Capital gains are the profits acquired from the sale of property or an investment and they are taxed at a different rate than that of typical income bracket rates. If you held this investment or property for longer than a year it’s taxed at 15%.
That’s the same rate you pay if you are living under the poverty threshhold, and it is staggeringly low. As long as you have the money to buy these investments or properties there isn’t very much work to be done. You might have to do a bit of research but property tends to appreciate at a higher rate than inflation and you can always invest in a hedge fund that does all the research for you.
Just as an example: I made $60.00 today from my job, I made $105.50 from having $11,000 in my brokerage account. To make the $60.00 I had to go to school to get the proper credentials and then I had to go to work and provide a service which took using my brain, skills, and most valuable of all my time. To make the $105.50 all I had to do was transfer money from one place to another by pressing a couple keys on my laptop (I did that weeks ago so it’s not even a daily process). By going to school and working hard I gained $60.00; by doing nothing I gained $105.50 – and to boot, the larger sum of money is getting taxed at less than half the rate of the smaller sum (when factoring in self employment tax which is 15% but I’ll get to that in a minute.)
Anyone who’s worked as an independent contractor knows that it comes with a lot of unpaid work and risk. For one, you are not eligible for workers’ compensation or unemployment. You must often find your own clients and work can be unstable. You’d think that this kind of entrepreneurship would be encouraged, but above and beyond paying the dues owed due to the tax bracket you fall into, as an independent, you must now face an additional 15% for going through the hassle. Remember the largest jump in the regular bracket system is 10% so working for yourself is like voluntarily jumping up two brackets without making the additional income.
People say that the benefit is all of the things you can write off, but realistically speaking that’s a lot less than you’d think and if you write off too much you can expect to be audited. Making sure that all the deductions are taken care of properly is just more uncompensated work. The real double-edge is that your employer is writing off all those things while providing you employment. Also, he is taxed less than you, as a gift for finding the logical path toward making you an indie contractor.
They write you off, as they would the purchase of a shovel, or the rental of a tractor. You on the other hand, assume both the human tax position, of both the employer, and the employee. Overtime is also taxed at a different rate than that of the typical annual income bracket. Let’s break down what happens in the case of overtime compensation. We can say someone is making $20.00 an hour and with time-and-a-half her overtime comes out to $30.00. However, roughly 28% will go to the state (depending on the state). She will pay an additional 6% as Federal payroll tax as well as 6% income tax. Her employer will be subject to a 7.65% payroll tax on her behalf.
The lowest you could end up paying for overtime is 40% which is higher than even the top-tier annual income bracket. So, in a country that pretends to reward hard work what we find is the exact opposite. If you have the money to invest in property, mutual funds, stocks, etc, your tax burden is astronomically reduced compared to that of an equally-abled person who directly puts in the sweat and blood needed to face greater hours, or to work for themselves.
To be continued…