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Live large like a socialist? Et tu, Sanders?

Live large like a socialist? Et tu, Sanders?

I had noticed that Bernie Sanders' tax returns were rather abnormal from the get go. I had also used information from them to create an effort to convince a friend of something political and had little luck. Oh well, water under the bridge right? Wrong. I had been focusing on the wrong thing as usual. It is not unusual to find a somewhat hypocritical politician, so why did anybody care? What was unusual though, was a documented way to

pay only 13.6% tax on 205,721$ !!!!!!!

- quite a stretch of the imagination indeed! Or is it? Is this voodoo magic possible in the land of the free? Of course it is son. Now sit here by the fire and let daddy tell you a tale about the land of high adventure. dun dun-dun-dun

The calculation looks mainly like this but it is not exact due to the tax code in general never being simple:

(Total income - itemized deductions)x(tax as a % from bracket)-(exemption for single or married) = total tax

For Bernie,

  • Total income = 205,721$
  • itemized deductions = 60,278
    • $22,946 on home mortgage interest
    • $14,843 on real estate taxes
    • $9,666 on state and local income taxes
    • $8,000 in gifts to charity
    • $350 in gifts to charity other than by cash or check
    • $4,473 in unreimbursed job expenses, which according to tax law can include fees such as union dues and travel
  • Tax from bracket = 28% based on married filing in 2014
  • Exemption for married couple = 12,400 in 2014

(205,721-60,278)*.28-12,400 = ~28,000$

28,000 / 205,721 = 13.6% wow that's cool.

His taxes are supposed to be available here, but the link isn't working for me right now, so I am just ballparking the nit picky details so you get the big picture. Above there were a few links in the list for sources if you don't believe me.

The way that he scored this amazing tax rate is quite simple: itemized deductions.  The biggest one by far for the Sander's family is real estate based deductions. A staggering 22,946$ of mortgage interest and 14,843$ of real estate taxes were written off. From my perspective and experience I believe the ratio of these two numbers indicate that he has paid off a good portion of the houses/mortgages and is left with a dwindling interest writeoff while his property taxes are non-fluctuating and remain near constant year over year. This simply means that he has equity in his real estate. Read between the lines here and see that one of the best ways to get a huge tax deduction is by owning a primary residence. It pays big time every year no matter what. And hey, you gotta live somewhere!

The second biggest deduction the family had is one that we should all have already: the state taxes paid. There is almost nothing you have to do to earn this deduction besides live in a state and pay wages there. Everybody should be claiming this deduction on their federal taxes and if you aren't then you need to fire your tax guy! Basic stuff people!

The third biggest on his list is 8,350$ to charity. The 350$ might be a donation to goodwill or something like that. Donating this amount is very good of him to do. I know that many people do not give more than 4% of their earnings to charity every year. Kudos to Bernie in this regard. I am not going to look up which charity it is because this article is already becoming a bit dry. Suffice to say that if you have things you do not need then drop them off at goodwill and get a receipt. You too will be able to write off things you no longer need and help others at the same time. 

Last but not least is #4 on the list as unreimbursed job expenses. I doubt that most people will be able to claim this one but hey if you travel and do other strange things for your job then read the guidelines here to see if you should be using this.

You would think that as a lower income earner you would be able to beat Bernie's tax rate easily, but it is not so. In order to leverage and be approved for a large mortgage, you must have a large income. Also you must have some deductions (which aren't free) in order to lower the rate from the tax bracket you are stuck in. This is not available to many lower income citizens because you do need to spend money to make money, especially for tax deductions. Even bad credit can keep you from a mortgage, or perhaps a spotty job history. The upside is that if you do manage to get a mortgage deduction in a lower income bracket, it helps you out  more because you were already in a lower tax bracket to begin with. Sometimes you may even be able to jump a bracket, which is the sweetest feeling in the world, and a good reward for being so efficient. To jump a tax bracket you need to get your itemized deductions up so that you move down in the rate. A double-whammy of savings is attained in this manner. It is hard to give advice on whether this is worth attempting because of all the variables from person to person. However if you were only 200$ away from being in a lower bracket (like the single filer with salary of 37,850$ below), you could almost always donate 201$ to charity and make your money back when you file by reducing your taxable rate from 25% to 15%.  Brackets for 2016: 

tax_brackets_2016

Ok so that's all well in good. At this point I would like to stop and make an important distinction here. We should not envy the rich based on these numbers and strategy's. That would do us no good. What we need to do is stop and learn from them. I hear a lot of people bashing on "the rich" which is very loosely defined as "anybody who has more money than me." That attitude is straight player hating. Player hating should be avoided at all costs if you are hoping to improve yourself throughout this life. Don't hate the player; if you must, hate the game itself. But even game hating is not an enviable trait. You must play the game. Be born again into it. Realize that there are many a stratagem afoot and use them to your advantage like some kind of financial Batman or something. 

don't be a player hater. Just play the cards you were given.

don't be a player hater. Just play the cards you were given.

To summarize, Bernie Sanders has a killer tax rate. I bet our readers can beat his tax rate if they try. Also do you know your personal tax rate? You should. Taking taxes into account with every investment you make really helps in the long run. I can't stress enough how important tax strategy is in 2016, please don't ignore your taxes. Tax savings are equivalent to after tax earnings, and earnings are the sweetest thing going. Financially that is.

DDave

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