157 comments

The Lovely Low Taxes of Early Retirement

Despite the occasional complaints voiced by those who feel they are Taxed Enough Already, I’m always pleasantly surprised at the low tax rates that US residents pay (myself included).

I guess it all depends on your frame of reference: the Canada that I left in the late 1990s had a marginal income tax rate of about 50% at the time, which kicked in at an income of about $60,000. I had almost reached the top tax bracket just two years out of school, which I found was a disincentive against going on to earn a much higher income. Since then, Canada’s tax rates have dropped drastically, leaving them much more competitive with the US.

But for this article, let’s see exactly how good or bad the situation really is, using the Money Mustache family as a case study.

Looking at my recently-filed tax documents, it looks like we had about $72,000 of income for the 2011 tax year. That’s a mix of the rental house income, dividends, a few carpentry projects for me, a bit too much part-time work for Mrs. MM as she helped some people through an unexpected crunch, a bit of blog income and some capital gains. It was an unexpectedly flush year, and we’ll do our best to earn less in 2012, lest the Internet Retirement Police start hassling us again about being “not really retired”.

Countering this rather large income was the $1000 child tax credit, tuition credits for little MM’s preschool, and of course the wonderful $11,600 standard deduction for two people married filing jointly.

When you add it all up, our Federal taxes (including social security and medicare) were $4884, with an additional $2211 of State tax for Colorado. So $7095, or just under 10% of the income went to the tax man.

That’s pretty reasonable, considering that it was such a bumper year of income. I’ve got Turbo Tax open in the other window right now, so let’s see what happens if I delete all the extra income and keep only enough to pay for our regular spending of $27,000. To provide a nice safety margin, I’ll scale everything so it adds up to about $30 grand. Here’s how I’ve got it split up:

Wages and Salaries: $19,000
Taxable Interest: $59
Ordinary Dividends: $373
Capital Gains: $5190
Business Income (Schedule K-1): $5501

Total:  $30,123

Now let’s pull the lever and see exactly what we would owe on this level of income:

Federal Tax: $654 (mostly self-employment tax)
… then subtract the $1000 Child Tax Credit to get:

Net Federal Tax: -346
Net Colorado Tax: $208

Total tax: Negative One Hundred and Thirty Eight Dollars.

Wow. That’s a pretty affordable tax bill, considering it’s on over $30,000 of income, still a relative shitload compared to what one needs to live a happy life in this country!

This is of course an arbitrary income mix caused by me hastily deleting things at random from my own tax return. But at least I have some wage, dividend, capital gains, real estate and business income like a normal early retiree might have. Let’s change it again to see what the situation would be for someone living entirely off of dividends:

Dividend Income: $30,123

Running it through Turbotax again, I get….

Federal Tax $0 (but apparently lazy people with no regular income do not get the $1000 Child Tax Credit, so no refund this time)
Net Federal Tax: $0
Net Colorado Tax: $322

Total tax: $322

This is an interesting result: the first case of regular income, even with the dreaded 13.3% “self-employment tax” comprised of medicare and social security contributions, is actually more tax-efficient than the dividend earner’s setup.

People using rental real estate as their source of passive retirement income will have it even better: The depreciation allowance effectively shields 30-50% of your rental income from taxes during the early years of owning a rental property. This benefit slowly fades away over a 30-year period and only then will you pay full income taxes on the rental income. I’m getting this benefit on my own tax return, but I excluded its effects from this article, to avoid confusing the issue and to allow an apples-to-apples comparison.

But in any of the above cases, the income taxes paid by a family like mine living  on a retirement-level income are still approximately zero. This is why I rarely mention taxes when calculating things like the safe withdrawal rate. The unfortunate folks who do their retirement planning with the “you’ll need 90% of your peak career income to sustain you in retirement” financial advisers will indeed need to plan for taxes. But we Mustachians will fortunately slip nicely under Uncle Sam’s radar.

Of course, many of us will accidentally earn more than we need even in retirement, and we’ll end up paying thousands in taxes each year because of it, just like I did this year. That’s a happy compromise as well, as long as you’re not an anti-tax activist. I’m aware that I’m using the many resources provided by this country, so I don’t mind paying taxes for them. But since my entire lifestyle fits within the Zero tax bracket, I am only paying tax on the surplus income.

That makes me feel like the whole situation is entirely under my control. I can continue the current course, which works well for me. If I later decide I hate the government, I can strategically earn less money so I pay negative taxes as described above.

If I still like earning lots of money in order to maximize my power to do good in the world, but insist on paying no income taxes, I can even structure my work into the form of a charitable trust or nonprofit. This entity would pay me just enough money to get by without paying taxes, and it would donate 100% of its remaining income, tax-free, to scholarships for underprivileged kids, or schools and health care for African villages, or even Face Punching machines to be installed in shopping mall parking lots.

The world becomes a blank slate to be used for your own enjoyment. It’s  just another example of the freedom you get in early retirement. And it’s just another example of why I don’t accept complaints about taxes around here*. Save your money, build your ‘stash, and then the ball is entirely in your court .. for life!

 

 

* politically-charged complaint attempts deleted from the comments section of this article so far: 18

  • TK June 4, 2012, 6:31 am

    This is the fundamental problem with the tax structure in the US – the base is not broad enough. People on the bottom don’t pay a thing, people on the top pay the lions share of the total pie but at really low effective rates, and people in the middle (the regular working stiffs) get squezzed because they pay a high percentage of income but don’t make so much that disposable income is really high (these people are still doing fine though, especially if MMM style). Don’t get me wrong I would love to be in a situation to take advantage of it but unfortunately I still work for the man and pay a lot more in taxes around 30%(although compared to the rest of the world the percentage is still relatively low). The good news is there will never be any traction to increase taxes on the lower end (although dividends & capital gains could be on the list) so managing to a $30k life or less should prove to remain relatively tax free.

    Reply
    • DaftShadow June 4, 2012, 6:06 pm

      So you’re saying that the US tax system life-supports those with low-incomes, taxes workers at a graduated scale based on earning power, incentivises those who climb highest on developed ladders to try jumping ship to create their own ladders, AND stays fairly competitive with worldwide rates on investors so they keep their cash money invested here!?!

      Those bastards!! :-)

      Reply
      • Mr. Money Mustache June 4, 2012, 8:50 pm

        Nicely Put, Daft Shadow! I really fail to see TK’s point here, probably because it’s such a contradiction to what I wrote in the article.

        - there are no income taxes on the poor and lower-middle class incomes, as I showed here
        - taxes on my upper-middle-class income of $72k this year were still under 10%
        - people with incomes above that are in a position to retire after only 10 years of work, returning to point 1 above.
        - even richer people get to write their own rules regarding taxation through business ownership.

        So who exactly is getting squeezed? We have all got it fuckin’ great, except for the people who have to balance a budget based on the minimal taxes we all pay.

        Reply
        • Eldred January 15, 2014, 8:04 pm

          I’m trying to figure out how you kept your taxes to $7000 out of $72000 income. I’ll have to check, but it seems like I paid about $11500 on $55 or $60k… :-(

          Reply
          • Doug February 15, 2014, 4:10 pm

            I think it’s because he is married filing jointly so the standard deduction is higher than if you’re filing as a single person. Then of course there are 3 dependents (MMM MrsMM, JuniorMM).

            I personally paid 13.8% effective tax on ~65k income as a single filer

            Reply
    • Mr. Everyday Dollar June 5, 2012, 4:52 pm

      Good read. I had been figuring my WAM (Walk Away Money) to be right around $1,000,000. I came to this number on the back of a napkin by how much money I would want per year and that was about $42,000. Generating a 5% return off of $1,000,000 – which is $50,000 – and chopping off the 15% the tax man gets – which is $7,500 – gives me my $42,000. I need to dive into the tax code but it looks like the tax man might not get that much which would effectively decrease my WAM number!

      Reply
  • The Edge of Cultivation June 4, 2012, 6:32 am

    This is something of a surprise. I thought our US cousins were fortunate to have a much lower tax load than here in the UK, but actually it seems like for those on a Mustachian level of income, it’s much the same.

    In the UK, we’ve just been the beneficiaries of governmental largesse in the form of an increase to our ‘tax-free allowance’ – the portion of income that is free of income tax – up to £9,205 (c$14k) per person from April next year.

    Incidentally, there’s no concept of joint filing for married couples here, although it’s perfectly legal to transfer productive assets between each other to route income through the spouse with the lower earnings (and hence tax).

    The UK tax code is one of the most byzantine in the world, especially at the lower end, with myriad benefits, tax credits and allowances all interacting.

    Reply
    • jet June 4, 2012, 8:30 pm

      Here in Australia our tax free threshold is only $6000 AUD … like to see a person try to live on that.

      Reply
      • Frances June 5, 2012, 5:33 pm

        It’s $18,000 now, right? This makes student-me very happy.

        Reply
        • Neo June 7, 2012, 10:32 am

          From 1st of July it will be $18000 tax free (in Australia) although this seems a huge change from this years $6000 tax free they are also reducing the low income tax offset from $1500 maximum to $450 and introducing the carbon tax.

          Reply
    • Monevator June 8, 2012, 2:11 pm

      Agreed, the personal allowance rising in the UK is a boon for those of us planning alternative lifestyles. Let’s hope £10K is just the first stop. I fully intend to always do a bit of work even when opted out from *having* to.

      (From a fellow UK citizen! :) )

      Reply
  • October MacBain June 4, 2012, 6:33 am

    “…or even Face Punching machines to be installed in shopping mall parking lots.”

    This is why I love MMM.

