Sunday, December 16, 2007

When Taxes exceed living expenses!

My total federal tax bill is frightening. I don’t hear anybody else complaining about their tax bill, anymore. They must have lots of deductions. In fact, the only worry I hear is that they might get hit with AMT! AMT was designed to snag those folks that have lots of deductions. Its kind of mysterious – nobody can tell you what trips the AMT hammer. And none of my co-workers have ever paid AMT or know anyone that has! But, thanks to the media, everyone is talking about it. The fact is only 3% of taxpayers actually fall into the AMT crosshairs.

As I said my tax bill is appalling. Not only is it the single largest expense that I have, it exceeds all of my other living expenses combined.
Think about that…..

How is this Possible?
No 1. I own my own home, so I have no mortgage payments. This reduces my expenses significantly.

No 2. I am definitely frugal – I hate to spend money. Not only do I hate to use money, but I hate to waste things. Things like water, gas, food, you name it - I try to conserve it. I am not suffering. I live in a very comfortable, nice home with a large yard. I have two vehicles and several recreational toys – all are older models and paid off. I could afford much more, but its not necessary and I would not want the associated extra expense and waste that would go along with bigger, fancier places and things.

Calculating my Tax to Expense ratio
Anyway back to the taxes. I pulled up my last 2006 tax return and fired up MS money to get my total expenses for 2006. Dividing my federal tax paid by total expenses equates to a ratio of 1.21. So, my taxes are 121% of my expenses. Just wonderful. It won’t be long before I will be calculating my 2007 tax to expense ratio. From the preliminary data, I expect to set a new personal best (PB) for excess taxation. I can hope and wish for a fair tax or a consumption tax someday, but the reality is none of our politicians have the guts to completely overhaul the tax system. As bad as the tax system is today, I fully expect it to get worse.

On the Bright side - We are in a Tax Holiday
For now, we should all enjoy our tax holiday, because someday soon we are going to pay for the lack of this governments fiscal management. The country has a budget, just like a household and when expenses exceed income then we either have to cut those expenses or make more income. Pretty simple. The country gets its income from you in taxes. So, since the US has already bought the Iraq war and SS and Medicare are untouchable expenses, its clear we will have to pay for these things with higher federal taxes.


  1. You definitely need to update your profile because your saving ratio is now about 70%; a significant jump. Congratulations!

    The war, the SS are also the reason I am going to fund Roth 401k once my company offers it next year instead of the traditional 401k.

  2. Thanks. I appreciate the comments.

    My company will be offering the Roth 401k in Jan 2007. But, I can't bear to give up the tax deduction that I get with my trad 401k. I do have an external Roth and a trad IRA that I will convert to Roth in 2010, so maybe that will provide enough tax diversification.