Hey everybody! Awhile back I did a post on my minimalist budget and today I want to follow up with the information on taxes. I didn’t include this in my “number” because there really isn’t much that I can do to change the numbers (short of making less money, changing 401k contributions, or consuming less….none of which I’m really interested in exploring). So, here is an example of how much taxes eat away at your salary. For obvious reasons, I didn’t use my actual salary, but I think the point remains.
Wow! Fourteen thousand one hundred and sixty one dollars! That is only $1,132 less than my living expenses. Obviously, this will make a big impact as to when I can achieve financial independence. Here are the details of how I calculate these amounts for those of you interested:
Social Security ($3,100): This is taxed at 6.2% up to $113,700 for 2013. Keep in mind that your employer matches that amount, so it could be argued that I make 6.2% less because of that…but I didn’t include that in here because who is to say that my employer would actually increase my pay.
Medicare ($725): Another mandatory 1.45% comes out for Medicare. No limit on this one. Employer also matches.
Federal Taxes ($5,686): I calculated this based on a single filer paying $1,400 in health insurance and not making 401k contributions. So in real life, it’s probably a bit lower because of my contributions, but not much since I don’t max that out.
State Taxes ($2,093): I live in Missouri and they tax based on Federal AGI, so this would change with that. Luckily, I don’t live in St. Louis city anymore, so I don’t pay city taxes! 1% raise, woot woot.
Sales Taxes ($219): The rate in my area is 8.43%, which is pretty reasonable for the whole state or any metro area, really. I’m assuming the $50 miscellaneous amount in my minimalist budget is taxed at this rate.
Fuel Taxes ($170): $0.184 to the federal government and $0.17 to good ol’ Missouri. Assumptions are 12k miles per year and 25 miles/gallon. Yea! for a Civic.
Alcohol Taxes ($47): Here it got interesting. The federal and state government can’t agree on a unit of measure for this one (gallon, liter, can, etc). You can look up the rates if you’d like, but my assumptions included 1 bottle of wine per week, 10 cases of beer per year, and 5 bottles of hard liquor per year. This would include things that I but for friends’ housewarming, Super Bowl parties, birthdays. Don’t judge me.
Cell Phone ($52): I have a Republic Wireless plan for a whopping $19/month. These taxes are based on the amount of the service, and I still pay $4.37 each month for this! Holy FCC charges, batman!
Air Transportation ($203): I take about 3 flights per year and they are generally $400 a pop. From my September trip to Portland to visit family, this included a whole $67.74 in taxes. Per the receipt, we had the following:
$15.60 U.S. Flight Segment Tax
$10.00 September 11th Security Fee (I guess the terrorists won)
$18 U.S. Passenger Facility Charge
Property Tax ($50): I own a super sweet 1997 Honda Civic LX valued at $1,000 on a good day. This is a lot higher for my friends with newer/nicer cars. Another plus to owning a clunker.
Tax on Groceries ($32): In Missouri, groceries are taxed at a lower rate. 1.2225% to be exact. I assume that my full grocery budget ($200/month) is taxed at this rate.
Property Tax (paid through rent – $1,784)): Ok, I don’t pay this one directly; however, if my landlord didn’t have to pay it, there’s a strong argument that my rent would be lower. The amounts I found were $6.0831 per $100, 19% of value is taxed, and then add on a $50 sewer fee for good measure. Zillow.com says the condos in my area go for around $150k, so that’s what I used.
Car License Fee ($25): They can call it a “fee” all they want, but I’m onto their game. This amount is used to fix roads (wouldn’t know that in North City) and keep them cleaned off in the winter (HA!) and allow people the privilege of dealing with DMV employees on a regular occurring schedule. I pay about $50 every two years, so I just put $25/year because, math.
There are also quite a few excise taxes that don’t even apply to me. Per Wikipedia, this includes luxury passenger automobiles, heavy trucks and trailers, “gas guzzler” vehicles, tires, petroleum products, coal, vaccines, recreational equipment, firearms (see National Firearms Act), communications services (see Telephone federal excise tax), air transportation, policies issued by foreign insurance companies, wagering, water transportation, removal of hard mineral resources from deep seabeds, chemicals, certain imported substances, non-deductible contributions to certain employer plans. It also includes tanning (Thanks, Obama), gun purchases, cigarettes – including paper and tubes.
Fun fact: In the state of New York, you will pay tax of $4.35 per pack of cigarettes. No better reason to quit!
Alright, that’s a breakdown of how I did this exercise. It’s depressing, but I guess that’s the cost we pay to live in a country that threatens government shut down and can’t pass a budget.
Do you think I can improve any of my assumptions? Would you have guessed lower/higher? Any idea how much you pay each year?