    Reply
  • Will June 4, 2012, 6:35 am

    Great post, nice to see the math broken out. Here in the south we’re always hearing about how we’re taxed too much but we have some of the worst schools, roads, and public programs. I am often amazed that people have such a hard time understanding the cause and effect.

    Reply
  • rjack June 4, 2012, 6:36 am

    MMM, This pretty much confirms what I learned from both you and Mr. ERE (Jacob). Driving down annual expenses is more advantageous than trying to increase income/revenue. You get a permanent savings from the expense reduction and additional savings from a tax decrease. It is the Double Whammy Advantage!

    Reply
    • mike crosby January 7, 2013, 3:51 pm

      Very late responding, but this is such an excellent point.

      Frugality allows one to live on less, be more happier, FI earlier and pay lower taxes on the back end. Not bad.

      Reply
  • Dillon June 4, 2012, 6:47 am

    I do take pride filling out taxes, regardless of how much I owe and it would take some drastic changes for me to complain. That being said, I am 26 and guilty of planning for a retirement that would be taxed heavily (and IS being taxed heavily) if I continue to contribute as I am and tax laws/MRDs don’t change. This seems to go against the grain of many, but I would love to leave a nest egg to help pay for weddings and tuition 1, 2, maybe even 3 generations on down the line. I won’t delve into those reasons here but I’ve evaluated it with my fiancee and we feel it is a net positive situation. I currently put 75% of my contributions in a Roth 401k with the other 25% in a normal tax-deferred 401k and plan to move all Roth 401k monies into a Roth IRA upon retirement. But back to the article……yes, there is a lot of general discontent with income taxes but I think it is great to live where you can have control of how much you make and how you earn it, thus affecting your personal taxation. To each their own.

    Reply
  • Kathleen June 4, 2012, 7:27 am

    What really adds up are the more local taxes like school and property taxes. I paid $5,200 in school and property taxes on a house assessed at $206k

    Reply
    • Reido June 4, 2012, 7:47 am

      Hahaha I hear you!
      I paid over $5k on a house worth $128k!! Upstate New York…

      Reply
      • Kathleen June 4, 2012, 6:32 pm

        Yup I’m in update NY also

        Reply
      • BrianA June 8, 2012, 2:56 pm

        Me too! Upstate NY. I was reviewing my numbers recently and I just keep seeing the need to move out of NY. Housing costs are relatively low where I live but are more than offset by high taxes.

        Reply
        • Reido June 25, 2012, 4:32 pm

          Yes! I am actually looking at the possibility of moving due to the tax rates! Between the income and property taxes I’m losing thousands of dollars per year when compared to the Midwest or the West… All that money could go to building some ‘stache!

          Reply
      • Dan February 15, 2013, 12:47 pm

        I live in Tennessee, my house is assessed at 373k, and my wife and I pay combined $2406 per year. TN also has no state income taxes and very nice weather most of the year. You need to move, if you live in NY, that’s your problem, a solvable one if you get off your behind. I grew up in WI, but had the chance once I got married to move and did so gladly, have no desire to move back.

        Reply
  • KC June 4, 2012, 7:29 am

    This is my favorite PF blog ever. I have followed several for years and this is by far the best one. I have read all the posts and find the information both helpful and entertaining. My favorite 2 very helpful bits of information I have picked up – how to make a small car bigger (we have a hatchback) and adding oats to stretch cereal and make it healthier.

    Now a question about his post – “tuition credits for little MM’s preschool” – what credit? was this a state tax credit? The only possibly applicable credit I could find is the child care credit, and it specifies both parents must be working (for pay) or looking for work during the entire time the child is in daycare (or preschool), and if not the tuition must be prorated so that only the time period the parents were working is given credit. I have a child in private preschool so if there is a tax credit I’m not aware of that would be great. I work, but not during the time my kid is in school so I don’t qualify for the child care credit.

    Reply
    • Ginger June 5, 2012, 11:33 am

      Or one spouse may be a full time student, if you are married filing jointly.

      Reply
    • Joe June 5, 2012, 12:39 pm

      Hi MMM,

      Did you ever answer KC’s question about the tuition credit for pre-school?
      Was that a state credit? Or were you able to qualify for the federal credit?

      I enjoy your blog,
      Joe

      Reply
      • Mr. Money Mustache June 5, 2012, 4:32 pm

        Yeah, I think somebody else above gave it the correct name – it was a child care tax credit. If both parents are able to show some income, and you pay tuition/fees to a preschool or daycare facility and get a receipt, the cost is partially deductible.

        Reply
  • Another Reader June 4, 2012, 7:43 am

    Not sure why you think Colorado is a low tax state, with a flat rate of 4.63 percent. It’s better if the bulk of your taxable income is from pensions, taxable IRA distributions, and Social Security, because it looks like either $20,000 or $25,000 of the taxable income from those sources can be excluded from state taxation, depending on your age (over 55 or 65). With no earned income, a lot of rental properties, and a chunk of excluded income, Colorado could be a good deal, taxwise. For folks with a lot of taxable income and a choice of where to live, moving a little further north to Wyoming might be a better choice. No state income tax in Wyoming.

    The numbers look like in 2011 you relied completely on earned income, not your stash. It sounds like you had a lot of earned income in 2011. At least half of the net from the gross total of $72k went into your stash, based on your savings rate as stated elsewhere. I’m guessing the capital gains and dividends were reinvested as well the earned income.

    The purpose of selecting out the $30k is to illustrate the tax on the smaller income. It’s confusing, even though it’s meant as an illustration.

    I would really like to hear about where the $72,000 went. How much was spent and in what categories, how much went to taxes, and how much went into savings and investment. In other words, The MM Family 2011 Income and Expense Statement. Seeing where the money went would open a lot of minds to the possibility of FI on a more typical family income and to the benefits of unearned and tax sheltered income.

    Reply
    • Mr. Money Mustache June 4, 2012, 8:07 am

      Wait a minute there Another Reader:

      “The numbers look like in 2011 you relied completely on earned income, not your stash”
      How can you discern this? I didn’t post the details of my actual income – I gave you the actual taxes we paid (around $7k), but not the income breakdown. I can assure you that the passive portion of the income was greater than our spending, and the rest of the income – regardless of source – went to savings.

      Good points about Colorado tax structure though. I actually know one MMM reader who is moving to another state next year because he expects a huge chunk of income, and he wants it to be captured in a no-income-tax-state. When I say it’s a low-tax place to live, I mostly mean property taxes since that’s what matters more to retirees. But the income taxes are still lower than California. Also, from what I’ve read, Colorado’s government is fairly well run. Things run smoothly here which feeds back into more income for me, offsetting taxes (It costs $1.00 and takes 5 minutes on the state website to start a fully legal business in Colorado, for example).

      As for Wyoming: sure, that would work if your goal is minimal taxes. For me, I like being closer to the Equator and may eventually voluntarily pay even MORE taxes in order to live in San Diego (gasp!).

      I did detail the spending in various categories here: http://www.mrmoneymustache.com/2012/01/16/exposed-the-mmm-familys-2011-spending/

      So you can take income, subtract taxes and spending, and that’s about how much we saved this year.

      Reply
      • investlike1percent June 4, 2012, 9:04 am

        why do people hate and always look to break down what is obviously a great situation. also, so demanding, as if MMM owes any of us anything. read, enjoy, learn. dont doubt!!

        Reply
      • Another Reader June 4, 2012, 9:57 am

        Hmmm…not sure how I missed the expenses post, because I read your blog every day, including all the comments. Mea culpa on that one.

        My point is it looks like you covered most or all your expenses with the earned income, even at the $19,000 used in your example. That’s a lot less risky approach long term for most folks than trying to do it all on asset income. If you have a big stash and earned income, the growth of your stash can be self sustaining. That’s pretty decent insurance of your future ability to live off the stash only.

        As a person nearer in age to Mr. Collins than to you, I have seen a lot of people that thought they were FI find out otherwise. A lot of folks that retired on pensions, savings/investments and the expectation of Social Security 15 years or more ago are living in poverty today because they failed to account for inflation and other changes in the financial world. For example, I had a co-worker whose husband was a United Airlines pilot. He retired with a six figure pension and a lot of stock in United. Within a few years, the stock was worthless and the the PBGC had taken over the pension plan, cutting his pension by 60 percent. Fortunately, she had a good pension with health insurance and their house was paid off. Other folks I know did not have other income sources to make up losses or devaluation by inflation.

        Your earned income is a good hedge against huge losses in the value of or income from your asset base. That and diversification of that asset base (plus your willingless to live on less as needed) is your insurance you will stay FI. A lot of other folks that think they are at or near FI would find out otherwise if they experienced significant losses in their asset bases or income sources, particularly in the first few years of retirement.

        I do think a breakdown of the $72k would be eye-opening for a lot of folks. Seeing it is possible to acquire significant asset based income at an early age should motivate many of your younger readers. Understanding the balance between your earned and unearned income and what having both allows you to accomplish is important in my view. That 50 percent savings/investment rate is the key to your success and seeing the details on the computer screen is a different kind of “punch in the face.”

        Reply
      • Jeremy June 4, 2012, 2:46 pm

        I’m a big fan of your blog but this is my first comment. Living in San Diego right now, I’m curious as to if you’ve looked into regions you would want to move into. I’ve found that our unusually hilly terrain and high housing prices means that the most “bikable” areas are also the most expensive (e.g. Pacific Beach, Coronado, Hillcrest, etc.) unless you go towards “North County”. My wife and I are currently living in an affordable area, however as it is “up in the hills” we haven’t been able to bike as much as we would like. Luckily, a farmers market recently opened up down the street which has helped tremendously! Anyways, just interested in your thoughts / speculations.

