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Video instructions and help with filling out and completing Medicare surcharge tax on high-income taxpayers

Instructions and Help about Medicare surcharge tax on high-income taxpayers

Everyone bill Lessman here for money evolution dot-com and welcome back to another one of our daily live videos where we're broadcasting to you every week day Monday through Friday so this is actually episode number four last week an episode two I think it was I started to talk with all of you about what I referred to as the seven core elements of retirement planning and how each one of these seven elements is going to play a part in your ultimate retirement goals and some of the things that you want to accomplish in retirement things like knowing how much you retire is going to cost we talked about that a little bit identifying your gap where to save money what types of accounts are going to be best for your retirement dollars deciding when to collect Social Security obviously a big one we talked a little bit about healthcare costs and how that needs to play in there the 401k plan for many people is going to be another big aspect of your retirement and knowing how to unlock the full potential of that 401k plan as you get closer to your retirement starting to create that plan for income and then finally the last thing we get to after going through each one of those seven steps is choosing your investments and unfortunately many people start with number seven so what I'm going to do here today in this video is I'm going to be expanding on one of these seven elements we're gonna be talking about where to save money and specifically I'm going to be talking about some of the tax implications of where you save money and how that it might impact your retirement and the amount of money that you have for your retirement to be able to spend there so I'm going to clear this white board here and do my best to do that reasonably quick here and once again if you're watching this video and you haven't already go ahead and click the like button on our page at money evolution and that way when we're doing our updates you'll be sure to get notified on that and you'll be sure not to miss anything we're also planning and we're also planning on doing a rebroadcast of these on our youtube channel as well I think any day now I think we're gonna hit 200,000 views on our YouTube channel so if you're if you'd rather watch these videos on you you can head over there and subscribe to the YouTube channel and of course you can always get access to the videos on money evolution com so what I'm going to be talking about here is we're gonna be talking about some tax strategies specifically for individuals that might be in the higher tax brackets so first of all what is the problem well the problem here that I see is that if you have money.

FAQ

Do financially ambitious people from socialist countries like Norway want to come to the US and pay lower taxes?
What a stupid question.“socialist countries like Norway”Norway isn’t a socialist country.“Do financially ambitious people [..] want to come to the US and pay lower taxes?”Taxes are such a small consideration. People don’t generally make a decision on where to live based on taxes. Jobs? Yes. Opportunities? Yes. Markets? Yes. Schools? Yes. Public services? Yes. Taxes? Not so much.I do have friends from Norway who moved to the USA for business. For some strange reason, several have moved back within the past year.I’m downvoting this “Fox News” propaganda question.
What do you think is the solution to healthcare in the US today?
First lets consider the extremes: One one side is a completely free market system. On the other is a single payer system like Medicare. Before Obamacare, aka The Affordable Care Act, most people got their insurance through their employer. That works as long as you’re employed and your employer offers insurance. But if you’re self-employed, work for a company that doesn’t prbenefits, or unemployed, you’re pretty much left with few alternatives.Private insurance, before Obamacare, was too expensive for most people. Although policies varied from state to state, most had high deductibles, pre-existing conditions weren’t covered, many essentials services weren’t provided and there were caps on total coverage that limited payouts to essentially one serious medical event. You could be dropped at any time.As a result, millions of people, men, women and children, went without it. If you got sick or injured, you went to the hospital emergency room, where the cost of treatment is sky-high. By law, hospitals can not refuse treatment to anyone based on their ability to pay. As a result, they are forced to foot the bill for what’s known as “uncompensated care,” which runs into the tens of billions of dollars a year. Hospitals are allowed to pass those costs on to taxpayers through tax deductions. So ultimately, the government, read taxpayers, pay for their health services anyway.What I liked about the ACA is the fact that it sets up a hybrid system, government regulated but administered by private industry. It did basically four things.Set up exchanges to allow consumers to shop for policies among several insurance providers. A public option was also supposed to be included