Read Online The Bogleheads' Guide to Retirement Planning by Taylor Larimore, Richard A. Ferri, Mel Lindauer, Laura F. Dogu, John C. Bogle - Free Book Online Page B
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Sales Tax
State sales taxes became increasingly popular after Congress changed the federal tax code to allow taxpayers to deduct state sales taxes. Sales taxes range from a low of 2.9 percent in Colorado to a high of 6.25 percent in California. States also vary on whether food or drugs are taxed and at what rates. Local municipalities often add their own sales tax to these state sales tax rates. (California and Virginia have a statewide 1 percent local sales tax.) Five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) impose no sales tax.
Adjustments to Gross Income
States do not tax interest earned on U.S. Treasury securities, including savings bonds. Almost every state does not tax interest on its own state bonds, with the exception of most bonds issued in Illinois. A few states do not tax the interest on other state bonds, although that is rare. In addition, some states offer tax breaks for donations made for certain nonprofit activities.
Personal Property Taxes
Some states impose a tax on your property (such as a tax on your car that is charged annually when you renew your vehicle registration). This tax is calibrated to the market value of your vehicle and is deductible on your federal income tax. Personal property taxes are popular with city, county, and other local governments.
LOCAL TAXES
Although many communities extract local taxes, generally your largest local tax is your real estate tax. Real estate taxes are usually collected by counties, and the revenue is split between county use and public schools. The tax rates can be quite different from region to region. Real estate taxes are typically high when a state has low or no state income tax and low or no sales tax. Real estate taxes are deductible on your federal income taxes, along with sales taxes and state income taxes.
ADDITIONAL RESOURCES
• Your local library is a great resource for learning more about taxes. There are many fine books and articles. Make sure you read current information because the tax code can change quickly.
• The Internal Revenue Service prints Publication 17, Your Federal Income Tax for Individuals each year. This free document covers most of the information needed to prepare your return. For an online version, go to the IRS web site at www.irs.gov .
• To learn more about how different states compare across the entire range of state taxes, take a look at the following web sites:
• Retirement Living Information Center, www.retirementliving.com
• Tax Foundation, www.taxfoundation.org
CHAPTER SUMMARY
Taxes are complicated, confusing, frustrating, and a necessary evil. This chapter highlights that portion of the tax code that is particularly significant to the retiree. The amount you pay in taxes has a direct impact on your standard of living. Only by understanding taxes and their implications for your particular situation can you plan properly to minimize the amount you pay.
Several web sites can help you estimate your total tax liability based on where you live and how much income you have. There are many tools available on those web sites for doing an annual tax analysis. Time spent studying how taxes affect you will lead to better retirement planning decisions.
PART II
SAVINGS ACCOUNTS AND RETIREMENT PLANS
CHAPTER THREE
Individual Taxable Savings Accounts
Dan Kohn
INTRODUCTION
A taxable account is funded with after-tax savings. You are taxed on the income and capital gains from taxable accounts when you submit your personal tax returns in April. Investors open taxable accounts for different purposes: from saving for a house down payment to saving for retirement.
A taxable savings account is the most straightforward way of holding investments, though often not the best way because of tax considerations. As a general rule for retirement investing, taxable accounts should be your last resort if you are in a high income tax bracket. Tax-advantaged accounts help lower the amount of your
Sales Tax
State sales taxes became increasingly popular after Congress changed the federal tax code to allow taxpayers to deduct state sales taxes. Sales taxes range from a low of 2.9 percent in Colorado to a high of 6.25 percent in California. States also vary on whether food or drugs are taxed and at what rates. Local municipalities often add their own sales tax to these state sales tax rates. (California and Virginia have a statewide 1 percent local sales tax.) Five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) impose no sales tax.
Adjustments to Gross Income
States do not tax interest earned on U.S. Treasury securities, including savings bonds. Almost every state does not tax interest on its own state bonds, with the exception of most bonds issued in Illinois. A few states do not tax the interest on other state bonds, although that is rare. In addition, some states offer tax breaks for donations made for certain nonprofit activities.
Personal Property Taxes
Some states impose a tax on your property (such as a tax on your car that is charged annually when you renew your vehicle registration). This tax is calibrated to the market value of your vehicle and is deductible on your federal income tax. Personal property taxes are popular with city, county, and other local governments.
LOCAL TAXES
Although many communities extract local taxes, generally your largest local tax is your real estate tax. Real estate taxes are usually collected by counties, and the revenue is split between county use and public schools. The tax rates can be quite different from region to region. Real estate taxes are typically high when a state has low or no state income tax and low or no sales tax. Real estate taxes are deductible on your federal income taxes, along with sales taxes and state income taxes.
ADDITIONAL RESOURCES
• Your local library is a great resource for learning more about taxes. There are many fine books and articles. Make sure you read current information because the tax code can change quickly.
• The Internal Revenue Service prints Publication 17, Your Federal Income Tax for Individuals each year. This free document covers most of the information needed to prepare your return. For an online version, go to the IRS web site at www.irs.gov .
• To learn more about how different states compare across the entire range of state taxes, take a look at the following web sites:
• Retirement Living Information Center, www.retirementliving.com
• Tax Foundation, www.taxfoundation.org
CHAPTER SUMMARY
Taxes are complicated, confusing, frustrating, and a necessary evil. This chapter highlights that portion of the tax code that is particularly significant to the retiree. The amount you pay in taxes has a direct impact on your standard of living. Only by understanding taxes and their implications for your particular situation can you plan properly to minimize the amount you pay.
Several web sites can help you estimate your total tax liability based on where you live and how much income you have. There are many tools available on those web sites for doing an annual tax analysis. Time spent studying how taxes affect you will lead to better retirement planning decisions.
PART II
SAVINGS ACCOUNTS AND RETIREMENT PLANS
CHAPTER THREE
Individual Taxable Savings Accounts
Dan Kohn
INTRODUCTION
A taxable account is funded with after-tax savings. You are taxed on the income and capital gains from taxable accounts when you submit your personal tax returns in April. Investors open taxable accounts for different purposes: from saving for a house down payment to saving for retirement.
A taxable savings account is the most straightforward way of holding investments, though often not the best way because of tax considerations. As a general rule for retirement investing, taxable accounts should be your last resort if you are in a high income tax bracket. Tax-advantaged accounts help lower the amount of your
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