User:Macatax

About taxes

Income tax should not be considered an expense. It is a percent of income sent to governments, leaving less income to pay expenses, including all other forms of taxes paid by consumers.

This can not be seen in family budgets. This is because they ignore the fact that the amount paid for a product or service is its price: its cost is the income one must earn to pay the price. To illustrate assume a taxpayer in a 33.33% income tax bracket who contributes $1,000 to IRA, expecting a refund of $333.33. The alternative is to contribute income. This option results in tax reduction rather than refund-- less tax withheld from pay.

With the refund option, this taxpayer has to earn $1,500, subject to $500 income tax, to have $1,000 savings to contribute to an IRA. The same dollar contribution can be made with $1,000 income via form W4. Taxpayer would then use $500 less income for the same dollar contribution. After tax, the result is $333.33 less cost to taxpayer. The extra cost of the refund option is always equal to the refund.

Taxes other than income tax are paid with savings. These should also be listed on form W4 to avoid hidden cost of tax equal to the refund. Form W4 is available from employer or by downloading from the internet (Google "Form W4"). Submit it to employer allowing six to eight weeks for IRS approval.