Latest news with #incomeTax
Forbes
4 hours ago
- Business
- Forbes
Most Americans Feel They Pay Too Much In Federal Income Taxes
FILE - A portion of the 1040 U.S. Individual Income Tax Return form is shown July 24, 2018, in New ... More York. The IRS said Tuesday, June 21, 2022, that it will have erased its backlog of last season's tax returns by the end of this week. (AP Photo/Mark Lennihan, File) Gallup has been polling this topic for several decades. More than half of Americans feel that they are paying too much in federal income taxes. Reducing income taxes is something everyone wants to do. If you own real estate or a small business, you have more ways to defer taxes. Most people do not own these types of investments. For those who do not, the simplest way to lower your federal income taxes over your life is by contributing to your retirement accounts. Even if you do own real estate or a business, maxing out retirement contributions is still a smart move. Types of Retirement Plans Retirement plans can be tricky because there are many types and different rules. Common plans include: The rules got even more complicated with the Secure Act in 2019 and Secure Act 2.0 in 2022. Understanding these changes is key to making the best decisions for your income taxes and financial future. Traditional vs. Roth Contributions Retirement contributions generally fall into two categories: traditional or Roth. Traditional Contributions Roth Contributions The Power of Compounding No matter which you choose, your money grows without being taxed on the gains while it is in the account. This compounding effect can significantly grow your savings over time. Albert Einstein called compounding the 'eighth wonder of the world.' Key Tips for Retirement Savings Workplace Retirement Plans: 401(k)s and New Catch-Up Rules The 401(k) is the most common workplace retirement plan. Secure Act 2.0 made significant changes, especially for those aged 60 to 63. Starting in 2025, catch-up contribution limits will increase, allowing you to save more during those years. Here are the new limits: These new catch-up limits for ages 60 to 63 took effect on Jan. 1, 2025. Social Security and Retirement Many Americans rely on retirement accounts and Social Security to fund their retirement. Please take the time to understand your social security benefits. Final Thoughts I encourage everyone to take time to understand their retirement plans and ensure their investments inside the accounts are appropriate. Small changes now can make a big difference in your future — and help lower your taxes along the way.
Telegraph
6 hours ago
- Business
- Telegraph
Reeves expected to extend stealth raid on income tax
Rachel Reeves is expected to freeze income tax thresholds in her autumn Budget to fill a £40 billion black hole. The Chancellor has been put under pressure by three policy U-turns by Sir Keir Starmer, which are set to increase public spending by about £4 billion later in the year. Some within the Labour Party believe she may not survive the year if she is forced to raise taxes and impose further cuts at the same time. The latest policy reversal, on benefit cuts, will mean the Government will save just half of the £5 billion it hoped to recoup from sickness and disability payments. But Ms Reeves has left herself with few options to raise funds. As well as committing not to increase the rates of income tax, National Insurance or VAT, nor to raise corporation tax, she has insisted she will not break Labour's fiscal rules. Freezing the threshold for the additional rate of income tax was one of the suggestions in a memo from Angela Rayner, the Deputy Prime Minister, to Ms Reeves which was leaked to The Telegraph last month. The current freeze, which was due to be lifted in 2028, dragged seven million people into higher tax brackets last year, raising around £15 billion. Paul Johnson, the director of the Institute for Fiscal Studies, an independent think tank, said a further freeze in thresholds would be 'pretty high up the attractiveness scale' in this year's Budget. 'I think it's fairly likely, as a politically easy way to raise something of the order of £10 billion in additional revenue by the end of the Parliament,' he told The Telegraph. One Labour MP said the Chancellor was now 'in deep trouble' because she has already ruled out several of the easiest ways to raise revenue. 