WEBVTT - How Income Taxes Work 0:00:01.120 --> 0:00:04.280 Welcome to you stuff you should know from house Stuff 0:00:04.280 --> 0:00:12.560 Works dot com. Hey, and welcome to the podcast. I'm 0:00:12.640 --> 0:00:15.960 Josh Clark and Draws w Chuck Bryant and Jerry Rowland. 0:00:15.960 --> 0:00:18.599 They're here with me. So it's stuff you should know. 0:00:18.800 --> 0:00:24.000 That's right. Welcome, that's nice. That's a friendly will come in. Oh, 0:00:24.360 --> 0:00:31.000 German friendly, bienvenue French friendly? Is that French? I believe? 0:00:31.080 --> 0:00:35.400 So Okay, how's it going. It's going fine, still snowing, 0:00:35.920 --> 0:00:40.560 that's right with people, like weeks later it's snowing. Uh. Yeah, 0:00:40.560 --> 0:00:43.800 because we're releasing this one around text time because it's appropriate. 0:00:44.040 --> 0:00:49.000 That's right. People, the dreaded day, it is dreaded. I 0:00:49.000 --> 0:00:52.720 feel sorry for people with that birthday because it's just 0:00:52.760 --> 0:00:56.360 associated with you know, pain and suffering. Well you should know, 0:00:56.520 --> 0:00:58.800 I mean, like think about it. That's one good thing 0:00:58.840 --> 0:01:03.600 on that day. Yeah, is their birthday? You know. I 0:01:03.600 --> 0:01:05.840 think we should all celebrate like a half birthday or 0:01:05.840 --> 0:01:09.080 a mini birthday on April fift just to kind of 0:01:09.120 --> 0:01:12.560 alleviate tax day. That's right. So we're talking about taxes, 0:01:12.920 --> 0:01:18.840 specifically income tax, which is everyone's favorite tax to pay 0:01:20.319 --> 0:01:23.840 is go out and work hard for your money and 0:01:23.880 --> 0:01:28.440 then give a significant portion of that to the government. 0:01:29.400 --> 0:01:33.360 All Right, that's text day. I'm not gonna tax bash. 0:01:33.480 --> 0:01:35.520 I'm gonna try not to tax Bash. It's kind of 0:01:35.560 --> 0:01:37.600 tough not to. And I know you gotta pay taxes, 0:01:37.600 --> 0:01:41.440 I get it, but man, it's just government takes a bite. 0:01:41.680 --> 0:01:44.920 Well it's not that even it takes a bite that 0:01:45.000 --> 0:01:50.520 they tinkle so much of it away, you know, And 0:01:50.960 --> 0:01:53.800 oh my god, it's so maddening. The older I get, 0:01:53.840 --> 0:01:56.440 the more I'm just like, you have to bed. Yeah, 0:01:56.480 --> 0:01:58.520 when you're younger, you don't think about that stuff as much. 0:01:58.520 --> 0:02:00.360 At least I died and you go all learn like, 0:02:00.400 --> 0:02:04.400 wait a minute, pay how much in taxes? Exactly? All right, 0:02:04.560 --> 0:02:07.520 let's get into this alright, Chuck. So um, we're talking 0:02:07.560 --> 0:02:11.920 income tax specifically, not just taxes. But um, this country 0:02:11.919 --> 0:02:14.800 has a long history of hating taxes. And it goes 0:02:14.840 --> 0:02:18.520 back to the very um point that it was founded on, 0:02:19.480 --> 0:02:26.640 which was in part breaking away from um, Great Britain England. Um, 0:02:26.680 --> 0:02:30.280 because of taxation without representation. If you're a colonist, you 0:02:30.360 --> 0:02:34.520 were taxed man all over the place. Yeah. And um. 0:02:34.600 --> 0:02:37.399 What they found though, was when we got our independence, 0:02:37.760 --> 0:02:40.720 the US government formed and started taxing all the same stuff, 0:02:41.760 --> 0:02:45.400 and I imagine they didn't love it, but they were like, well, 0:02:45.680 --> 0:02:48.360 at least we're represented, which is kind of the issue 0:02:48.360 --> 0:02:53.559 we had before. You know, this is taxation with representation. Um. 0:02:53.600 --> 0:02:56.480 But these were just they weren't They were excise taxes, 0:02:56.480 --> 0:02:59.639 which is a tax on a specific good, right specific 0:02:59.639 --> 0:03:02.360 type of good. They were tariffs, which is a tax 0:03:02.400 --> 0:03:07.440 on foreign imports. And they were um sales taxes basically. Yeah, 0:03:07.919 --> 0:03:11.440 twelve was the first sales tax on gold, silverware, jewelry, 0:03:11.520 --> 0:03:15.399 and watches. So that's pretty much a luxury tax really. Yeah. 0:03:15.720 --> 0:03:18.720 