to foster competition but was cut from the bill by Congress at the request of the insurance industry. Congress also cut a provision that would have allowed the government to negotiate drug prices, which would have dramatically lowered the cost of prescriptions.Did away with most anti-consumer, insurance company shenanigans mentioned above, such as lifetime limits on coverage, denials based on pre-existing conditions, exorbitant deductibles and limits on essential services.Set up a system of subsidies to help low- and middle-income families pay for their insurance through tax credits and expanded Medicaid to cover families above the poverty line, but still considered low income.Set up a system to pay for the increased benefits by imposing a surtax on wealthy individuals and a tax penalty on people• mainly young, healthy individuals—and companies with more than 50 employees who refuse to buy or prinsurance.Unfortunately, Obamacare is not perfect. It’s a product of compromise in Congress and contains flaws.Many states, typically led by Republican governors, refused for political reasons to accept increased federal funds to expand Medicaid, leaving state residents twisting in the wind. Many of those same states also refused to set up state exchanges, forcing citizens to go through the federal exchange.Income levels used to determine subsidies to help pay for insurance were set too low. A large number of families that genuinely need help are ineligible under the current law, but are still subject to insurance premium increases.A number of states only have one insurance provider in their exchange or none at all. But that’s because most are very rural and don’t have the population density to support a provider or more than one provider. That’s something critics don’t mention and the drafters of the ACA didn’t foresee, although the public option may have been a solution.Despite the flaws, Obamacare has produced a number of benefits.Most widely publicized is the fact that 20 million to 26 million Americans now have insurance who didn’t have it before. Not only that, they are now receiving preventive care that lowers overall medical costs by heading off illnesses before they become serious and end up in an emergency room.All health insurance policies must include certain essential services.The cost of “uncompensated care” for hospitals has plunged dramatically, to the tune of billions of dollars, which means taxpayers are saving money as well.People and companies who gamed the system before by refusing to buy insurance or prcoverage, are now contributing their fair share to support the health care system.Although premiums have continued to rise, the increases are, for the most part, starting to moderate. Increases would be even more moderate if efforts to repeal the law in Congress weren’t creating so much uncertainty.The third option would be a single-payer system run by the government or by private insurers under contract to the government. This is the system that has been adopted in every major industrial nation in the world, except the United States.The benefits are pretty clear.Foremost, it would be free to all U.S. citizens.Like Obamacare, all essential health care services would be covered.The most likely model would be on the order of Medicare, which covers most costs, supplemented by a private insurance policy to cover the rest. Or, it could be a full-on system like Medicaid, where all costs are covered. Despite critics, the government actually has wide experience administering health insurance programs (Medicaid, Medicare, etc.) and could do so efficiently. With the power to negotiate both the cost of hospital services and prescription drugs, it could finally bring those costs under control.It would free employees from the fear of losing their health insurance if they leave their employer. That would free up the movement of labor in the economy, help improve wages and make it easier to start a small business, thus increasing innovation.So are the downsides, both real and perceived.The biggest is how to pay for it. Taxes would almost certainly go up. But who wouldn’t want to pay more for the peace of mind, knowing your tax dollars are being used to take care of your health needs? Plus, other sources could be tapped, like a dedicated national sales tax, a surcharge paid by employers, or a value-added tax on goods and services.There’s the perception that government provided-health care would somehow be inferior than the current system, or would produce long waits for treatment. Although those complaints have surfaced in other countries from time to time, that doesn’t mean it would happen here.Finally, there’s a notion that a single payer system is unacceptable because it’s “socialism.” That’s a political argument, and frankly, a scare tactic. Under that definition, any government program—social security, medicare, medicaid, farm aid, corporate subsidies, government research and development grants, government small business loans and more• could be considered “socialism.” It’s a red herring.Given the political realities a single-payer system appears to be off the table for the time being. That makes Obamacare the best bet to meet the nation’s health care needs. So let’s fix it.
How is the taxation system in Australia different from the US?