        Reply
        • Mr. Money Mustache June 4, 2012, 6:10 pm

          Good question – I don’t know too much about San Diego (I’ve only been there about 5 times, spending less than a week on each trip). But it’s a big area, and houses are seriously on sale right now in many parts. I don’t care about hills – those are fun on a bike. I would mainly care about living close to a grocery store, some nice parks, and maybe a library. Don’t care if it’s a hip area, don’t care about the race of my neighbors, and don’t need to be close to a job. Anywhere between the southern fringes of LA, and the Mexican border, is fine with me :-)

          Reply
          • Jay June 4, 2012, 8:10 pm

            Triple M, i’m suprised to hear that you would move to such a financially disfunctional state as Cali! I dont doubt you for loving San Diego and the fact that houses are on sale compared to a few years. My wife and I would love to move there but its more a function of me getting a decent job there. SD has a great climate and awesome scenery/things to do! We would be willing to pay more in taxes to move out of the cold winters and humid summers to a moderate climate. There is something about the sunshine tax.

            Reply
            • Diane June 4, 2012, 11:35 pm

              Shit! Where does this “Cali” thing come from? We hate that one almost as much as we hate “Frisco” for San Francisco. “Frisco”, we say, “why, you must be referring to that nice place in Colorado”. But where the hell is “Cali”?

              Okay, rant over. Back on topic: I pay similar low tax rates in CA on just about the same income. Rental property, my friends, with a few (legitimate) business expenses thrown in for good measure. I’m kind of a reluctant Roth-er, because I’d rath-er pay the taxes now when I’m sure what the bite will be.

              As to San Diego, I’ve uprooted from my native SoCal but still own a rental in a Palm Desert retirement community. If ever I was to consider moving back to SoCal prior to retirement, San Diego would rank very high on my list. One very cool SD feature is the dozens of older mobile home parks that are strung out along the coast. They are a handyman’s paradise. Live at the beach, buy places for peanuts, fix ‘em and sell ‘em. Repeat as desired. I believe this topic was touched on in the forums a month or so ago. Seems right up the MMM alley.

              Reply
              • Naomi June 5, 2012, 7:52 am

                LL Cool J, of course!

                I’m goin back to Cali, Cali, Cali…

  • greg June 4, 2012, 7:44 am

    don’t forget how much those of us trying to still achieve FI are paying … 2.5 hours of every one of my (voluntarily longer) workdays is spent working for the government. I know I don’t need to explain the value of personal freedom and being a master of one’s own time is in this forum!

    (my tax totals are solidly above my own expenditures >_<)

    Reply
    • SteveAdams21 June 4, 2012, 3:38 pm

      (my tax totals are solidly above my own expenditures >_<)

      Amen! I appreciate living in a country with a good government but I've been through a number of years where my taxes are higher then my expenditures. Incentive for extreme early retirement much sooner. BTW here comes June 15th – Happy 2nd Qtr contributions day.

      Reply
  • Chris Turner June 4, 2012, 7:53 am

    Interesting article MMM. I’m a big fan of Turbo Tax, you gave me a great idea to try running different scenarios on Turbo Tax to better understand taxes.

    I found an interesting website that breaks down taxes by state: http://www.retirementliving.com/taxes-by-state

    Cheers!

    Reply
  • Joe @ Retire By 40 June 4, 2012, 7:59 am

    I’m really looking forward to paying a lot less taxes. We’ve been paying a good amount for many years now and paying less will feel nice.
    I will definitely write a post about the lower tax in 2013. It’s a slow process to lower your tax. :)

    Reply
  • jlcollinsnh June 4, 2012, 8:39 am

    Nicely done MMM, and a topic I’ve been meaning to address. I did touch on it a bit here:

    http://jlcollinsnh.wordpress.com/2012/05/30/stocks-part-viii-the-401k-403b-ira-roth-buckets/

    the past couple of years in my retirement I’ve worked with VITA (Volunteer Income Tax Assistance) program preparing tax returns for our local poor and immigrant population.

    It, and the training the IRS requires for certification, has given me an inside look. What virtually every volunteer agrees on is, the tax code is far too complex.

    The tax code is complex precisely because it provides goodies for everyone.

    The rich (and the thrifty but not so rich) get the favorable treatment of capital gains, dividends and tax-free municipal bonds. Not to mention the specific tax breaks for specific industries. This being the reason our corporate tax rate at 30% is one of the highest in the world but the effective corporate tax rate is only 12%, one of the very lowest.

    The middle class get deductions for IRAs, 401ks, mortgage interest, RE taxes, children and dependents.

    The poor also get exemptions for children and dependents, along with the child tax credit and earned income tax credit. Tax credits provide refund dollars in excess of taxes withheld.

    In the world of VITA volunteers I hear little talk about the tax system being “unfair” but lots of conversation about it being far too complex. Indeed, as I prepare returns for folks I frequently ponder how insane it is to expect the average taxpayer to wade thru it.

    Most all volunteers, myself included, favor some version of a simpler, flatter tax that sweeps away deductions in favor of lower rates. Of course PAID tax preparers like our complex system just fine.

    I also give high marks to the IRS:

    The training they provide is excellent.

    The focus of this training is accuracy.

    The IRS is not out to screw anybody, indeed a regular refrain is our obligation as preparers to seek out every deduction, credit and benefit the taxpayer has a legal right to.

    They have done an excellent job in taking a nightmare tax code and reducing it to a series of forms that make sense.

    They are very focused on weeding out tax cheats. Since cheats are taking money out of the pockets of all their fellow taxpayers, including me, this is as it should be.

    Reply
    • investlike1percent June 4, 2012, 9:06 am

      jim,

      i led the VITA drive in college. it was a wonderful experience to help those that were intimidated by our tax system.

      Reply
      • jlcollinsnh June 4, 2012, 10:06 am

        and for those of us warped enough to enjoy playing with taxes, it’s fun!

        Reply
    • BDub June 4, 2012, 9:14 am

      I second your comments regarding the IRS. They reported an error to me on my 2010 return that was clearly my fault. They couldn’t have been more helpful in getting it resolved (and with a friendly and professional attitude).

      People like to blame the IRS , but they are really just trying to do their jobs within the complex and sometimes ridiculous system created by our elected and appointed officials.

      Reply
    • mike crosby June 4, 2012, 9:43 am

      I did the VITA program for one year.

      The reason I didn’t do it again was because most of the people I did taxes for did not say “Thank you”. My time in learning, and my time spent helping them, and one would think one could express just a bit of gratitude.

      I guess like anything, when one gets something for free, one is not as appreciative. Or it could be that those at that income level are used to getting things for free, so it’s expected that their taxes get done for free too.

      Reply
      • Baughman June 4, 2012, 10:00 am

        That epitomizes the entitlement culture that we live in. These same people get free housing, free health insurance, and free food without thanking the high-income taxpayers (both currently alive and unborn) who make their easy (leisure-filled (i.e. tv-watching)) lives possible. Someone dedicating their time to helping them personally is just another part of the gravy train that they partake of.

        Reply
        • Bakari Kafele June 4, 2012, 6:56 pm

          I’ve lived among poor folk all my life (in trailer parks). I am there to save money, but most of them are there because they have to be. Their lives are not as easy as you think. From what I’ve seen, the middle class spends a lot more time on leisure than the very poor. Just because they don’t have a 9-5 and get a few handouts here and there doesn’t mean they don’t have to double down on the hustle to make ends meet.

          Reply
          • Mr. Money Mustache June 4, 2012, 9:05 pm

            Yeah, I’m kind of shocked at Baugman’s statement above, (unless he’s just joking with us), since he has made some good points in the past.

            Characterizing low-income people as lazy is utterly inaccurate and pointless. Shit like that builds the culture war we’re currently in, and prevents solutions.

            People accumulate money and end up non-poor for a variety of reasons. Some have a solid upbringing. Some adopt Mustachian ways and will themselves to spend less than they earn – no matter how little that is. Some defy all odds and get out of poverty through sheer will and hard work. Some people win the ovarian lottery and are just handed a shit-ton of money from their rich parents.

            Even I am rich mostly out of luck: I was born with a natural ability to do things that people pay a lot of money for. In university, one engineering professor pointed out that less than 1% of the general population has sufficient intelligence to even make it to where everyone in my class was sitting.. and yet I just got that privilege almost for free, from being born in that 1% slice. Other people in my family are poor, after working approximately as hard, because they have different skills.

            Instead of complaining that we have to pay taxes that partially go to subsidize the services used by lower-income people, why not celebrate the fact that they are willing to work for us for such low wages? Every day, some of my profits are made on the backs of low-wage workers right here in the USA, getting stuff done while I claim a portion of the profits, as the business owner.

            It all depends on how you look at it. There are positive and negative aspects to being in the higher part of a democratic society. But I’d suggest it is nothing to complain about.

            Reply
            • Mr. Risky Startup June 4, 2012, 10:47 pm

              I am glad to see that living in US for so long did not kill the Canadian in you. :)

              Sure, there are examples of people just abusing the system, but 99% of people receiving help have their reasons. Best way to measure greatness of any country is by looking at how they take care of their least fortunate members.

              Capitalism is a great system – but it depends on wide base of low income people to anchor the opportunities and options for the better-off part. Having that social cushion to catch those at the very bottom before they take drastic action to help themselves keeps the peace, promotes investment and keeps the economy moving (poor people in general put all the money back into economy).