So right off the bat, the first tax on a 0:03:18.960 --> 0:03:25.000 personal tax on a person um is it affects the wealthy. Yeah, 0:03:25.000 --> 0:03:28.280 And it's interesting them the history of the taxes here 0:03:28.280 --> 0:03:29.720 as you look at it, there was a lot of 0:03:30.840 --> 0:03:34.239 installing attacks and then repealing it and saying no, that's 0:03:34.280 --> 0:03:36.280 not right, and then they'll put in another tax and 0:03:36.320 --> 0:03:38.800 then they would say no, that's not right. Well, what's 0:03:38.800 --> 0:03:41.800 funny is that pattern that you're talking about. It followed 0:03:42.400 --> 0:03:45.800 because the taxation is usually imposed on the wealthy, and 0:03:45.880 --> 0:03:47.680 the wealthy figures out how to get out of it, 0:03:47.880 --> 0:03:50.880 and it goes on everybody else's shoulder and then it's repealed. Yeah, 0:03:50.880 --> 0:03:52.960 this is nothing the stuff that we see now people 0:03:53.040 --> 0:03:55.760 arguing about. It's kind of what's exactly the same back then, 0:03:55.800 --> 0:03:57.960 which is really kind of funny when you think about it. 0:03:58.360 --> 0:04:01.560 You know, there's nothing new. So in eighteen sixty two 0:04:01.560 --> 0:04:05.880 is when we got our first national income tax UM 0:04:05.920 --> 0:04:07.920 and part of this was to support the Union Army. 0:04:07.960 --> 0:04:11.720 Congress passed laws in eighteen sixty one. In eighteen sixty two, 0:04:12.440 --> 0:04:16.520 UM in the Office of Commissioner of Internal Revenue, which 0:04:16.560 --> 0:04:18.960 we know is i RS today, was set up by 0:04:18.960 --> 0:04:22.680 the Tax Act of eighteen sixty two. Yeah, let's just 0:04:22.760 --> 0:04:24.880 for a second, chuck, Like, let's think about this. The 0:04:25.000 --> 0:04:30.040 beloved Abe Lincoln is directly responsible for the income tax 0:04:30.400 --> 0:04:34.000 and the i R S. Yeah, I mean it happened 0:04:34.000 --> 0:04:36.839 on his watch. Sure, I guess you can't set up 0:04:36.880 --> 0:04:39.359 an income tax without a body to regulate it and 0:04:39.440 --> 0:04:42.000 to enforce it, which is basically what that did in 0:04:42.040 --> 0:04:44.880 eighteen sixty two. Right, And we were talking about taxes 0:04:44.920 --> 0:04:48.359 being um created due to be imposed on the wealthy 0:04:48.839 --> 0:04:52.680 um between eighteen twelve after eighteen seventeen, with that when 0:04:52.720 --> 0:04:56.320 that tax, the Luxury good tax was terminated, and eighteen 0:04:56.360 --> 0:04:59.400 sixty two, there weren't any taxes like that at all. 0:04:59.440 --> 0:05:03.760 There weren't any personal taxes, and the US government funded 0:05:03.800 --> 0:05:08.479 itself from tariffs, right, So all these foreign imports coming 0:05:08.480 --> 0:05:15.240 in imports, well, the tariffs were on imports apparently mostly um. 0:05:15.279 --> 0:05:20.520 Because this allowed companies this this basically led to the U. 0:05:20.600 --> 0:05:25.240 S economy booming because they like all of the internal stuff, 0:05:25.240 --> 0:05:28.719 all of domestically produced stuff, wasn't subject to any tariffs, 0:05:29.000 --> 0:05:31.880 so they didn't have to compete. They had cheaper prices. 0:05:32.120 --> 0:05:35.520 And these companies used this this stuff to enrich themselves, 0:05:35.640 --> 0:05:38.400 which led to the uber wealthy, which in turn led 0:05:38.480 --> 0:05:41.240 to the first income tax and anything sixty two to 0:05:41.360 --> 0:05:44.679 text the uber wealthy. That's right. Uh. In an eighteen 0:05:44.960 --> 0:05:47.919 sixty three they started collecting this income tax for the 0:05:47.960 --> 0:05:52.360 first time, and it was a graduated tax, kind of 0:05:52.400 --> 0:05:55.320 like we see today. Um, if you earned between six 0:05:55.400 --> 0:05:57.680 hundred and ten thousand dollars a year, you paid three percent. 