No taxation without representation!
It is a phrase that launched a war and was the basis for starting a country. The logic behind the phrase was clear; The American colonies were being forced to pay taxes to the British Government, yet were given no representation in Parliament. The colonies were paying their share, but receiving none of the benefits of financially supporting a Government.
Because of the bad taste the British taxes left in the mouths of the colonies, The United States of America was formed on the belief of limited taxation. The citizens would be taxed as little as possible and only for absolutely essential purposes. It was a great idea in theory, unfortunately it wouldn’t last long and our country would quickly discover that taxation with representation isn’t so great either.
Introducing the Income Tax
For the first 71 years of our existence, The United States managed to survive with zero income tax revenue. We relied on various, small internal taxes until 1817, when our Government did away with ALL internal taxes and ran entirely on imported goods taxes. Could you imagine paying NO taxes?! The United States did exactly that for 45 years, until the extraordinary costs of the Civil War forced the Government to enforce the very first income tax.
Like it is today, the new income tax was progressive and required those making more to pay more. This was also the beginning of everyones favorite Government organization, the IRS. In 1862, the IRS was created and given the power to assess, levy and collect taxes, and to enforce the tax laws through the seizure of property and income and through criminal prosecution.
Income Tax Unconstitutional
Have you ever heard one of those groups who believe the income tax is unconstitutional and therefore you don’t have to pay it? In 1895, our Government agreed with them and outlawed the enforcement of an income tax, declaring the act in violation of the constitution of the United States.
Unfortunately, the declaration would be short lived. Having gotten a taste of the massive amounts of revenue an income tax could bring in, Congress passed the 16th Amendment to the Constitution in 1913, which gave them the legal right to tax income at both the individual and corporate level. As economy began to boom, the revenues brought in from the new income tax continued to soar.
While the income tax continued to bring in billions of dollars in revenue, the Government was having a little trouble enforcing the laws. Without the computers, internet and other tracking devices we use today, it was very difficult to tell who was and wasn’t paying their taxes. In 1943, the Government came up with the idea of requiring employers to withhold taxes of their employees. The amount of people paying taxes immediately increased, massively raising the amount of tax revenue brought in.
Your Biggest Expense
Today, the average American can expect to pay over 30 percent of their income in various taxes. For most people, the income tax will likely be the biggest expense they pay all year.
So how can you minimize the amount of income taxes you are paying? In my opinion, you have two choices.
1. You can join a group one of the groups who don’t believe income taxation is constitutional. I have seen some very smart people get wrapped up in these. If you do this, you will likely go five to ten years paying zero income tax before being caught and facing massive penalty and interest charges and likely jail time. Let me assure you, no matter how convincing these people sound or the “documentation” they provide to prove their stance, the income tax IS constitutional and it MUST be paid.
2. You can hire a tax preparer to make sure you are paying the least amount of taxes possible while keeping in line with the ever changing tax laws. There are a lot of choices out there for tax preparers, but I firmly believe hiring an actual CPA is your best option. The seasonal, chain store shops like H&R Block hire people with zero experience, having only completed an eight week tax course to prepare these for you. When it comes to something as serious and expensive as your taxes, pay for an expert.
(Note- We are currently accepting new clients for this coming tax season and have a fantastic package for the first 50 people to take it. See more details in the video below.)
This is all a long way of saying that income taxes are likely the biggest expense you will pay over the course of your life. The rules should be respected and followed, but you should also be sure you are paying the least amount legally possible.