              Reply
            • Anon June 5, 2012, 10:23 am

              Sadly, Baughman’s opinion is not uncommon. My story:

              My father left my mother, a well paying job, and all of his children in 1974 to “follow his passion”. No child support in those days. My stay at home mother had no college degree and no job skills. She very quickly had to find a job to support us all. She temporarily relied on food stamps and free school lunches to fill in the gaps. She was able to continue paying the mortgage which provided us all with some desperately needed stability. We continued in the fantastic public school system we were in. I graduated and went to college and today have a well paying profession. I shudder to think of the alternative path my life may have taken if we had not received that government assistance.

              In 2011, my husband and I paid $88,000 in taxes. Yes, this is a lot. But it also means that we earned a lot. I am thankful every single day for this. I am thankful that was born in a country where someone on food stamps can grow up to pay $88,000 in taxes. I am thankful that these public assistance programs still exist and I am able to contribute to them with my taxes. I am thankful that my taxes pay for public education and I vote for increased school funding every single time.

              Yes, you may point to examples of people who take advantage of these public assistance programs. But eliminating them is not the answer. Allowing people to fail is not how we advance as a society. We all benefit when individuals are given a chance to break the cycle of poverty.

              Reply
              • TrekMan June 5, 2012, 11:11 am

                You are an inspiration. I’m glad you’re here to share your perspective.

                When I was 16 I worked as a cashier at a grocery store. NY has a program called WIC. It stands for Women Infants and Children. It’s similar to food stamps except it only pays for very specific items that a healthy, and typically only for expecting moms and their very young children.

                I came home from work and at the store and complained to my parents about these people getting handouts. My mother turned to me and said, if it wasn’t for that program you would have been hungry as a kid. I had grown up never realizing what benefits I had received.

                I’m now a successful adult, my wife and I have a household income in the 85%. I’m always pleased by how reasonable the taxes here are. I think people sometimes don’t realize all of the benefits we receive in return for our taxes.

              • Baughman June 5, 2012, 2:29 pm

                Anon & TrekMan, Great stories. I have no doubt that some of our tax dollars are going to the truly needy. I have no doubt that some of our tax dollars are going to those that don’t need it but are choosing to under-employ. I have no doubt that social safety nets help lift some out of poverty. I have no doubt that social safety nets depress some into inter-generational welfare reliance.

                I hope that my perception is wrong and that social safety nets aren’t removing from people the desire and incentive to work. I hope that these very generous programs aren’t instilling among our poor a sense of entitlement. I fear my hopes don’t reflect reality very well.

                I wish that we were teaching the poor to fish rather than giving them cans of tuna. Seems like a more responsible thing to do.

              • Mr. Money Mustache June 6, 2012, 8:44 am

                Now you’re getting somewhere, Baughman – angry rants fall aside to considering two sides of a story. If you want to take it further, next bring in some attempts at analysis by studying other countries. The world is in effect a giant economic laboratory with many experiments running simultaneously!

                - find some countries with much smaller social safety nets than the United States. Are any of these much more prosperous than us? How’s their health? Literacy rates? Infant mortality? etc.
                Or are they actually worse-off? I don’t know of any more prosperous ones, but I could be wrong here. Either way, try to find out what works.

                - find countries with much bigger social programs. Canada comes to mind, but there are many to choose from. How are those countries doing? I think I found that Canada had a debt-to-GDP and deficit-to-GDP ratio that was only half of what the US carries right now. Lower unemployment at the moment. Less poverty. Despite much more generous social programs and public health care. It’s not a perfect country either, so maybe there is something both sides can learn from each other.

                The point of all this? Go back to the “Can we all stop this fucking complaining about our government” post. Then do your best to drop all ideology, and instead start comparing country statistics on an entry-by-entry basis and attempting to emulate the winners in each category. Never complain about the status quo, except in pointing out how much BETTER you think we can do by learning from winners. Use numbers.

                Think about the overall goal of your changes (In the US, is our main problem that the rich don’t have enough money left over because they are paying excessive taxes? Or are there other larger problems?)

              • Dave June 5, 2012, 3:19 pm

                I paid a similar amount of tax last year, and it was made possible by free and reduced lunches in grade school (tough to study when you’re hungry), and a university education partially funded by federal grants. Sure I worked hard too, but I had help.

                When I visit the rural community I grew up in I see a lot of unemployed and underemployed people. I don’t see a lot of lazy people. There are some, but not a lot. And no one is living high off the hog on government benefits. This is a myth, perpetrated by people that want to slash programs that helped kids like me, Anon, and TrekMan.

      • jlcollinsnh June 4, 2012, 10:04 am

        Yeah Mike…

        sometimes there is not a lot in the way of appreciation. I conclude that one of the reasons some, not all but some, people are poor is a lack of basic social graces.

        That said, I’ve had many very appreciative clients.
        I also had one lady this year who spent the whole time bitching at me.

        The other interesting thing is I am pretty sure I can tell who is on their way out of poverty and who will be spending their life mired in it.

        The sheer industriousness of some of our cliental is inspirational. most of these are immigrants.

        Reply
    • Jeff June 4, 2012, 10:59 am

      I wish people would stop portraying tax breaks as “goodies” for the people receiving them. Keeping your own money should not be considered something special. The income tax is the most ridiculous idea. You tax things that are bad (e.g., cigarettes). So why do we tax work? We want more work, not less! If you spend money you should be taxed. That’s the correct incentive the government should be creating: work hard and save your money (fairly Mustachian sounding). A sound economy is built on the shoulders of a population with sound personal finances (like MMM, who invests in the country not by buying plastic crap from China but by fixing up properties and investing in America’s companies). It’s totally backward thinking to say our economy can only be healthy if people spend more money. That just puts everyone in debt and leads us to where we are today.

      Reply
      • Dillon June 4, 2012, 11:21 am

        Income tax is only ridiculous if you pay it but receive ZERO benefit. The overwhelming majority of Americans do receive benefit indirectly from income taxes via transportation systems (roads, sidewalks, mass transit subsidies, etc.), food subsidies and safety, safe air travel, military protection, statistics on the state of things, education, medical help, unemployment insurance, TANF, parks, museums, and on and on. If you deem your benefit to be unfair relative to your taxation, I must say sorry you feel that way and thank you for paying your taxes.

        If you want to be taxed on purchases only, not only would the transition be difficult (would have to happen instantaneously at once) but it would be an additional bureaucratic level for businesses. You are shifting some or most of the tax bureaucracy from the HR departments & government to businesses for the goods and services we buy. Who knows, that theory isn’t bad, just the practicality isn’t that good right now.

        Reply
        • Jeff June 4, 2012, 11:34 am

          Would it be more of a bureaucratic nightmare to tax one business that serves thousands of people (which we already do) or to individually tax thousands of people (which we already do)? It would certainly be easier to do one or the other rather than both. Taxing businesses has the advantages of making taxes optional in so far as you choose through your purchases what to be taxed on and (as I said before) provides the incentive to work and save your money.

          Besides, systems like this are already implemented quite well. A very large cost of a gallon of gas is tax that pays for roads and infrastructure. Why can’t we tax food to pay for all the legislation and food subsidies? And I’m not talking about sticking it to the poor. The poor would get a check at the beginning of each year to cover them for all the taxes they would pay throughout the year to get by. The rest of us don’t get a check, and we don’t have to file anything.

          Reply
        • Jamesqf June 4, 2012, 12:01 pm

          The problem is that many of us also receive large amounts of what we see as negative benefits: everything from money spent on “exporting democracy” & the War on Drugs through a highway department that spends hundreds of millions on a monument to ego, down to local police that like to spend their time on sting operations for hookers & selling alcohol to minors. So while maybe 60% of my tax money is going to stuff that I see as either worthwhile or neutral, the rest goes to things that I’d gladly pay far more to be rid of.

          Reply
          • Dillon June 4, 2012, 12:13 pm

            That’s very true but that’s why we also have representatives to hopefully appease the majority on an issue be it federal, state, county, etc. I’m glad your number for neutral/worthwhile spending is above the halfway mark at least, haha.

            Is it also possible that economies of scale for the “worthwhile” spending can mitigate some of the ineffective/inefficient spending?

            Reply
          • Mr. Risky Startup June 4, 2012, 12:20 pm

            Still, democracy has the very elegant way of dealing with these issues – if enough people care enough about something, they just have to start getting involved and change things.

            I suspect that majority of Americans just like to talk about it, but most are actually happy with the state of the union. If people cared enough, your election turnout would be better.

            Just over half of eligible voters come out to vote in presidential elections, and barely 1/3 come out for mid-term elections. I bet that numbers are even worse for state and local elections.

            Reply
        • Emmers June 4, 2012, 6:35 pm

          The other problem with taxing on purchases only is that this disproportionately affects the very poor, who can’t afford the Mustachian/Vimesian habits of “buying high-quality things that last 10 years” instead of “buying cheap things that wear out faster because the quality things cost so much more.”

          http://www.washingtonpost.com/wp-dyn/content/article/2009/05/17/AR2009051702053_pf.html

          Reply
      • jlcollinsnh June 4, 2012, 11:51 am

        Hi Jeff….

        I used the term ‘goodies” in this sense:

        The core reason for taxes is to raise revenue to operate the government and it’s services.

        But congress was quick to realize that once in place the federal income tax could also be used as a tool for social engineering. This is done by providing incentives in the form of deductions for certain behaviors.

        You want more people to have kids? Child tax credits and exemptions.
        You want more people to own homes? Deductable mortgage interest & RE taxes.
        You want people to invest? Preferred rates on dividends and cap gains.
        You want people to give to charity? Charitable deductions.