0:05:58.160 --> 0:06:01.120 If you made higher than that, you paid more than 0:06:01.160 --> 0:06:06.160 that percentage wise. Um, I mean that was the first 0:06:06.200 --> 0:06:09.279 income tax. So it's always three and then five percent 0:06:09.440 --> 0:06:11.839 if you made over tempt Yeah, it's always funny to 0:06:11.839 --> 0:06:15.920 me when I hear like our founding fathers blah blah blah, like, no, 0:06:16.080 --> 0:06:18.560 you're founding fathers. Is this is exactly how they set 0:06:18.600 --> 0:06:22.000 it up. So I guess the argument is, well, not 0:06:22.040 --> 0:06:26.720 those founding fathers, just certain founding fathers I agree with, Well, 0:06:26.760 --> 0:06:28.880 it depends on the founding fathers. Well, it's just I 0:06:28.920 --> 0:06:31.800 hate hearing the argument our founding fathers when people don't 0:06:31.800 --> 0:06:35.040 even really know exactly what our founding fathers were doing, 0:06:35.200 --> 0:06:38.280 like imposing a graduate attacks first right off the bat. 0:06:39.000 --> 0:06:42.719 You know, well, the the U I only recently realized 0:06:42.760 --> 0:06:46.960 that there was that. What we have today in the 0:06:47.040 --> 0:06:49.720 United States, the form of government we have is part 0:06:49.800 --> 0:06:53.239 of what's called the Jeffersonian Revolution, where basically the founding 0:06:53.240 --> 0:06:58.680 fathers Monroe, Madison, Washington came up with the country. They 0:06:58.720 --> 0:07:02.840 came up with the country that's different than the one 0:07:02.839 --> 0:07:05.039 we have now. And the reason that it's different now 0:07:05.120 --> 0:07:08.000 is because Jefferson came along and said, Noah, we can 0:07:08.000 --> 0:07:10.880 do better than this, so let's change this, and that's 0:07:10.920 --> 0:07:15.080 what we have now. So which, yeah, which which founding 0:07:15.080 --> 0:07:18.080 father are you talking about? So, like we're saying, it 0:07:18.400 --> 0:07:20.760 went back and forth, there was a flat tax in 0:07:20.840 --> 0:07:24.040 eighteen sixty seven instead of a graduate attacks and then 0:07:24.080 --> 0:07:28.440 five years after that they repealed income tax altogether, and 0:07:28.480 --> 0:07:34.480 they said, this is not right. It is unconstitutional. Um, 0:07:34.520 --> 0:07:37.000 it's got to abide by a constitutional guideline and it 0:07:37.080 --> 0:07:40.239 does not. And that was the income tax of eighteen 0:07:40.320 --> 0:07:43.120 ninety four. That was where the tariffs were. I'm sorry 0:07:43.160 --> 0:07:46.240 I missed spoke earlier. Between eighteen seventy two and eighteen nine. 0:07:47.080 --> 0:07:50.440 That's where the U. S. Government was lived on tariffs 0:07:50.800 --> 0:07:54.040 and that allowed the economy to boom, railroads to grow, 0:07:54.280 --> 0:07:57.240 and that a class of uber wealthy to get even 0:07:57.280 --> 0:08:00.560 wealthier they were there before. But um, like this is 0:08:00.600 --> 0:08:04.720 when the Carnegies came along, the Rockefellers like started to 0:08:04.760 --> 0:08:08.440 develop this and so all these people said, hey, man, 0:08:08.800 --> 0:08:12.520 like these people should should be paying some some taxes here, 0:08:13.040 --> 0:08:16.160 and that's where they came from. That's where the tax 0:08:16.240 --> 0:08:19.360 came from. Yeah. In that tax two percent of personal 0:08:19.400 --> 0:08:23.680 income more than four thousand dollars again, tax on the wealthy. Uh. 0:08:23.720 --> 0:08:26.280 And the Supreme Court is that's when they struck that 0:08:26.320 --> 0:08:30.360 one down as unconstitutional. So in nine Congress got around 0:08:30.400 --> 0:08:32.720 all this by making it a part of the constitution. 0:08:33.280 --> 0:08:35.480 And said, you know what, we'll create the sixteenth Amendment. 0:08:35.880 --> 0:08:38.400 Congress will have the power to lay in collect taxes 0:08:38.400 --> 0:08:44.439 on incomes from whatever source derived without a portion I'm sorry, Yeah, 0:08:44.480 --> 0:08:48.240 apportionment among the several states without regard any census, right, 0:08:48.280 --> 0:08:50.520 which was the hangout before. Yeah, Like, it doesn't matter 0:08:50.640 --> 0:08:52.760 how populated your state is. Like, this has nothing to 0:08:52.800 --> 0:08:56.440 do with state. It's just a national tax. And originally 0:08:56.520 --> 0:08:59.800 the income taxes a tax on the uber wealthy does 0:08:59.840 --> 0:09:01.640 make a