Due to the interpretation of Australia's Constitution and historical events, the states and territories have very few avenues to raise taxes. There are no state income taxes or sales taxes; the main state taxes are duties, land taxes and payroll taxes (paid by employers, not employees).The main taxes are levied at Federal level and these are income tax and Goods and Services Tax (GST) which is the same as what is called Value Added Tax (VAT) in other countries. Australia has Capital Gains Tax, but this is a set of rules to bring capital gains into taxable income for income tax purposes, not a separate tax as in the US. In Australia the IRS is called the Australian Tax Office or "ATO".Income tax in Australia applies to the worldwide income of Australian residents and the Australian income of non-residents. Australia does not have a citizen-based tax net like the US.The income tax year runs from 1 July to 30 June each year. Australia's income tax is probably nearly as complicated as US federal income tax!Personal Income TaxFor individuals there is a progressive tax scale from 0% for annual income $18,200 AUD or less, 19% up to $37,000 AUD, 32.5% up to $80,000 AUD, 37% up to $180,000 AUD, and 47% on income over $180,000 AUD per year. These are marginal tax rates, applying to income in the bracket from the lower threshold, not to total income. The 47% maximum marginal rate is a temporary rate until 1 July 2022 when it reverts to 45%.On top of this there is a Medicare levy of 2% of taxable income on annual incomes over roughly $26,000 AUD (Australian citizens and permanent residents are covered by free universal health care). This makes the top marginal tax rate 49% for individuals. There is also mandated private hospital insurance for single persons with annual income over $88,000 AUD or couples with annual income over $176,000 AUD. If acceptable hospital cover is not held a Medicare levy surcharge of 1% to 1.5% (depending on income) will apply.Tax deductions are limited to expenses necessarily incurred in the production of income. There are no deductions for dependants or home mortgage interest.About 70% of Australian taxpayers use government registered Tax Agents to lodge their personal tax returns, with the rest self-lodging using paper or electronic tax returns. The ATO provides lodging software free of charge. Self-lodgers must lodge their tax returns by 31 October each year; clients of Tax Agents have longer - in most cases until 15 May the following year.There is no form for couples to lodge jointly; each individual has to lodge their own tax return and include information about their spouse.Company TaxationAustralian companies pay income tax at a flat rate of 30%. The issue of double taxation on company dividends is addressed through a system of imputed tax credits. This system ensures that company profits passed on to shareholders in the form of dividends are ultimately taxed at the shareholder's marginal tax rate.To illustrate: If a company earns $1000 of taxable profit it pays $300 tax. If the after-tax profit of $700 is paid to an individual shareholder as a fully-franked dividend, the taxpayer is taxed on the $700 and also on the $300 tax paid by the company. In this case the taxpayer receives the $300 as a refundable tax credit. If the taxpayer's marginal rate is 34.5% (32.5% + 2%) they will pay $345 tax on the dividend from which they subtract the $300 tax credit. They therefore pay just $45 tax on the $700 dividend. If the taxpayer's marginal tax rate is 21% they will pay $210 tax on the dividend and the excess of the $300 credit can be used to pay the tax on other income or be refunded.Partnerships and TrustsPartnerships lodge tax returns, but do not pay income tax. Instead the taxable income flows through to the partners and is declared in their tax returns.Trusts are similar, in that net income normally flows through to the beneficiaries. There are circumstances in which the Trustee is taxed on the income, usually at the maximum tax rate.Superannuation Funds, which are a form of Trust for accumulating funds for retirement, are taxed at just a flat 15%. These are subject to very strict regulation to ensure that the funds are preserved until retirement.Goods and Services TaxBusinesses with turnover over $75,000 AUD per year are required to register for GST. GST is a 10% tax on added value, and is levied at every point in the distribution channel. GST charged to customers must be paid to the ATO and GST paid to suppliers may be claimed back. The net GST is paid monthly or quarterly.There are a number of exemptions to the GST, including most foods, medical services, bank charges and interest, and residential housing that is not new.Capital Gains TaxAs previously mentioned, Capital Gains Tax in Australia is not a separate tax but is a complex set of rules to bring capital gains into taxable income. Exemptions include cars, main residences and assets owned before 20 September 1985, and small businesses have a number of concessions available.Since 2022 Capital Gains Tax has been simplified so that individuals are taxed on only half of the capital gain on an asset owned for more than 12 months.Fringe Benefits TaxThis is a tax payable by employers on fringe benefits provided to employees. The most common benefits provided are company cars. Fringe Benefits Tax is levied at the maximum marginal tax rate, so in most cases it is better to arrange for employees to pay out the taxable value of the fringe benefits and reduce the tax payable to nil.Superannuation Guarantee ChargeThis is a tax payable by employers to ensure that provision is made for employees' retirement. It is payable if the employer does not pay into each employee's nominated superannuation fund by the 28th day after the end of each quarter an amount equal to 9.5% of their ordinary time earnings for the quarter. The Superannuation Guarantee Charge includes a provision for interest and administration costs, and is not a tax-deductible expense. The ATO then credits the tax payment to the employees' superannuation funds.ConclusionThe Australian tax system is structurally sound and works well. It is regularly reviewed and improvements made. It is complicated, but most of the complications are due to stopping loopholes (tax law is a trade-off between fairness and complexity).Australia does have a very progressive tax structure and a high maximum marginal tax rate for individuals, but Australian residents do get a good return on their tax dollars.I do not have a full knowledge of the US tax system so I cannot compare all points of the Australian tax system against the US system. Please be free to add comments.