        These incentives, what I call goodies, are not about keeping your own money. They are about doling it out to those who behave in a “proper” way.

        Reply
  • skyrefuge June 4, 2012, 8:56 am

    If you don’t have a full TurboTax account or software, they have a nice simplified estimator for US-ers: search for “TurboTax TaxCaster”. (Sorry, no link, I can’t get this comment to appear and I’m trying to figure out if it’s the link that’s the problem.)

    It was very informative for me to play around with that estimator, because I’m so used to the high-income tax environment but had no familiarity with the low-income ($20-$25k) tax environment that I expect in retirement. In my head, despite my knowledge of progressive taxation, I sort of assumed a roughly linear relationship, but it’s not even close to that. The standard deduction+exemptions have huge effects at Mustachian-level retirement incomes, and then the piddly remaining taxable income ($6000 on a $25k income, worst case) is subject to a lowly 10% rate. In terms of SWRs, assuming that state+local taxes equal the federal figure, then your withdrawal rate needs to be around 4.2% pre-tax (instead of 4.0%) to achieve $25k post-tax. I think that’s pretty much a worst-case estimate (for $25k income at current US tax law), and I’d say that ~0.2 percentage point difference fits with MMM’s assertion that the taxes are negligible, or at least lost in the noise of all the uncertainties.

    This is yet another case where we’re using the mass-delusion of the rest of society to our advantage. Since everyone else spends so much money, they need high incomes to keep up with that spending. That means those of us making do with incomes in the $25k range will almost always be grouped in with “the poor” by the taxman, and he will take pity on us (and that state of affairs seems likely to hold true across governments and timespans). Of course *we* know that we can live incredibly richly on that income, but if someone else wants to insist we’re poor just because there are a ton of people above us on the income-distribution curve, that’s OK, because we’re smart enough to know that being “relatively poor” doesn’t mean that we’re *actually* poor!

    Reply
  • tjt June 4, 2012, 9:06 am

    Thanks for sharing this MMM. I’ve been planning to run some scenarios through Turbo Tax but haven’t gotten around to it yet. I had assumed I would have close to zero taxes, but this gives me more confidence until I get around to doing the math.

    In your example of $30K in dividends, I’m assuming you only included qualified dividends? Does anyone know how that same example would work if the Bush tax relief program is not extended at the end of the year?

    Reply
    • Tyler June 5, 2012, 1:06 pm

      If the Bush tax cuts are repealed, the federal dividend tax rate will be 15% and 28% for the respective 10% and 15% tax brackets, respectively. For reference, dividends are currently untaxed in those brackets.

      I’m also curious about how people handle deferred taxes on IRAs in their retirement calculations. Once required distributions start, you may not be able to hide from taxes if your IRA has grown substantially.

      Reply
  • John Everett June 4, 2012, 9:10 am

    “we’ll do our best to earn less in 2012″

    Fucking awesome statement! It’s why I follow MMM daily. I knew I wasn’t the only guy thinking these things.

    Thanks MMM!

    Reply
  • TrekMan June 4, 2012, 9:12 am

    When I hear people complain about the price of gas being high, or taxes being too high or food costs being too high, I often wonder “What the hell are you talking about?”. These same people typically won’t bring a lunch to work, drive an SUV 30 miles each way to work and live in a house that is twice the size it needs to be. One or two minor changes and they would have a monthly cash surplus. These are the same people that leave late for work and get upset that anyone who drives at the speed limit.

    I have no problem with the amount of taxes my wife and I pay. It’s quite reasonable compared to many other countries. Besides, I like having good roads, hospitals, police officers, teachers, schools, clean air, safe food and clean drinking water.

    Reply
  • mike crosby June 4, 2012, 9:32 am

    Essentially, what you are doing is living a lifestyle that is in the top 1% of the population without the need to pay taxes (or very little). It’s not bragging, it’s just a fact. You make a solid argument.

    I agree though with the first commenter that our US Tax structure is not balanced. And I know that would be getting off topic.

    MMM, you have these case studies that I enjoy. I wish you did consultations to where I could actually have you run the numbers for me and and look at my total life situation. That is where you’d do so much better than a financial consultant. Where they are just about the numbers, you take in the whole lifestyle and would give a true more rounded way to look at things.

    Alas, another way for you to make money, and you keep wanting to retire;-)

    Reply
    • Another Reader June 4, 2012, 10:19 am

      MMM’s new business venture: life coach! How much an hour for punches in the face? Is changing someone’s life more or less satisfying than carpentry? Only time (and MMM) will tell….

      Reply
      • Mr. Frugal Toque June 5, 2012, 7:16 am

        Face Punching is an Act of Charity.
        Charging for a Punch to the Face would be completely antithetical to the principles at stake.
        After the brain has been recalibrated, however, it’s probably acceptable to charge for the grunt work of reassembling someone’s finances. At the very least, by way of payment, a customer can serve as an example to the Mustachian Hordes. (And let’s be honest, we can all serve as examples, one way or the other).

        Reply
        • Mr. Money Mustache June 5, 2012, 12:46 pm

          Sounds like great fun to me. I’d love to be a life coach, because it would involve me telling people what to do, and them possibly actually listening to me. The opposite of what happens when I try to make “helpful suggestions” for my wife :-)

          We’ll just put that on the list of things to do in another 12 years or so when my boy requires less of my time. It’s a long list.. once I start cracking into it, even I might start referring to myself as “not retired”.

          Reply
          • Mr. Risky Startup June 5, 2012, 1:14 pm

            Yes, those dangerous “helpful suggestions”… I once helpfully suggested to my wife that she should consider not making our boy diaper so tightly closed if she wants them to leak less… Needless to say, I was found guilty and almost sentenced to changing diapers until our son is done with them :)

            Since then, I save my helpful suggestions for my blog and for comments on other blogs…

            Reply
  • Elias June 4, 2012, 9:39 am

    It seems to me that the people who bitch the loudest about taxes
    a) have no idea how much they actually pay
    and
    b) have no idea how the tax system actually works.

    For example – many folks who bitch can’t distinguish between marginal rates and effective rates.

    A lot of it is because of the way taxes are reported in the media, the payroll tax cut was reported as a 2% tax cut, but when Oregon raised taxes on top income earners a couple years ago it was reported as a 20some odd percent tax increase. In the case of the payroll cut they use the change in percentage, and in the case of the increase they use the percent change (it was a 2% hike, from 9 to 11%, if I remember right)

    Reply
  • Matthew June 4, 2012, 10:08 am

    MMM, how did you deduct your child’s preschool tuition? I’ve had kids in preschool for a few years but never deducted the tuition because i had never thought of it. When i went to turbo tax to see if I could deduct it I read the description and it said “the tuition and fees that were paid are required for enrollment or attendance at an eligible post-high school institution.” Is there another tuition deduction you were using instead?

    Reply
  • Marianna June 4, 2012, 10:12 am

    *oy vey, pre-coffee haze, ignore the questions that don’t make sense!*

    Reply
  • Andre June 4, 2012, 10:31 am

    Harvard and other very wealthy private universities have the non-profit-pay-no-tax scam figured out pretty well.

    I’m fourteen years away from receiving mine, but I believe defined benefit pensions are taxed as ordinary income and, of course, IRA distributions.

    Reply
    • TOM June 5, 2012, 5:41 am

      That’s true, though many states exempt some or all of your pension. As MMM shows above, that can be a significant savings on your total income tax bill.

      Reply
  • SomeYoungGuy June 4, 2012, 10:41 am

    I get the ‘impression’ that US tax rates will go up over time. Isn’t it better to make as much as you can now and opt for lower earned income later? Just a big picture thought I have been mulling around, that it will be much more satisfying to RE in that near-future situation, feeling that I have ‘outsmarted The Man’ by voluntarily lowering my earned income when tax rates are headed higher. And seriously, taxes during your earning years can be insane in Moustachian 30k terms…

    Reply
  • kris June 4, 2012, 10:42 am

    Cool, I have always been curious about taxes associated with retirement but they seemed too complicated, your post shows otherwise.

    Reply
  • Jeff June 4, 2012, 10:50 am

    Many taxes are missing from this analysis:

    Property tax and sales tax have been mentioned in the comments

    Inflation is a tax.

    There are countless pieces of legislation on everyday things like eating, insuring a vehicle, using a cell phone, and going to the doctor that increase our cost of living beyond what is necessary. Those are all taxes.

    Add all that up, and you’re not paying 10% but more like 20-25% easily.

    But even if you “only” paid 10%, that’s not low to me. That’s still a full day working for the government every 2 weeks. It’s 1.2 months of every year!

    I pay 15% on most of my salary, 25% on a good portion, and an additional 7% NC state tax on nearly all of it. Add in sales tax, property tax, legislative inefficiency, and inflation, and I’m easily paying 30% or 4 months of every year. I’m not seeing anywhere near 4 months worth of services from my government. It’s a ripoff, and I would gladly move if my wife was on board.

    Reply
    • Dillon June 4, 2012, 11:02 am

      I’m sorry to hear you and your wife don’t agree on this topic. Hypothetically, if she did agree with you and you moved somewhere else, where would you go?

      Reply
      • Jeff June 4, 2012, 11:20 am

        Still hunting (vacationing) around but mostly looking at central america for its low cost of living and proximity to the US. A lot of central american countries are offering great deals to expats. For a while Panama was offering 10 years of no property tax if you built a new place down there. Some places give you discounts on airline tickets. Some give you residency with no income tax. Each country has its own incentives. They figure having you there spending money in their own local economy (even if you don’t pay property or income tax) is better than not having you there – and they’re right! If they treated me better than the US, I would invest there instead.