king more than four thousand dollars a year, 0:09:01.960 --> 0:09:06.559 which is super wealthy. Um, and the uber wealthy fought it, 0:09:07.000 --> 0:09:09.719 got the Supreme Court to strike it down, and so 0:09:10.400 --> 0:09:13.440 under Taff's watch, they said, well, we can get around 0:09:13.480 --> 0:09:15.920 this by just amending the constitution. That's what they did. 0:09:16.880 --> 0:09:21.880 And apparently from this the sixteenth Amendment. Like before, Chuck, 0:09:21.960 --> 0:09:24.920 it was like, um, you were more a participant in 0:09:25.120 --> 0:09:27.559 your state, and there was the federal government, but it 0:09:27.640 --> 0:09:29.920 was the federal government and they didn't mean a whole 0:09:30.000 --> 0:09:33.559 lot to you. When the sixteenth Amendment was passed, that 0:09:33.800 --> 0:09:38.760 changed everything because now you were a payer to the 0:09:38.840 --> 0:09:43.240 federal government. Um, and the federal government also had the 0:09:43.360 --> 0:09:46.839 states kind of by the short hairs because the states 0:09:46.880 --> 0:09:50.200 relied now on federal grants that were generated through your 0:09:50.320 --> 0:09:53.360 tax dollars. So the federal government really asserted itself as 0:09:53.400 --> 0:09:57.439 a central power, consolidated power into the federal government with 0:09:57.679 --> 0:10:00.679 the sixteenth Amendment more than anything else but or and 0:10:00.760 --> 0:10:03.520 they never looked back. They certainly didn't know. UM. In 0:10:03.640 --> 0:10:08.760 nineteen thirteen with the Underwood Tariff Act, UM, they basically 0:10:08.880 --> 0:10:12.080 kicked off the modern system that we have in During 0:10:12.080 --> 0:10:15.679 World War Two, they started withholding taxes instead of just 0:10:16.280 --> 0:10:17.959 telling up your bill and paying at the end of 0:10:18.000 --> 0:10:20.920 the year. You have, as we all know and love. 0:10:21.000 --> 0:10:23.840 Now you have part of your paycheck withheld pay as 0:10:23.880 --> 0:10:27.240 you earned system. That's right, and that funds the government 0:10:27.320 --> 0:10:32.040 continuously because every pay period your employer, which who withholds 0:10:32.120 --> 0:10:36.959 the your money on behalf of the government, submits it 0:10:37.080 --> 0:10:40.000 to a federal reserve bank, and the government earns interest 0:10:40.120 --> 0:10:43.480 on it and has constant income. That's right. It's like 0:10:43.520 --> 0:10:47.720 a paycheck for the Government's exactly what it is. Uh 0:10:47.880 --> 0:10:51.199 So let's let's walk people through. Uh And and I 0:10:51.280 --> 0:10:53.480 think this article does right by it like picking out 0:10:53.559 --> 0:10:56.440 just one person. I don't want to call him Joe. 0:10:56.480 --> 0:10:58.080 I'm so tired of that, What do you want to call? 0:10:58.760 --> 0:11:01.280 While I have Cyrus written down? All right, we'll go 0:11:01.360 --> 0:11:05.280 with Cyrus. Right, the Cirrus gets a job, Cyrus gets 0:11:05.320 --> 0:11:07.240 away age, he agrees to with his employer and says, 0:11:07.240 --> 0:11:09.839 all right, this is fair, We'll take this job. And 0:11:10.160 --> 0:11:11.920 the employer says, all right, Syryus, you gotta fill out 0:11:11.960 --> 0:11:15.960 this W four and um, that's one of your tax 0:11:16.040 --> 0:11:18.439 forms and you gotta do it right when you get hired. 0:11:18.800 --> 0:11:21.920 And it's gonna list all your withholding allowances and all 0:11:22.000 --> 0:11:25.800 your dependents and child care expenses and basically everything that 0:11:26.000 --> 0:11:29.320 you need to know, Mr employer, like how much money 0:11:29.400 --> 0:11:33.200 to hold out of my paycheck? So I fill out 0:11:33.240 --> 0:11:35.800 the W four. Now you know, now you're withholding. And 0:11:35.840 --> 0:11:38.679 now at the end of the year, me, Cyrus, I 0:11:38.800 --> 0:11:41.960 want to see if I can kind of project how 0:11:42.040 --> 0:11:44.120 I did this year. Am I gonna be paying? Am 0:11:44.120 --> 0:11:46.559 I be getting it back? So here's how you do that. 0:11:46.960 --> 0:11:50.959 So you take your gross income, the number that we 0:11:51.040 --> 0:11:53.559 all wish we actually made. Right, Yeah, that's all the 0:11:53.720 --> 0:11:58.640 money you have from salary, from interest, income from pensions. Yea, 0:12:00.000 --> 0:12:03.000 all the money you have coming in, that's your gross income, right, 0:12:03.800 --> 0:12:07.880 and then you go through adjustments, and adjustments are basically 0:12:08.240 --> 0:12:14.240 um uh, little little mulligans that the government gives you, says, 0:12:14.320 --> 0:12:17.240 all right, you can you can subtract this from your 0:12:17.240 --> 0:12:21.400 gross income, which alimony, let's say, sure, or if you 0:12:21.960 --> 0:12:26.040 um uh tax on your self employment, if you moved, 0:12:26.280 --> 0:12:28.920 moving expenses for your job, that's one to stuff like that, 0:12:29.160 --> 0:12:32.280 and all these things. So adjustments, deductions, which we'll talk about, 0:12:32.679 --> 0:12:36.839 all of these things, credits, they're all basically behaviors that 0:12:36.920 --> 0:12:40.520 the government wants to encourage, so they give you, they 0:12:40.559 --> 0:12:43.880 give you the ability to subtract those amounts from your uh, 0:12:44.080 --> 0:12:47.160 your gross income. Yeah, they incentivize these things. Yeah, Like 0:12:47.200 --> 0:12:50.000 they want you to work, so you can deduct childcare 0:12:50.040 --> 0:12:54.199 expenses under some some regimes. Or they want you to 0:12:54.280 --> 0:12:57.800 go to college, so you can deduct college expenses things 0:12:57.880 --> 0:13:01.839 like that. So that your adjusted gross income. Right when 0:13:01.880 --> 0:13:06.679 you subtract your adjustments from your gross so that's your 0:13:06.720 --> 0:13:09.559 A g I. And then you've got a couple of 0:13:09.640 --> 0:13:12.040 choices here when you go to fill out your tax forms. 0:13:12.080 --> 0:13:15.439 You can either do the standard deduction or itemize everything out. 0:13:15.679 --> 0:13:17.880 You're gonna want to choose whichever one is greater. Obviously, 0:13:18.320 --> 0:13:21.719 so you can get the biggest chunk for yourself. Um, 0:13:22.679 --> 0:13:25.760 all sorts of itemized deductions. Like if we had a 0:13:25.800 --> 0:13:28.679 tax accounting in here, they would probably laugh if we 0:13:28.800 --> 0:13:32.160 tried to break down itemized deductions. There's a lot of them, 0:13:32.200 --> 0:13:34.480 and they get really weird. Like, for example, a good 0:13:34.520 --> 0:13:38.160 example that, um, if you're a bodybuilder, a professional body building, 0:13:38.200 --> 0:13:41.600 which I am, Uh oil body oil, I write off 0:13:41.679 --> 0:13:45.240 all my oils can be written off as a business expense. Yeah, 0:13:45.320 --> 0:13:47.079 and you know I want. I used to freelance in 0:13:47.160 --> 0:13:49.439 the film industry. They are all sorts of cool things 0:13:49.480 --> 0:13:52.400 you can write off, like your movie tickets and your 0:13:52.400 --> 0:13:56.200 cable bill and uh stuff like that. Um, you can 0:13:56.240 --> 0:14:00.640 write off your interest on your home mortgage, charitable contributions, 0:14:01.400 --> 0:14:04.680 some medical and dental expenses, all sorts of things within 0:14:04.760 --> 0:14:07.120 the law that you can they call him right offs 0:14:07.200 --> 0:14:09.920 your deductions or you can just go with the standard 0:14:09.960 --> 0:14:13.520 deduction again. Right, you don't have to itemize everything out No, 0:14:13.760 --> 0:14:17.400 but a lot of text people say, uh, tax professionals say, 0:14:17.640 --> 0:14:19.760 at least go through and make sure you shouldn't be 0:14:20.080 --> 0:14:24.240 itemizing because if it's even a penny more maybe not 0:14:24.360 --> 0:14:26.760 a penny, but if it's a little more. It's worth 0:14:26.920 --> 0:14:29.080 the trouble most of the time, and it is a 0:14:29.160 --> 0:14:32.560 lot of extra paperwork. Um, but you know, you save 0:14:32.600 --> 0:14:35.240 yourself some money as you're deducting from it. You're deducting 0:14:35.320 --> 0:14:38.320 from your income. And then finally, after you have your 0:14:38.520 --> 0:14:41.320 justice gross income and you subtract all the deductions for it, 0:14:41.840 --> 0:14:44.480 that the number that you have that's your taxable income. 