Why don't Americans want Jeb Bush to be President?
Americans mostly don't want him because he isn't a very good candidate.He is the brother of a former President whose legacy could charitably called "mixed" and should more properly called "a disaster."   Despite trying to convince voters that he's his own man, his advisors are largely drawn from a collection of his brother's administration, which suggests that some of the more tragic mistakes of that administration could be repeated.He lacks the affable charm that his brother possessed.  He comes of as disconnected and pompous.Despite his reputation as being "the smarter brother", he doesn't act like it.  As a for instance, during one of the GOP debates, he tried to corner Rubio on  his record of not showing up for Senate votes.   Rubio was completely ready for it, and his response caught Bush completely by surprise.   Bush looked like he had been struck in the face.  It is like he never considered that anyone would fight back.Two Bushes really are probably enough.  People mistrust political dynasties.Perhaps most importantly, he's a relic from a Republican party which no longer exists.  The days of the "compassionate conservative" are over.  The days of a Republican who supports immigration reform are over.  Bush isn't a moderate by any means, but he stands to the left of most Republican candidates, and there is only space for candidates on the right.
Why do so many people not understand that a 70% marginal tax rate on top earners doesn’t mean that their gross salary is taxed at 70%?
As P T Barnum famously might have said,"No one ever went broke underestimating the intelligence of the American people."In New Orleans, we had a similar situation regarding property tax (On immovable property, to use Louisiana terminology for real estate).In New Orleans, and I think the rest of Louisiana, different types of property were assessed at different percentages of their (estimated) fair market value.The tax rate, or millege, was the same (as I recall) on all forms of property, based on the assessed value.Single family owner-occumpied residential property was assessed at one, lower, percentage; single family residential property which was rental property was assessed at another, and higher, percentage. For single-family owner occupied residential property a certain amount of the assessed value was exempted from taxation; this certain amount was altered from time to time. Commercial property was assessed at another percentage of actual value, industrial property at another. Agricultural property was assessed at yet another.This was a confusing situation, and one which seems inexplcable. The stated idea was for property tax to fall on income producing property only; one effect in New Orleans was that many, most, owner-occupied residential property, essentially all that type of property which was owned by upper-middle class or lower income owners, paid no property tax to the city or the state.As you can imagine there were some disputes and some chicanery about what type of property any parcel should be considered.So, a proposal was made to have all immovable property, all types of immovable property, assessed at 100% of fair market value, with tax rates on the different types of property adjusted if desired.This proposal, presented as an amendment to the state constitution, was soundly defeated by voters.What was the argument against what would seem a good-sense change?The argument was that: If property was assessed at 100% of its market value, the result would be that property owners would pay that 100% as taxes every year.Many people, a majority, bought this argument, conflating assessed value with the tax, or millage, rate.Surprising? Only if you over-ethe intelligence of the public.
In 2022. if I sell a house and made $400k in capital gain (sold $400k more than how much I bought the house for), do I have to pay the 2.5% Obamacare penalty on that gain when reporting taxes?
Please note that I am not a tax expert; seek out one of those for best advice.I suspect you’re talking about the 3.8% Net Investment Income Tax surcharge that Obamacare placed on high investment earners.The IRS, in Questions and Answers on the Net Investment Income Tax, says“In general, investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to the taxpayer (within the meaning of section 469). To calculate your Net Investment Income, your investment income is reduced by certain expenses properly allocable to the income (see #13 below).”Your profit is certainly a capital gain; you don’t speak of the holding period but unless you’re flipping real estate (in which case you’d know the answer already) this is likely a long-term holding.If it’s a personal residence, of course you should look into the benefits of that exclusion:“11. Does this tax apply to gain on the sale of a personal residence?The Net Investment Income Tax does not apply to any amount of gain that is excluded from gross income for regular income tax purposes. The pre-existing statutory exclusion in section 121 exempts the first $250,000 ($500,000 in the case of a married couple) of gain recognized on the sale of a principal residence from gross income for regular income tax purposes and, thus, from the NIIT.”That section also discusses various scenarios to illustrate your liability. For instance:“Example 3: D, a single filer, earns $45,000 in wages and sells her principal residence that she has owned and resided in for the last 10 years for $1 million. D’s cost basis in the home is $600,000. D’s realized gain on the sale is $400,000. The recognized gain subject to regular income taxes is $150,000 ($400,000 realized gain less the $250,000 section 121 exclusion), which is also Net Investment Income. D’s modified adjusted gross income is $195,000. Since D’s modified adjusted gross income is below the threshold amount of $200,000, D does not owe any Net Investment Income Tax.”If your wage income is also high, you may be subject to the Medicare tax:“14. Will I have to pay both the 3.8% Net Investment Income Tax and the additional .9% Medicare tax?“You may be subject to both taxes, but not on the same type of income.“The 0.9% Additional Medicare Tax applies to individuals• wages, compensation and self-employment income over certain thresholds, but it does not apply to income items included in Net Investment Income. See more information on the Additional Medicare Tax.”So with the sketchy information that you provided, the answer is a probable yes, you will owe the additional tax. But check with a tax professional to see how you might mitigate any additional cost.
