The tax laws in the U.S. seldom make sense to most people. Taxes are complex, complicated, and individuals feel there are too many tax breaks for the wealthy and corporations, while the poor and middle class are being taxed to the point of poverty.
An increasing number of people feel they’re experiencing taxation without representation, despite electing the members of Congress that enact tax law within the Internal Revenue Service (IRS). Warren Buffet, chairperson of Berkshire Hathaway, famously said he paid less in taxes than his secretary due to tax breaks.
A Tilted System?
Tax laws have been written in favor of the wealthy for decades, by people who are themselves wealthy. The reasoning is that tax breaks for the highest earners give those launching their own business something to which they can aspire. Once business owners make enough, they can take advantage of the same tax breaks as a form of reward. However, that doesn’t take into account the millions of Americans who will never own their own enterprise or be able to take advantage of those tax breaks. The most common are:
- Deduction of business expenses
- Hiring their children
- Selling inherited real estate
- Earn income from investments
- Deduct business expenses
- Roll forward business losses
- Purchase whole life insurance
- Purchase multiple homes or a yacht
- Contribute to a health savings account (HSA)
- Open a solo 401(k) Plan
There are a wide variety of more complicated methods and strategies that the wealthy can employ to reduce their tax burden.
That’s not to say that low- and middle-income earners don’t receive some credit or deduction opportunity on their taxes. They just aren’t on the same scale and include:
- Earned income tax credit (EIC) if they qualify
- Child tax credit (CTC)
- Child and dependent care credit
- Lifetime learning credit
- Adoption credit
- Student loan interest
- Medical expenses exceeding 75 percent of adjusted gross income
- Charitable contributions
At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs. We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today (843) 347-0849 and discover why our clients return to Peavy and Associates, PC year after year!