2 (07:56):
Well, the, so the, the, the big tip is just be sensitive to how much you're paying. It's, it's, um, since we have payroll, uh, since, you know, since there is withholding tax mm-hmm. to pay a lot of that big one. And, you know, you're, if you're paying a mortgage, chances are you're escrowing your property taxes with your monthly payments. A lot of this is invisible. Yeah. And it, it's, and that makes it easy to forget. And a lot of the message that I want to get out is don't forget, you know, don't, don't let, don't be lulled into that, that comfortable spot where you forget how much of that income that you're working so hard to get is actually going to the government is not yours anymore. And, and that's why, you know, tax Freedom Day can be a great time to remember just how important active tax management can be.
Speaker 1 (08:40):
And you can find the Active Tax Management episode on 30 Minute Money. Yes. You can go back and listen to that one and you'll get even a cornucopia of information from Steve. Exactly. So have a 30 minute action item for this 30
Speaker 2 (08:57):
Minute action item. Calculate your tax freedom day, the day you get your independence from taxes.
Speaker 3 (09:07):
Your retirement is at risk, not from the stock market, not from inflation. Taxes are putting your retirement at risk. I'm certified financial planner, Steve Waring, and I specialize in helping people create low tax retirements. Unmanaged taxes can take 30, 40, even 50% of your retirement income. Learn how to defend yourself against excess taxation. Our complimentary webinar will cover all the principles you need to know to protect your money for you and your family, and keep it away from the government. This free webinar will cover how taxes are different in retirement, the taxes you pay in retirement that you don't have to pay during your working life. How to move tax savings into a tax-free environment. The Widows Tax, the Secure Act, the Secure Act 2.0 and what they mean to you. The webinar is free, but you have to register to save your spot. So go to focused wealth advisors.com/webinars and find out more and sign up right there. Even if you're not planning to retire for the next five or 10 years, this information will be critical for you. The longer you have to put the strategies into effect, the more you can accomplish. That's focused wealth advisors.com/webinars to find out more and to sign up today.
Speaker 1 (10:33):
And we'll be back next time with more interesting information about your financial wellbeing on 30 Minute Money.