19 Taxes and Counting
19 Kids and Counting is TLC's TV show about the Duggar family. I'm not sure what is scarier, the fact that they already have 19 kids or the rest of the title…"and Counting."
Our Federal, State and Local Governments don't lack for taxes. Here are the 19 Taxes…And Counting:
- Income Tax – Everyone is familiar with this. Every April 15th we need to settle up with Uncle Sam and our State Income Tax.
- Alternative Minimum Tax - The Alternative Minimum Tax ("AMT") is a nasty back door income tax. The AMT has the affect of taxing someone's income at a flat rate. This tax can potentially subject taxpayers to a flat tax of 28%.
- Capital Gains Tax - All taxpayers love the capital gains rate. The tax code gives a preference to so-called capital assets. Capital assets include stocks, bonds, mutual funds and real estate. Long term capital gains (those held longer than a year) are taxed at 15%. Short term capital gains (those held a year or less) are taxed at ordinary income tax rates. This can be as high as 35%.
- Social Security Tax - The social security tax is paid by both the employee and employer. The employee currently pays 4.2% and the employer pays 6.2% of the first $106,000 of wages paid in 2011.
- Medicare Tax - Like the social security tax, the Medicare tax is paid by both the employee and employer. The tax is 1.45%. There is no cap on the wages however. This tax is due on all of the earnings.
- Real Estate Tax – Local towns and counties will assess a tax based on the assessed value of real estate.
- Personal Property Tax - Many Local towns will assess a tax against personal property. The most common tax would be against motor vehicles.
- Sales Tax – Many States will assess a sales tax on goods and services. In Connecticut the sales tax applies to a broad range of goods and services. The sales tax rate was recently increased from 6% to 6.35% effective July 1, 2011.
- Use Tax – The use tax is the flip side of the sales tax. For taxpayers that buy goods out of state either online or through a catalog for which a sales tax was due but not charged, should pay a use tax. This tax is self- assessed.
- Estate Tax – The Federal Estate Tax is assessed against the fair market value on the date of death of a decedent’s asset minus any debts. The current Federal Estate Tax Exclusion is $5 million. A married couple that structures their estate plan effectively can exclude up to $10 million. Be cautious as the state exclusion may be less. In Connecticut the exclusion is $2 million.
- Gift Tax – A Gift tax can be imposed for gifts made to family and friends. There is an annual exclusion for gifts under $13,000 per year. Gifts under this amount do not require a gift tax return to be filed nor a gift tax paid.
- Generation Skipping Tax – The Generation Skipping Tax ("GST") is applied when a transfer is made more than one generation below the donor.
- Gas Tax - The Federal Gas is 18.4¢ per gallon. Additionally, many states will assess a gas tax. In Connecticut, the gas tax is 25¢.
- Cigarette Tax - The Federal Tax assessed against a pack of cigarettes is $1.01. Additionally, many states will assess a tax against a pack of cigarettes.
- Federal Unemployment Tax - Employers are subject to this tax on their wages. There is a credit allowed for state unemployment taxes paid. If the employer gets the full credit, the tax is .008 on the first $7,000 of each employee's wages.
- State Unemployment Tax – Employers may also be subject to State Unemployment Taxes.
- Excise Tax - There are numerous excise taxes. One of the more common ones is the 10% premature distribution penalty from an IRA or other qualified retirement plan.
- Luxury Tax - Some states will impose a Luxury Tax. For example, in Connecticut they will impose a higher sales tax on certain items over a certain dollar amount. Motor vehicles over $50,000, Boats over $100,000, Jewelry over $5,000 and clothing and accessories over $1,000 are all subject to a 7% sales tax.
- Wagering Tax – Proceeds received from gambling income is subject to Federal income tax. Gambling losses may be claimed as an itemized deduction up to gambling winnings. Gambling income is also subject to state income tax in Connecticut.
ACTION ITEM: That's 19 Taxes…and Counting. Consult with your CPA regarding your tax planning to minimize these taxes.
Thomas F. Scanlon, CPA, CFP®