What is the highest rate of taxation on personal income ever recorded historically and where did this happen?
In the 1950’s the top US federal marginal individual tax rate was as high as 91%.I don’t know whether that is the highest rate of taxation ever recorded historically, but it’s pretty high.The 91% marginal rate applied to very high incomes. For single taxpayers it applied to that portion of taxable incomes in excess of $200,000. On an inflation adjusted basis, $200,000 dollars in 1955 is the equivalent of about $1,900,000 in 2017.The tax actually paid any individual taxpayer is subject to a lot of variables, however. So, for example, the tax paid by a wage earner making $132,900 or less in 2022 has a surcharge social security tax of 6.2% . In addition there is a medicare tax on all earned income of 1.45% that has no wage limit. These taxes are theoretically different from the income tax, but in fact they are identical except that they are not subject to any deductions.Various special tax provisions have always applied to wealthy taxpayers in the US who are not ordinary wage earners. As a result, many of these people can legally pay a lower total tax than their gross revenue would tend to suggest. In addition, because an income tax does not reach increases in wealth unless those increases are “recognized”, many wealthy people can have significant increase in their wealth on which they do not pay current income tax.Under current US estate tax law, increases in wealth that are not recognized by the time of the owner’s death escape income taxation altogether.For 2022. the marginal tax rate for a single individual will be 24% for people with taxable incomes between $84,200 and $160,725. If we assume that most folks earning wages of 132,900 or less would fall in this taxable income bracket, the highest marginal tax for this group would be 31.65% (24+6.2+1.45).The 1955 federal marginal tax rate for taxable income of between $6,000 and $8,000 was 30%. The Social Security maximum wage base was $4,200 in 1955, so there was no social security tax applicable to this wage bracket. There was no Medicare tax in 1955. The wage bracket for $6,000–8,000 would be the equivalent of about $56,000–74,000 today.US federal income tax was generally somewhat higher for ordinary single individual taxpayers in every tax bracket in 1955 than it is today.
In general, do you pay more in taxes the more money you make and/or report to the IRS?
Always. The US income tax system is a progressive tax system—meaning the more you earn, the greater share of taxes you pay. The top 1% of taxpayers pay 40% of total federal income taxes according to IRS statistics.Income earned from an employer (W-2) or self-employment income (1099) is taxed a maximum of 37% + 1.45% Medicare Taxes + 0.9% ObamaCare surcharge (39.35%).In addition, most states have an income tax. The highest in the USA is California at 13.3%So the combined highest tax rate imposed on a high income earner, living in California, is 52.65% marginal tax rate—more than half. We’re told they don’t pay their fair share.PS No wonder some people choose to leave the beautiful state of CA for places like NV or TX. When they leave, CA collects zero from their higher tax rates. Called people voting with their feet. Same thing is going on in NJ/NY/CT.
Why is minimum wage in the USA just around $10 when it's around $18 in Australia? Why don't Americans pay living wage to working class people while also not providing universal health care?
The federal minimum wage is based on the presumption that you are frugal with your money and that you don’t have a lot of debt/expenses to pay for. It’s also used in jobs that are stereotypically held by teenagers (fast food, retail) who usually are still living with their parents (so no paying for rent/food/healthcare). Generally teens/young adults filling these positions would move up into a higher paying position or change jobs to again pursue a higher paying position. So in that sense, there’s little incentive to change the minimum wage.The problem with a living wage is thet your expenses (housing, car insurance, food) are going to vary wildly from place to place. San Francisco costs like $2022 per month just in rent. In Los Angeloes, I could rent for like $300 a month. It’s a huge country so lots of places to choose from.I may be wrong but in Australia, there’s not a lot of space where humans can live so space is at a premium. You need a higher we because your expenses are much higher while in the US you can choose a bit more.
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