        My hope is to eventually become financially independent so that we can spend more time vacationing in other parts of the world. The cost of living is so much cheaper that even with plane tickets factored in, it’s cheaper to stay down there than it is to live in the US for over 2 months.

        This is something I think will become increasingly popular among retirees in the US. Their pensions are only going to get them so far, and inflation is going to hurt them once the world starts tackling its debt through financial repression. Moving south and flying back 2-3 times per year will be cheaper than living in the US. So many of us move away from the city we grew up in (or our parents move to a southern retirement community), so we really only see our parents a few times per year anyway and often fly there as it is.

        Reply
        • Dillon June 4, 2012, 11:34 am

          Traveling is definitely awesome. I guess it all depends on the individual’s/couple’s/family’s values. My soon-to-be spouse and I both have our entire families and most of our friends in one metro area. We moved away but plan to be back at some point after we start having children and have invested enough in liquid assets for a sizable down payment on a house. When we did live there, we saw close friends and many family members several times a month. To each their own.

          Yes, Central America is cool and cheap. Cheap living also has it “price” so to speak as safety, cleanliness, personal freedom can be not as high as the US. Caribbean, Europe, and down under can be a bit pricey but the experiences are great.

          Reply
          • Jeff June 4, 2012, 11:44 am

            Central America gets a bad reputation, but that’s mostly from people who have never been there. When I told family we were vacationing in Nicaragua, they asked me if it was safe. They kept asking if there was a war going on. Finally I figured out they were talking about the Contra war from like 30 years ago!

            People move far distances all the time and end up making lots of friends and finding happiness. Then again, I’m from Durham, NC, the most tolerant and accepting city in the US. I’m not a xenophobe, so meeting and interacting with people that are different from me is not a problem.

            Reply
          • Jamesqf June 4, 2012, 12:11 pm

            “Yes, Central America is cool…”

            That’s just the problem, it’s not. It’s hot. Try to find a place with a decent climate that’s significantly cheaper than the US, and I think you’re pretty much limited to southern Argentina & Chile.

            Reply
            • Dillon June 4, 2012, 12:14 pm

              Yes, Central America is neat*

              Reply
              • Jamesqf June 4, 2012, 7:46 pm

                OK, but it still isn’t cool :-) There’s just no way I would ever want to live in a place where it doesn’t snow in the winter, even if it is low tax and cost of living.

                This seems a bit paradoxical to me. If you leave out the places that are rich only because of oil wealth (and I include Texas in those), seems as though virtually every prosperous economy is at 35-40 degrees latitude or higher.

        • jlcollinsnh June 4, 2012, 12:01 pm

          Hi Jeff….

          this is pretty much what we’re doing these days while my wife winds up her working life. In a few weeks we’re off to check out Bolivia and Peru.

          no place is risk free, including the USA. In fact many folks from other countries view it as exceptionally dangerous.

          The world is a big and beautiful place filled with friendly people and locations I’d happily move to.

          Reply
          • Mr. Money Mustache June 4, 2012, 6:19 pm

            That would make a great addition to your stream of blog posts JL – an analysis of how it might be to live in some of these other countries you visit.. from a level of somewhat practical details. Although I’m very happy with the US, I’d still love to know more about other countries. My perspective is surely very narrow so far.

            Reply
        • win June 4, 2012, 1:09 pm

          I had an uncle who had nothing but social security. He moved to Columbia and Costa Rica. He said he could live there, but he would starve in the USA on just social security.

          Reply
    • Mr. Money Mustache June 4, 2012, 6:25 pm

      Blast you, Jeff! You have outsmarted my efforts to delete all of these tax complaints as promised in the article, by posting while I was away. And now they have been locked into the conversation by other replies.

      Oh well. I suppose you get points for persistence. But seriously – both you and Baughman are going deep into the “complaining about our government” territory that I so prefer to avoid in these comments.

      Let’s talk about
      a) stuff that is great in life
      and
      b) tricks we have discovered to make life even more great

      It’s called “Focusing your energy within your own Circle of Influence”, and it is just way, way more productive!!

      Reply
  • Des June 4, 2012, 10:56 am

    ” the Canada that I left in the late 1990s had a marginal income tax rate of about 50% at the time, which kicked in at an income of about $60,000.”

    Depending on your home state and occupation, this is true in the US as well. The marginal federal rate for a singleton earning $60k is 25%, in Oregon the marginal state tax rate for that person would be 9%, and if you were self-employed you have to pay both halves of your SS and medicare at 15%. That 49% without any healthcare. I always think its funny when people say taxes are lower here, when really they are pretty similar, just obfuscated by being broken up into smaller pieces.

    Reply
    • Elias June 4, 2012, 11:19 am

      It’s 49% on the ADJUSTED gross income earned over $60k.

      I live in Oregon, make a little more than $60k (gross) and my effective rate (counting half of SS, I work for someone else) works out to a little more than 10%.

      Reply
      • DaftShadow June 5, 2012, 11:48 am

        And don’t forget progressive brackets: no taxpayer pays “49%” on their whole 60k. They pay 10% on the first 10, 15% on the next 10, 20% on the next 10… onwards until reaching the final bracketed income rates.

        It’s curved more than linear, but by the time you get to $60k, you’re still only in the 15-30% effective range depending on credits and deductions, even if you’re a small business owner or a 1099 consultant.

        ~ DaftShadow

        Reply
  • Andre June 4, 2012, 10:56 am

    I was anticipating a dull day at my white-collar desk job the other day, so I brought a fat folder of all my tax returns going back to 1984 with me to work. That’s 28 tax years. I started full-time professional work in 1986 upon college graduation, so these facts include two years of relatively low earnings part-time employment.

    Total Gross Wages = $1,453,747
    Total Income = $1,614,295
    Total Taxable Income = $1,206,553
    Total Federal Income Tax = $233,759
    Total State Income Tax = $15,084

    Effective Tax Rate = 15.4% (on Total Income)

    Reply
    • melissa May 3, 2013, 6:24 am

      Andre, this is just what I love seeing. It actually made me feel better! Thanks for posting!

      Reply
  • Andrew June 4, 2012, 11:12 am

    Complaining about taxes is The American Way. Didn’t they tell you that when you became a citizen, MMM?

    Dissatisfaction in general drives the American Spirit to improvement. Why make improvements if you’re perfectly satisfied with the way things are?

    Reply
  • Andrew June 4, 2012, 11:25 am

    I do find it interesting though that a big chunk of taxes are essentially voluntary. The sales tax paid on frivolous spending. Rarely I hear people complaining about this, nor do they cut their non-essential spending to avoid it. Of course this depends on location, but here in my area the tax on non-food items is close to 9%.

    Reply
    • Jeff June 4, 2012, 11:27 am

      That’s because it’s voluntary. People tend to not complain about things they choose to do.

      Reply
      • Elias June 4, 2012, 11:32 am

        As triple M illustrates, income tax is largely voluntary as well.

        Reply
        • Elias June 4, 2012, 2:09 pm

          Reread the article and pay attention to the scenario where our stalwart tax activist limits his income to be roughly equivalent to his spending.

          Reply
      • Andrew June 4, 2012, 11:34 am

        No, they don’t complain because they don’t see it all added up at the end of the year.

        Reply
  • Mr. Risky Startup June 4, 2012, 11:51 am

    Love the Face Punching Machine for the mall parking lots! You should copyright the idea! LOL!

    Indeed, I always laugh when my American in-laws whine about taxes (and government). It is a democracy, so Americans chose the government who in turn decided what to spend money on and how to tax people. If you don’t like it, run of the office or at least get involved in electing someone you like better. But once elections are over, stop complaining and wait for next elections if your guy/gal did not win.

    Canada is better than few years back, but we are still paying way more compared to US. However, I would pay even more if asked if that meant more improvements in social programs. My in-laws are shocked when they see how much I pay in taxes (close to 25%) but then I remind them that I do not have to pay $1000 per month for health insurance, college and universities are in the $2-3K per semester average…

    Aside from personal taxes, there are of course sales taxes to contend with (13% on most things). However MMM teachings help here too – basic foods (non-processed) are tax free, kids stuff etc.

    Reply
    • Jimbo June 4, 2012, 12:32 pm

      I’m curious where in Canada you are, sir.

      Reply
    • Gerard June 5, 2012, 1:06 pm

      I’m in much the same boat, 23% overall tax rate last year. But, but, Canada’s cheap tuition and free medical insurance have been worth much more than that to me, because they’re what let me climb from growing up below the poverty line to earning 2.5 times the average income. In a non-engineering field at that!
      As Mr. Risky Startup says, I would happily pay even more to get better services or opportunities… for myself or for my fellow citizens who are earlier in their financial climb than I am.

      Reply
    • Jamesqf June 5, 2012, 1:21 pm

      “It is a democracy, so Americans chose the government…”

      Fallacy. In a democracy, all those other idiots choose the government. I have, I think, voted in every election since the ’70s, and can’t remember every having voted for a candidate who actually won.

      Reply
      • Peter June 6, 2012, 10:11 am

        Can’t resist … Just the presidents …
        So you voted for Ford in ’76, then decided you liked Carter in ’80, Mondale in ’84, Dukakis in ’88, then switched to Bush in ’92, Dole in ’96, then Gore in ’00, Kerry in ’04, and then McCain in ’08…

        Reply
        • Jamesqf June 6, 2012, 12:47 pm

          Nope, McCain’s the only one of those I voted for. Mostly voted Libertarian the other elections (there may have been a Green or two), because I couldn’t stand either of the major parties.