'It's hard to forgive her for where we are now. She locked herself in, foolishly, to a set of commitments that have become unsustainable,' the MP said. The Treasury was already facing a black hole of between £20 billion and £30 billion because of lower-than-expected growth forecasts, partly driven by Donald Trump's imposition of tariffs. The £4 billion cost of Sir Keir's U-turns is expected to be compounded by a revision to the Office for Budget Responsibility's (OBR) medium-term productivity forecast this summer and growth forecast this autumn, which could have an impact on revenues of between £7 billion and £8 billion. This week's decision to maintain benefit payments for existing claimants has cost the Treasury £2.5 billion, while the U-turn on winter fuel payments for pensioners cost a further £1.25 billion. Ms Reeves is facing backlash from Labour MPs over her proposal to cut benefits, which was designed to bring down the cost of welfare at the expense of thousands of claimants. Sir Keir, who watered down the measures to avoid the biggest rebellion of his career, insisted that his 'common sense' welfare reforms now strike 'the right balance'. But the situation leaves the Chancellor with little choice but to freeze income tax thresholds, which were due to rise in line with inflation from 2028. The policy would likely raise around £8 billion a year in tax receipts, but would cost a worker earning on an average salary thousands more in income tax by the end of the decade. Independent economists say a further freeze in the autumn is now all but certain, and that further increases on smaller taxes or a new raid on pensions could be required to make up the shortfall. Downing Street refused to rule out further tax rises on Friday, with a spokesman saying: 'As ever, as is a long-standing principle, tax decisions are set out at fiscal events.' However, Ms Reeves's team remains optimistic that good economic performance between now and the Budget will reduce the £105 billion cost of servicing government debt, which currently accounts for 8.2 per cent of public expenditure. The Bank of England is widely expected to cut interest rates at its next meeting on Aug 7, although gilt yields are not directly determined by the base rate. Treasury officials also hope that the cost of energy will continue to fall, although it is acknowledged that instability in the Middle East could drive up the price of crude oil once again. Ms Reeves is adamant that she will not break her fiscal rules – to increase public sector borrowing as a percentage of GDP or raise money on the markets to fund day-to-day spending – and believes that maintaining market stability should be the Government's primary goal. Balancing the books with a stealth tax on income has been a favoured policy lever of successive chancellors. The current freeze to 2028 was introduced by Sir Jeremy Hunt in his 2022 Budget. But the policy results in more people paying higher rates of income tax as their wages increase – an economic phenomenon known as fiscal drag. OBR figures show that in 2024-25, some £15.3 billion extra was due to be raised thanks to the frozen thresholds. In the same year, the OBR predicted that the total welfare bill was set to shoot up by £16.6 billion. Figures released on Thursday show that seven million people have been dragged into paying higher rates of income tax as a result of the stealth raid on wages. Frozen thresholds forced an extra 520,000 taxpayers into the 40p bracket in the last year, according to estimates by HMRC. It brings the total to just over seven million in 2025-26, a 60 per cent rise from the 4.4 million in 2021-22 when income tax thresholds were first frozen under the Tories. The number of 45p additional-rate taxpayers has more than doubled from 520,000 to 1.2 million over the same period. Last November, Ms Reeves told MPs she would not raise taxes again or increase borrowing and that the Government would need to 'live within the means we've set ourselves' for the remainder of the Parliament. 'We're not going to be coming back with more tax increases, or indeed more borrowing,' she told the Treasury select committee.