0:14:44.800 --> 0:14:47.480 So the more you can deduct from it, the lower 0:14:47.600 --> 0:14:50.320 your tax burden is going to be. Yeah, I can't 0:14:50.320 --> 0:14:53.080 remember which. There's a commercial going around now about one 0:14:53.120 --> 0:14:57.280 of the accounting firms that says that Americans left a 0:14:57.320 --> 0:15:00.600 billion dollars on the table for Buffalo while Wings cafe. 0:15:03.160 --> 0:15:05.520 If you're getting your taxes done at Buffalo Well Wings, 0:15:05.600 --> 0:15:09.520 then you get a free dozen wings. That'd be awesome. 0:15:09.640 --> 0:15:12.880 Did you hear that they may have Dorito's flavored wings 0:15:12.960 --> 0:15:15.120 coming out. I can't tell you how excited I am 0:15:15.160 --> 0:15:19.440 about this. I don't get the whole derito ization of everything. 0:15:20.200 --> 0:15:22.880 You need to get on the bandwagon, dude, because there's 0:15:22.880 --> 0:15:26.840 a lot of fun to be had eating Dorito based food. 0:15:27.000 --> 0:15:29.640 Remember we were kids and that was derritos. That was 0:15:29.720 --> 0:15:32.000 it was like the guy with a mustache would sell 0:15:32.040 --> 0:15:34.640 you this one derito And now there's like, wait, what 0:15:35.240 --> 0:15:37.400 where are you buying derrito's one at a time? From 0:15:37.400 --> 0:15:40.440 a guy? When down the commercial he was he looks 0:15:40.480 --> 0:15:43.360 for like jeans Shallotte. Oh, you're talking about the frido bandido. 0:15:43.840 --> 0:15:47.520 That's different. I'm talking about the Dorito's guy. Really know 0:15:47.720 --> 0:15:51.800 you're thinking of Mr Pringle's. But now they you know, 0:15:51.880 --> 0:15:55.040 you go the store is just overwhelming. It's ridiculous. Yeah, 0:15:55.200 --> 0:15:58.920 but different shape flavors, and they're they're just like, let's 0:15:59.000 --> 0:16:01.640 throw everything at the let's see what sticks. Just give 0:16:01.680 --> 0:16:04.120 me a derita or cool Ranch. Cool Rance is great. 0:16:04.160 --> 0:16:05.680 I have to abide by the color ranch. They brought 0:16:05.720 --> 0:16:08.000 the original version out too, and those are pretty great 0:16:08.000 --> 0:16:10.520 to just regular nacho cheese doritos. You know, even before 0:16:10.560 --> 0:16:14.280 that there was an original version. It's like taco basically 0:16:14.320 --> 0:16:17.280 it's orange bag. It's an orange bag. I think that's 0:16:17.640 --> 0:16:19.800 that is when I grew up on. Obviously, no, the 0:16:20.480 --> 0:16:24.160 nacho one is the red bag and then blue is cool. 0:16:24.240 --> 0:16:27.040 What is this like the nine twenties? What do you 0:16:27.080 --> 0:16:30.640 mean when they had the original like the sixties or fifties, 0:16:32.440 --> 0:16:37.840 even before your time. So you've got your taxable income, 0:16:39.160 --> 0:16:40.880 you go to the I R S tables. If you 0:16:40.880 --> 0:16:43.480 make less than a hundred thousand dollars a year, you 0:16:43.560 --> 0:16:45.080 go to the rate schedules. If you earn more than 0:16:45.120 --> 0:16:47.840 a hundred thousand dollars a year. And like we said, 0:16:47.880 --> 0:16:52.120 it's a marginal tax rate system. Um or graduated their 0:16:52.320 --> 0:16:54.720 different tax brackets depending on how much you make. Yeah, 0:16:54.760 --> 0:16:57.440 there's seven this year and two. So what's still low? 0:16:57.560 --> 0:17:03.280 Is it still ten percent? Yep? Ten percent, fifty three percent, 0:17:03.520 --> 0:17:07.280 thirty five percent, and then for earners of four hundred 0:17:07.359 --> 0:17:10.000 thousand or over, I think single earners of four k 0:17:10.119 --> 0:17:14.640 or over, it's thirty nine point six percent of your Hey. 0:17:15.040 --> 0:17:17.639 But so it's a marginal tax rate, meaning that um 0:17:17.920 --> 0:17:20.879 that you fall into one bracket or another. If you 0:17:21.000 --> 0:17:25.480 earn a hundred thousand dollars, um you're not gonna owe 0:17:26.320 --> 0:17:29.120 I think twenty eight thousand dollars. I think it falls 0:17:29.119 --> 0:17:32.560 into maybe they percentile you wouldn't owe twenty eight thousand 0:17:32.600 --> 0:17:37.200 dollars of your adjusted gross income or yeah, what you 0:17:37.280 --> 0:17:42.040 would owe is ten percent up to the top of 0:17:42.080 --> 0:17:46.960 the ten percent bracket of the high of the fifercent bracket. 