          Reply
  • James Meyer June 4, 2012, 12:19 pm

    Canadian taxes are extremely reasonable, so long as your self-employed. Last year we paid 12.7% on $64,000 taxable income.

    My parents on the other hand always complained about the near 50% taxes they pay. Know that, my mother still asks me when I’m going to get a “real” job.

    Reply
    • Mr. Risky Startup June 4, 2012, 12:30 pm

      Indeed, you are right in the sweet-spot. As you come closer to 6-figures, taxes start going up disproportionally and almost make it not worth the effort.

      In fact, I am contemplating refusing to take any more raises and replace them with added vacation days to improve quality of life.

      Reply
      • Nerode June 7, 2012, 11:27 am

        Sorry, Risky, but you’re extending your personal experience to cover all households in all of Canada. I live in Alberta, and my household income is over six figures, and my effective tax rate is approximately 16%. In order to compare that to US tax rates, remember to add in whatever healthcare fees you are paying, as mine are included.

        Sales taxes are 5%, my property taxes are at an even lower rate than MMM’s (0.4%) and I live in one of the most beautiful parts of the planet.

        As MMM has said, if you don’t like the costs of living where you do, you might consider moving – though I think he was less polite!

        BTW, if you’re a teacher, with 6 years of education including undergrad, you’ll start on $65,000 and be earning 6 figures after 10 years… from some of the comments I’ve seen about teaching salaries south of the border, some of you might just like to consider moving here. I’ll be glad to welcome other MMM’ers if you do!

        Reply
        • Mr RiskyStartup.com June 7, 2012, 3:28 pm

          That is true, my numbers are based on Ontario taxes and no major deductions. However, using example of Alberta is also misleading – no PST, lower provincial taxes etc.

          It is very true what you say about public jobs. My American brother-in-law works for state police – $40K if he is lucky (our average policeman gets $80K with many showing on the over-100K lists that are publicly available). My sister-in-law is an awesome teacher in MN, USA and she gets $35K – in Canada she would be already making $70K+.

          Buying goods (especially luxury goods and cars) is WAY more expensive in Canada, but if you are careful not to buy every little fad and gadget, you will be okay.

          Reply
          • Nerode June 8, 2012, 10:15 am

            Yes, I agree – in fact that’s my point (in part). Don’t generalise based on personal experience/location/marital status/etc., since all of these things and many more can make profound long-term differences in one’s financial status. I guess that’s why this blog can be so frequent, long-running and yet still useful, informative and provocative.

            For instance, your comments on cost of living – taken in isolation – could lead non-Canadians to believe it’s harder for us all to reach FI; my comments on teacher salaries could lead to American teachers believing that Alberta is the “promised land”, flowing with milk and honey. Neither or both may be true depending on other factors. Each piece of understanding we gain moves us closer to being able to attain our goals.

            Fortunately, this site is filled with thoughtful, intelligent people. And if we blow it a punch in the face can’t be far behind.

            Reply
    • T-Luv June 5, 2012, 11:09 am

      @James

      Even as regular employment income of $64,000 your parents would only be paying at total of 20.7% in income tax with a top marginal rate of 31.15%.* Probably not as close to 50% as they think.

      In my opinion, we get a pretty healthy return for our taxes in Canada whether self-employed or not.

      *Based on 2011 Federal/Ontario tax rates.

      Reply
  • Sauce June 4, 2012, 1:51 pm

    Hey MMM, you didnt answer this in the other thread, but when you do your annual breakdown, you mention mortgage interest, but nothing on mortgage payments… am i missing something?

    thx

    Reply
    • Dorothy June 4, 2012, 2:10 pm

      I think MMM considers the principal repayment as an investment, not an expense, as it contributes to purchasing an asset.

      Reply
      • Mr. Money Mustache June 4, 2012, 6:14 pm

        Definitely true, Dorothy! I have never counted the mortgage “payment” as an expense. It’s only the interest (and property taxes and insurance, etc.) that matters. Most of us will eventually sell our houses and move to other ones through the years, recapturing the principal value and applying it to some other purpose.

        Reply
        • Sauce June 6, 2012, 5:20 pm

          ahhhh, that makes sense. Carry on with badassity.

          Reply
  • John June 4, 2012, 6:55 pm

    You are most certainly not retired, but simply self-employed. Retired people do not work jobs for money.

    Reply
    • Jimbo June 4, 2012, 9:22 pm

      Hello John. Here is your I.R.P. badge. Please proceed towards the exit.

      Reply
    • Mr. Money Mustache June 4, 2012, 10:17 pm

      What the fuck? Who let the Internet Retirement Police in here?

      Mr. Money Mustache is retired if he damned well says he is retired.

      Do I *have* to work for money, in order to pay for my entire family’s lifestyle? No. There is more than enough passive income even if I don’t work.

      Do I generally have no idea if it’s a weekday or a weekend? Yes.

      Am I planning to work tomorrow, which is, let’s see.. a Tuesday? Probably not, although I usually don’t make that decision until after breakfast each day.

      That’s the definition of retirement.

      If you want to try to override my definition, go start your own blog about early retirement, make it bigger than this one, then I will bow to your wishes.

      Reply
      • Mr. Risky Startup June 4, 2012, 10:36 pm

        Some people prefer to bring you down to their level instead of striving to grow to yours… Makes it easier to face the day.

        Retirement is whatever you want it to be (in my case, just cutting my hours down to 50 hours per week is considered semi-retirement).

        It is maybe easier to define what is opposite of retirement – employment. Employment is exchange of your labour/time/freedom for funds necessary to sustain you.

        You are clearly not in the Employee category, so by definition, you are retired.

        P.S. I guess, we could add a category of Unemployed – not employed, but need some money fast :)

        Reply
        • Jamesqf June 5, 2012, 1:38 pm

          I think there needs to be some broader definitions, and maybe even some new terms coined. My neighbor, for instance, is what I’d call conventionally retired: he has income from SS & military retirement, and spends his days sitting in front of the TV doing the 12-ounce curl. Me, I have enough invested to be independently poor (that is, I don’t have to work to live), yet I do work because I like to. I set my own hours and work about as much as I want, yet I certainly don’t consider myself retired.

          Reply
      • Andrew June 5, 2012, 12:30 pm

        LOL. I’ll take MMM’s brand of retirement or non-retirement or whatever anyone wants to call it over any 9-5 job.

        Reply
      • rjack June 5, 2012, 1:04 pm

        MMM, This same BS comes up over and over again and it is going to get worse with the increasing popularity of this blog. It might help to create a FAQ and just point to it when it happens.

        Reply
        • Mr. Frugal Toque June 6, 2012, 8:09 pm

          A FAQ?
          Oh, hell no.
          It’s much too good when he punches them in the face.

          Reply
  • Saving mom June 4, 2012, 7:14 pm

    Great post. I actually think tax law and the tax code is very interesting- the various deductions and credits lead to interesting results (many unintended). For most of my earning years, I don’t think I broke a 20% tax rate. Which isn’t too bad. What irks me is the complexity. I am trustee on 4 small trusts that were gifted mutual funds that are invested in foreign stocks. I spent many hours trying to figure out if I owed 55 or 71 in tax for the trusts. I just paid the higher amount and the IRS mailed me a refund saying it was actually zero. I think simplifying the tax code would be a plus all around!

    Reply
  • Neo June 4, 2012, 9:52 pm

    I hear ya all the way from Australia.

    This is how it works in oz e.g. $675000 in shares only dividends of $30375 thats 4.5% average yield. Company has already paid 30% company tax on those shares so you get tax credits of approx $13000. Tax paid at 30% so u get the difference from your own marginal rate back.

    0-6000 0%
    6001-37000 15%
    37001-80000 30%

    Taxable income 30375+13000=43392
    Tax payable 6567 + Medicare 650 – lowincome tax offset! :) 964 – credits 13000

    Tax refunded $6747.

    Reply
  • Dragline June 5, 2012, 1:39 am

    Interesting article — we can see how your badassity also serves to minimize your tax bills by living largely off investments and thereby avoiding the scourge of most employment and payroll taxes.

    Whenever “taxes” comes up, I always read with some amusement everybody’s two cents on what they think their “real” tax rates are. Most of the information out there is put out by various political and interest groups with lobbying agendas, to be reflexively “mouthed” ad nauseum by commentators and blog posters. And most of it is half-baked, incomplete or just plain wrong.

    There have actually only been one or two comprehensive studies that tried to measure this in recent years. See Kotlikoff and Rapson, “Does It Pay, at the Margin, to Work and Save? Measuring Effective Marginal Taxes on Americans’ Labor Supply and Saving,” in Tax Policy and the Economy, vol. 21 (MIT Press 2008) and Gokhale, Kotlikoff and Sluchynsky, “Does it Pay to Work?”, NBER Working Paper no. 9096 (Cambridge, NBER, 2002). They noted that the tax code is so complicated, running the numbers took a year to do.

    Their finding are also summarized briefly in “The Clash of Generations” a new book by Kotlikoff and Burns at Table 10.1. They found that all things considered, the “de facto flat tax” for a 30 year old couple earning $20K was 42.5%, dipped to about 25% as income rose to $50K and then increased back to 44% for the same couple earning $500K. For the average 45-year old couple, the rate ranged from 35.8% to 43.2%. It got less as you got older, because we tend to rob from the young to pay the for the old.

