How do you explain why hard-working Americans pay proportionately higher taxes than billionaires? Paul Caron, Pepperdine School of Law Dean writes, "Wage earners in their early 40s who have amassed a typical amount of wealth for people their age. From 2014 to 2018, such households saw their net worth expand by about $65,000 after taxes on average, mostly due to the rise in value of their homes. But because the vast bulk of their earnings were salaries, their tax bills were almost as much, nearly $62,000, over that five-year period." Compare that to the top 25 billionaires who pay only 3.4% when taking account their "true tax rate."
John Sabelhaus, a former Federal Reserve specialist, puts it bluntly, "If you're getting a W2, you're a sucker" in a recent ProPublica article that examines how billionaires use the tax code to avoid paying much, if any, federal taxes, all 100% legally. The basic gist is that a W2 and 1099 employee are open books for the IRS where computers can catch errors, whereas businesses can operate as a dense forest of interrelated partnerships, benefit from unrealized gains (which are untaxed and enjoyed by major shareholders of public companies), and write off expenses and losses against their earnings.
We are here to help you understand how to keep your hard earned money as a W2 and 1099 employee. And we are also here to put in your ear the possibility of opening up a small side hustle. Contact us to ask your questions at info@tracystaxservices.com. Make sure to sign up for our newsletters to stay on top of current tax advice by emailing us as well.
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