0:17:47.000 --> 0:17:50.000 And so on until you reach your bracket and you 0:17:50.080 --> 0:17:52.440 subtract your adjusted gross income from the top of that 0:17:52.680 --> 0:17:54.200 or from the bottom of that bracket, and then you 0:17:54.320 --> 0:17:57.800 owe percent of that. That makes more sense. It's a 0:17:57.880 --> 0:18:00.239 lot easier if if say, like you know, if you're 0:18:00.280 --> 0:18:02.000 making a hundred thousand dollars less, you just go to 0:18:02.040 --> 0:18:03.920 the text table and you're like, there it is. But 0:18:04.040 --> 0:18:06.960 it's also fairly easily calculated as well. So what do 0:18:07.000 --> 0:18:11.800 you want to make? Well, here's the thing. You want 0:18:11.840 --> 0:18:14.400 to make as much as you possibly can, I think, 0:18:15.000 --> 0:18:18.280 But then you want to have that's what you're Into're 0:18:18.320 --> 0:18:20.600 not saying everyone has to pursue the dollar, right, But 0:18:20.720 --> 0:18:23.560 if you are pursuing the dollar and you don't want 0:18:23.600 --> 0:18:27.440 to pay more tax than you have to, UM, you 0:18:27.880 --> 0:18:32.680 you want to make a high salary and then have 0:18:32.800 --> 0:18:35.879 a lot of adjustments. UM. The problem is is that 0:18:36.040 --> 0:18:40.159 there's this thing that was introduced in the sixties nineteen 0:18:40.280 --> 0:18:44.960 sixty nine I think, or maybe the seventies. UM was 0:18:45.119 --> 0:18:48.800 the alternative minimum tax. Sorry that came around in the eighties. 0:18:50.160 --> 0:18:54.520 The alternative minimum tax was introduced to keep high earners 0:18:55.240 --> 0:19:00.040 from just deducting absolutely everything and paying a very a 0:19:00.160 --> 0:19:03.960 low tax. Um, and it made sense of the time 0:19:04.200 --> 0:19:07.040 because it was imposed on higher earners. The problem is 0:19:07.119 --> 0:19:10.639 is the cut off that was originally introduced, something like 0:19:10.800 --> 0:19:13.639 sixty thou or something like that at that time was 0:19:13.760 --> 0:19:16.720 a lot of money, but it was never index to inflation. 0:19:17.119 --> 0:19:21.320 So as the value of the dollar grew weaker over 0:19:21.440 --> 0:19:24.080 time through inflation, why didn't they index it to inflation. 0:19:24.200 --> 0:19:29.879 That's weird. Well, because now something like of wag earners 0:19:30.200 --> 0:19:35.440 fall subject to the minimum tax, so it's basically like 0:19:35.560 --> 0:19:39.000 an extra tax now. And what the alternative minimum text 0:19:39.040 --> 0:19:40.720 does is say, okay, great, you went through and you 0:19:40.760 --> 0:19:43.280 figured out all your deductions. That's beautiful. What we're gonna 0:19:43.359 --> 0:19:46.680 do is take your adjusted gross income minus deductions, that 0:19:46.880 --> 0:19:49.200 nice little number that you got it too, and we're 0:19:49.200 --> 0:19:52.719 gonna add those deductions back and we're gonna come up 0:19:52.760 --> 0:19:58.000 with your alternative adjusted alternative income figure. And then we're 0:19:58.000 --> 0:20:00.600 going to figure that how much ex tray you oh, 0:20:01.000 --> 0:20:05.160 on top of your normal ten forty and that's your 0:20:05.200 --> 0:20:09.000 full tax. You're gonna add that to the ten forty 0:20:09.320 --> 0:20:11.280 tax amount that you owe, and we're gonna come up 0:20:11.280 --> 0:20:14.520 with the actual tax you oh, including alternative minimum And 0:20:14.600 --> 0:20:17.399 apparently Basically, everybody's subject to it one way or another. 0:20:17.680 --> 0:20:20.480 Even if you don't itemize, even if you choose the 0:20:20.520 --> 0:20:25.359 standard deduction, you probably owe something on the alternative minimum tax. 0:20:25.840 --> 0:20:27.399 So it sounds like what you're saying is that no 0:20:27.520 --> 0:20:30.960 matter what we do, and no matter how clever we 0:20:31.040 --> 0:20:32.960 try to get with our accounting, all they have to 0:20:33.040 --> 0:20:37.199 do is throw in the word another adjust right, they 0:20:37.200 --> 0:20:39.240 add those adjustments right back them. They can just throw 0:20:39.240 --> 0:20:40.800 in another word no, no, no, we need to adjust 0:20:40.840 --> 0:20:44.280 it again and some at some point you gotta stop adjusting, right, exactly. 