    At any rate, any time you have structured your income to pay significantly less, you are truly badass. It’s a probably unintended but certainly welcome advantage to retiring early.

    (Hey wait — are you still being paid for work . . . ;-) )

    Reply
    • TLV June 5, 2012, 11:15 am

      “Does It Pay, at the Margin, to Work and Save?” was an interesting read. I love how they call the tax code/transfer payment system a sausage.

      Reply
  • Happy June 5, 2012, 6:17 am

    MMM you are on a roll! Just when I think I’ve about got all this nailed, 3 days later, another great post that has me scurrying for calculators and a sheet of paper with more sums and scenarios. I’ve been wondering about the tax question, and now I have the answer. Well if I lived in US that is – Nero has helped clarify the Aussie situation a bit for me. I’ve got homework to do for sure: lucky I’ve still got a few years to FI to learn about shares and taxes – such a newb, no hair on the upper lip at all. (My stash is all locked up in a super scheme until I’m 55 at least..so I don’t get to choose stocks etc yet!)
    Kris

    Reply
  • Salis Grano June 5, 2012, 8:29 am

    In the UK we generally pay more. On a combined income from all sources (1 salary + 1 pension + investments) of £60k ($92k) we paid an effective income tax rate of 17%. If I reduce that income to what we actually spend, I reckon it would come to about 8%.

    I don’t find that too bad, but it’s obviously not as good as in the US. So, yes, you should celebrate the low tax regime you have.

    Reply
  • Neo June 5, 2012, 10:16 am

    Pretty much using franking credits from shares in Australia at about 60% shares and 40% cash a more normal asset allocation means no income taxes at all I plan on about a $1000 refund each year. Those in Oz can use Etax – free software from the ATO site to punch in some numbers to see how it all works out.

    When you’re living like a mustachian the living is easy :)

    Reply
    • Happy June 6, 2012, 4:19 am

      Thanks Neo :) I’ll check out Etax.

      Reply
  • Heath June 5, 2012, 1:10 pm

    WOOT! I finally caught up with the present :-) Meaning I’ve read each and every post on MMM and around 90% of the comments. Once I realized what a Gold Mine this blog was, I tried to savor each and every post. It’s taken me about 2 or 3 months! It’s my hope that by reading it constantly and saturating my mind with the concepts on a daily basis that it will have almost subliminal effects… along with actively trying to grow the ‘stache as well.

    My current living situation is a bit unique at the moment (Brazil on temporary work visa), but I eventually plan on returning to a typical US high-income cycle (in my hometown of Phoenix, AZ). Though my income is minimal for now (36K Reals per year as a DBA/Developer! (with a degree!!)), I’ve been slowly integrating Mustachian Principles into my life. When I DO make the move and increase my income substantially, I want to be comfortable living on 35% of my net take home pay. I’m already 29, but have no debt … or savings.

    Wish me luck and keep up the ridiculously awesome face-punching!!

    Reply
  • brkr12002 June 5, 2012, 2:37 pm

    I have been doing a lot into my retirement plan as Roth deferrals, but earlier this year I got to thinking about my taxes in retirement and crunching the numbers. After this year I am switching back to all pretax, to get the upfront tax benefits on those contributions today, and since I’ll be in the low tax bracket in retirement living off of SEPP from some of my ira money (the rest dividend money), I’ll be paying very little in taxes tomorrow. The Roth stuff will be left alone until colleting social security (if it’s around by that time).

    It seems to obvious, am I missing something? To me, this will greatly help me out on income taxes now (25% bracket), and unless there is a huge increase on the lowest bracket (10%) I would be ahead by going all pretax and living a simple early retirement.

    Reply
  • Concojones June 6, 2012, 3:44 pm

    $0 federal tax on $30k income?! What is the catch here? Deductions?

    Reply
    • FreeUrChains June 14, 2012, 10:21 am

      Since your $0 in income is in the “Poor” Tax bracket. You can have up to $35,500 in Ordinary Dividends Tax free. (to enjoy American Freedom, for now)
      If you live in one of the only 9 lucky states, like Florida, then you don’t have to pay 4% in State Income Tax either.

      Though a future president might place a 30% Tax on all Dividends in General sometime after 2013, so stay on top of changing laws and politics.

      Reply
  • lurker June 6, 2012, 5:58 pm

    stalwart used correctly in a sentence….this blog and its posters rock my little english major world! good tax stuff too. yawn.

    Reply
  • Shilpan June 6, 2012, 7:09 pm

    One caveat Mr. Mustache; our government taxes people no matter where they live on this earth. Many fortune companies are moving their head quarter to other countries as US based corporations have to pay taxes to our government even if the profit was earned by a division in Europe. I believe that income based taxation works against capitalist principles.

    Reply
  • Invest It Wisely June 7, 2012, 8:48 pm

    Hi MMM,

    That 10% is really good! What do you think it would look like up here in Canada, taking into considering some expenses would decline (medical insurance) while others might increase (heating in the winter?)

    Reply
    • Gerard July 8, 2012, 8:16 pm

      Okay, let’s assume a married couple in Ontario, no kids.
      At $30K ($20K work income or interest, $10K dividends) they would pay zero dollars in income tax, federal or provincial.
      At $70K ($50 work income or interest, $20K dividends) they would pay about $6400 in combined taxes, or about 9.1%.
      Good calculation page:
      http://www.taxtips.ca/taxrates/on.htm

      Reply
  • GregK June 11, 2012, 10:08 am

    Hey, on a completely unrelated topic, what’s with the picture of dirt?

    Reply
    • Mr. Money Mustache June 11, 2012, 2:26 pm

      Oh.. that’s supposed to be a sand castle with a moat. It is at the little lake/nature area that my son and I biked around the day before writing this post.

      Reply
      • GregK June 19, 2012, 1:07 pm

        Oh cool — just wondering if there was a deeper tax-related meaning!

        I kind of dig the fisheye effect here, but for times you don’t want it (interior RE photos, for example) here’s another purchase the blog might consider, along with the new DSLR:

        http://www.kenrockwell.com/tech/dxo/optics-pro.htm

        Chances are good you’ll only need the less expensive version — it depends only on the model of camera you have.

        Reply
  • FreeUrChains June 14, 2012, 10:14 am

    Since i pay my landlord Rent in cash, could i just say i am living with my cousin in Florida, convert residential address to there, while mailing important stuff to my actual home address; and then not have to pay state income tax while not paying federal on ordinary dividends? lol. It’s like your local township asking you for 1% in taxes from a website, that you “created” from a P.O. Box in Puerto Rico…It’s not tax fraud if it’s within a legal loop hole in the tax code right?

    Reply
    • Gerard July 8, 2012, 8:22 pm

      Ur Chains will be literal if you try that and the IRS audits you. You’ll need 183 days a year’s worth of restaurant receipts, credit card transactions, etc. from the state you claim to live in to avoid back taxes, penalties and interest.

      Reply
  • bobo August 7, 2013, 11:27 am

    The last few years we have been paid thousands by uncle Sam. I hope he keeps transferring wealth to us! Please address why I should bike when I get a 50 cent per mile write off but my cost is only 10 cents, effectively making my car free?

    Reply
  • Joe D September 12, 2013, 10:44 pm

    The Standard Exemption is a powerful thing. I remember when my CPA Father first paid off his mortgage and approached FI he would do his best to Itemize one year and not the next. My mom did not mind being listed in the paper for being a month behind paying her real estate taxes and charities were okay with you doubling up every other year. State taxes are more trickier but now in the days of Roth conversions you can justify paying any state estimates in a given year.

    Reply
  • pinerguard53 October 27, 2013, 8:38 pm

    Intriguing post. In your dividend only example, why is no portion taxed at the federal 15% rate?

    Reply
    • Three Wolf Moon January 24, 2014, 10:21 am

      @pinerguard –

      Don’t know if you’ll see this, but for anyone else with this question the answer is because qualified dividend income and long-term capital gains are treated differently than regular income (wages, income from a business or rental real estate) by the IRS. The tax code allows for a single filer who has dividends and long-term capital gains as their ONLY source of income to receive up to $46,250 and pay no federal taxes (after taking the $6100 standard deduction and the $3900 personal exemption). This is based on the upper end of the 15% tax bracket ($36,250 for 2013) which is adjusted for inflation each year. Clearly if you wanted to maximize the efficiency of your retirement income you could build up a portfolio of solid dividend paying stocks, quit all other income-producing enterprises, and live the luxurious lifestyle MMM has – and still have $ left over!

      Source : Qualified Dividends and Capital Gain Tax Worksheet for Line 44 in the IRS instructions for Form 1040.

      Reply
      • ButteryJones May 30, 2014, 12:35 pm

        Thanks for explaining this! I just spent the last 20 minutes searching the internet trying to fully understand how this works. After giving up I scrolled through the comments hoping someone would explain this, and you did perfectly!

        Reply
  • ELF May 19, 2014, 6:24 am

    Reading this post and comments, I am half tempted to try living in the US for a while. As a Brit currently living in France I have to keep my income below 32000€ (about US $45000) otherwise my tax rate almost doubles (on all my income) and I am already paying over 30% on all revenue (nothing is deductible)! So if I earn 33000€ my post-tax income is less than if I earn 20000€ – how’s that for a disincentive.

    A carpenter here is classed as an “Artisan” and pays 60%!

    Reply
    • ELF May 19, 2014, 6:34 am

      I should have added that despite the tax rates, I love France and feel living here is worth the cost of the taxes. I chose high taxes when I moved here, so I get the most from the French way of life and get by by being frugal on other less necessary expenses.

      Reply

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