Tax planning is key to building wealth, but most Americans routinely pay taxes without even realizing it, says the American Institute of CPA’s. The institute, which counts tax transparency among its missions, aims to help investors understand the tax consequences of their decisions – information that can help them negotiate the fiscal cliff.
“Most Americans’ tax awareness is limited to recognition of income, property and Social Security taxes,” said Barry Melancon, president and CEO of the AICPA. “However, there are other taxes imposed by federal, state and local governments on energy consumption, phone use and television viewing, among other day-to-day activities.”
To help investors improve their tax literacy, the AICPA offers an online tax planning tool called the Total Tax Insights calculator. The tool estimates how much investors pay each year for more than 20 different types of taxes, and presents the information in a pie chart format that breaks out the share of the total tax bill paid to each category.
Investors use the calculator by inputting such standard information as state and county of residence, marital status, gross income, dividend income and capital gains income. The tax planning tool also requests appraised home value, average monthly bill for electricity, natural gas and cable. Additionally, the tool considers average cell phone bill, gas consumption, hotel usage, smoking habits and alcohol purchases.
“As taxpayers, we can benefit from gaining insights into all the different types of taxes our governments levy—in fact, many of our decisions, from where we live to what we drive, can have a significant impact on the taxes we pay,” explains the AICPA website. “The more you know, the better prepared you’ll be to make important financial decisions.”
Investors thinking of relocating or changing jobs can use the calculator to evaluate the varying tax consequences of moving to different areas. The tax planning tool can also help clarify the amount investors spend on federal, state and local taxes.