This week in the tax office I would like to discuss where you may be on the income spectrum. What spectrum you ask? Well, we all talk about the 1 percenters, but do you know where your annual income puts you on the spectrum? Do you live in a high priced area in our country? We are talking about cities and suburbs of cities. Those places where the average home price is around three quarters of a million dollars after the pandemic crazy and in some places closer to a million when only 2 years ago they were worth $750k. If this is you and your family chances are you have an income higher than $72,000 for your family of four. This is relevant because $72,000 is the median income for the United States for a family of four according to our federal government and the Internal Revenue Service. I live in one of the most expensive places in the US. The SF Bay Area. If you are making $72,000 with a family of four you are low income, no where near the middle. Chances are if you live in a high dollar area of the US you are making something closer to double that amount. $150,000 per year. At $150,000 per year you make more money than 82% of US earners. That’s basically calling you the 18 percenters. At $200,001 you are in the 97th percentile. The 3 percenters. Both of these incomes are being taxed very aggressively because the IRS doesn’t make adjustments for cost of living. So sure if you make $200k in a rural middle of the country state and town you probably feel a bit rich. But for the rest of us living paycheck to paycheck in higher dollar areas the feds taxing us as though we are rich feels like a slap in the face. What’s your percentile? There are many websites that offer that calculation. Just type in “what’s my income percentile?”. Just knowing the reason you’re being taxed at a higher rate can reduce your stress about it.
These are important dates to remember. For Individuals (just a quick fyi: this means family too, individual is as opposed to a business return) April 15 of every year is considered the Last filing date. Generally you can think of February 1 of every year as the First filing date. These dates aren’t set in stone anymore. We have added holidays, and if there is a pandemic, (who would’ve thought, huh?) and now that the IRS (Internal Revenue Service) does almost all tax return filings electronically, the start date is when they are ready for that influx of electronic information. So the beginning and ending dates have changes sometimes. That’s why it’s a good rule of thumb to use February 1 as the start and always April as the final day to file your individual tax return. October 15 is the last day to file your individual tax return if you filed an extension. Extensions have to be filed by April 15 as well. An extension is an extension to file not to pay! This means you should only file an extension if you know you get a refund. You can file an extension if you know that you will owe but you have to make a good faith payment with the extension in the amount you think you will owe. Here is a rod bit; if you know you owe every year you should file your taxes on the first day so you have time to gather the money.
For Corporations (this is not a side business, this is a separate entity that has filed titles of incorporation) the last filing date is March 15 and the last day to file with an extension is September 15. These dates won’t apply to most individuals. Just knowing these dates and having them set in stone in your mind will relieve some of the stress with taxes. These dates were common knowledge, but somehow they have become unknown in our younger developing society. Let’s take control and get to know our own tax returns so we can make the best decisions for ourselves and our families.