Income Taxes – One Size Fits All or Not Really?
When it comes to income taxes, this is probably a subject that irritates most people. They get upset with the amount of money their hard work has to go to income taxes. People then have to spend a good portion of their time just doing their income taxes every year.
Then they listen to the media hype on it and get extremely upset over how some people seem to make all kinds of money and pay very little taxes relative to their income.
They are told and then assume that there are different rules for different people and that life is not fair.
Recently, they wonder how could our current President have allegedly paid little or no income tax for many years and still be a multi-billionaire.
How does that work?
So let’s get something extremely clear on this point. The question is how many IRS tax codes are there anyway? How many different codes did Congress enact and the IRS creates regulations over?
The answer is actually quite simple and eye-opening. The answer is that there is only one tax code, with a huge number of sections. Let me say that again.
There is only one IRS tax code, but it contains a huge number of sections!
This little phrase is to drive home the point that the IRS code applies equally to all Americans. It is just a question of which part of it do you want to apply to your life legally.
In many ways, it is a matter of choice.
Let’s look at a few examples that most will understand. Let’s take two individuals who work at the same company and both bring home a gross pay of $80,000 per year.
They share adjacent cubicles, doing the same job. However, one pays let’s say only an effective rate of 8% or $8,000 and the other pays an effective rate of 12% or $12,000, as an illustration.
What is the difference? The difference in our scenario was that one had a mortgage on the home they bought with an interest deduction and the other did not. They simply rented their residence out! Was this a different tax code? Of course not!
The difference was in the choices that these two individuals made in life and how those choices affected their tax liability.
It was not unfair, it was all part of the same tax code. The same could be said of these two individuals where one decides to have a spouse and children and claim more exemptions.
This all changes the tax liability under the same IRS tax code.
One of these individuals could also decide to start a small business on the side in which they can start claiming business deductions, where the other one who did not make the same decision cannot get these deductions.
How about real estate investing are there now depreciation and income versus expense items that come into play? Yes, of course, there are.
Now, this does not mean that the IRS tax code is perfect, or does not need to be revised and overhauled from time to time.
Maybe there is a fairer system like a fair tax or a retail sales tax in lieu of an income tax. That is for the politicians to decide on what is the will of the people who put them into office.
For now, the point of this article is to show you that the IRS tax code really is a one size fits all.
It is just a matter of your personal choices and what part of the different sections do you wish to implement for your benefit in life.
The only thing you should understand is that the IRS code benefits you the more you understand it and apply it.
I know that this is easier said than done, but do not think that there are different rules for different people. Now go out and legally reduce your taxes.