0:20:44.359 --> 0:20:46.879 So the key here is then if you're still if 0:20:46.920 --> 0:20:49.440 you're like, okay, I'm subject to the alternative minimum tax, 0:20:50.000 --> 0:20:52.560 I'm um, I want to earn a high salary, but 0:20:52.600 --> 0:20:55.520 I don't want to pay too much tax. The thing 0:20:55.640 --> 0:20:58.720 that doesn't the adjustment or the deduction, I'm sorry, that 0:20:58.960 --> 0:21:03.639 doesn't get added back um to your your gross income 0:21:03.680 --> 0:21:07.760 when you're figuring the alternative minimum taxes charity charitable contributions. 0:21:08.520 --> 0:21:10.359 So the key then would be to max those out 0:21:10.440 --> 0:21:15.400 as much as possible, and then that would, I imagine, 0:21:15.440 --> 0:21:17.480 lower your tax a little bit as far as alternative 0:21:17.480 --> 0:21:22.040 minimum tax goes. Alright, it's like here's your tax, and 0:21:22.119 --> 0:21:27.639 then now do it again and pay more. That's because 0:21:27.680 --> 0:21:34.080 they didn't adjust it to inflation. All right, I think 0:21:34.119 --> 0:21:36.600 we're here towards the end of this portion. You have 0:21:36.680 --> 0:21:39.240 your gross tax liability finally, and we should say also, 0:21:39.320 --> 0:21:42.359 I'm sorry, um that as of two thousand twelve it 0:21:42.480 --> 0:21:47.399 became finally index to inflation. But I mean for thirty 0:21:47.520 --> 0:21:49.560 years it wasn't, and it just kept hitting more and 0:21:49.600 --> 0:21:53.280 more and more people. Well it's important though, that's good. Uh. 0:21:53.480 --> 0:21:56.440 So we have your gross tax liability. Now Cyrus is 0:21:57.240 --> 0:21:59.480 Cyrus is going to subtract any credits that are still there, 0:22:00.080 --> 0:22:05.080 and then that final number is Cyrus's net tax. So 0:22:05.240 --> 0:22:07.320 that's either what he's gonna pay or what he's gonna 0:22:07.359 --> 0:22:14.280 get back. And come April, uh, some time between January one, 0:22:14.840 --> 0:22:17.520 when he gets his W two from his employer in April, 0:22:17.960 --> 0:22:19.720 he's gonna have to figure all that out, either by 0:22:19.800 --> 0:22:21.920 himself or with the help of someone who knows what 0:22:22.000 --> 0:22:26.040 they're doing. Um, your W two is gonna break down, uh, 0:22:26.640 --> 0:22:29.520 everything you made Basically, it's also in your final paycheck, 0:22:29.640 --> 0:22:31.440 but the W two is what you send in, so 0:22:31.520 --> 0:22:35.200 you need a separate copy and Supposedly, the UM, your employer, 0:22:35.440 --> 0:22:39.000 you're anybody who who is going to send you money 0:22:39.040 --> 0:22:41.920 about income you made or documents about income you made, 0:22:42.359 --> 0:22:45.600 UM has to give you those documents by January thirty one. 0:22:46.160 --> 0:22:50.520 That's right, okay. Uh And then here's the fun part. 0:22:51.080 --> 0:22:53.960 They take all your information and they store it on 0:22:54.359 --> 0:22:58.719 magnetic tape machines from the nineteen fifties. Yeah, you found this, UM, 0:22:59.280 --> 0:23:01.000 this is pretty crazy easy. Well, it stood out to 0:23:01.040 --> 0:23:02.800 me when I saw magnetic tape machines. I was like, 0:23:03.240 --> 0:23:05.720 how old is this right? And apparently that's still the 0:23:05.760 --> 0:23:09.440 case because UM they don't have the funding to upgrade 0:23:09.640 --> 0:23:14.760 their systems, so they have the magnetic tape program. And uh, 0:23:16.440 --> 0:23:19.960 Obama's is trying to think UM in two thousand twelve 0:23:20.000 --> 0:23:22.560 to increase funding to correct that by like a billion 0:23:22.600 --> 0:23:24.920 and a half dollars two point one billion. I don't 0:23:24.920 --> 0:23:28.480 know if it went through or not. So, like you found, Chuck, 0:23:28.560 --> 0:23:33.560