The Guardian
10 hours ago
- Business
- The Guardian
Reeves expected to freeze income tax thresholds to raise fresh funds
Rachel Reeves is expected to extend a freeze on income tax thresholds to raise fresh funds after the government's U-turn on welfare cuts left her with a growing budget hole. The chancellor was already facing pressure to backtrack on pledges not to increase taxes further as she attempted to fix public services and grow the economy while meeting her fiscal rules. However, Keir Starmer's U-turn late on Thursday has increased the likelihood that she will raise taxes or cut spending in the autumn budget. Independent commentators are all but unanimous in expecting taxes to go up – and many point to the threshold freeze, which is estimated to raise £8bn a year, as the most likely option. The freeze, introduced by the former Conservative chancellor Jeremy Hunt, drags ever more people into paying the higher rate of tax and is due to end in 2028. The number of people in the UK paying income tax at the higher rate is already expected to increase by 500,000 this tax year, to 7 million. 'The most obvious thing would be to extend the income tax thresholds, for another two years,' said Ruth Curtice, director of the Resolution Foundation thinktank – which estimates that the U-turn on disability benefits will cost the chancellor £3bn a year by 2029-30. That bill comes in addition to the £1.25bn price of Reeves' recent decision to reverse most of the cut to pensioners' winter fuel allowance – and the widely held expectation that the Office for Budget Responsibility will downgrade its growth forecasts in the autumn. The Treasury's independent watchdog is revisiting its estimate of productivity – a key determinant of economic growth – which looks optimistic relative to most independent forecasts. Paul Johnson, the outgoing director of the Institute for Fiscal Studies, said the U-turns on benefits could be dwarfed by the probable downgrade from the OBR. 'In one way this [the welfare U-turn] doesn't change anything very much – it's a £3bn-£4bn change at the end of the period, and the OBR forecast could change things by a lot more than that – but obviously if the OBR moves in the wrong direction then this adds to the pressure,' he said. Johnson pointed out that the most straightforward ways of raising large enough sums had been ruled out by Labour's pre-election tax pledges. 'There are always ways of finding small numbers of billions, but if you are looking for £10bn or £20bn it gets really quite difficult, if you're not going to increase income tax or VAT,' he said, adding, 'the threshold freeze is obviously the politically easiest thing to do.' Simon Wells, chief European economist at HSBC, agreed. 'They're boxed in and something has to give,' he said. 'The income tax thresholds is by far and away the line of least resistance.' Mujtaba Rahman, managing director at the consultancy Eurasia Group, said: 'Reeves may have to find up to £20bn to balance the books and give her enough headroom for future emergencies from a series of small-scale changes. They are likely to include extending the freeze on income tax thresholds and allowances for another two years.' The chancellor's team continue to insist that there is no inevitability about tax increases, pinning their hopes on a rosier economic outlook by the time of the autumn budget. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion They claim that firms have become more upbeat about the UK as an investment prospect, and many consumers are benefiting from above-inflation pay rises. 'Sentiment is really changing,' argued a Treasury source. Asked earlier this week about recent worse-than-expected public finances figures, Reeves said: 'I wouldn't read too much into one month's data. It's just one of a number of factors that will affect the next forecast that the Office for Budget Responsibility will produce.' However, there is also frustration in government at the way the OBR's forecasting process, combined with the slim £10bn of headroom Reeves has against her fiscal rules, has led to constant market speculation about the chancellor's next move. One proposal made recently by the International Monetary Fund (IMF) was for just one OBR forecast a year. The Treasury is understood to be sceptical about this idea, as it would make the UK an international outlier – but officials are understood to be looking at the nature of the spring forecast. Downgrading its role could prevent the scramble for savings seen in the run up to this year's spring statement which led to the welfare cuts. The Bank of England governor, Andrew Bailey, this week warned against 'over-interpreting' the Office for Budget Responsibility's forecasts.
BBC News
13 hours ago
- Business
- BBC News
States of Guernsey to close loop-hole to stop tax avoidance
The States has confirmed it will close a tax loophole as part of plans to help tackle the government's £44m the current law, people are able to create their own personal investment companies, lend them money, and then take it back as loan repayments without paying any guidance has been added to the Statement of Practice M45 "Legal avoidance" to make it clear that if anyone uses this type of company to take money out as a loan repayment, it will be treated as a dividend, and Policy and Resources Committee also approved a proposal to amend the Income Tax (Guernsey) Law, 1978, so the change will be included in the island's 2026 budget. Deputy Lyndon Trott, committee president, said: "When it comes to income tax, we have to ensure that everyone is paying their fair share, including businesses and individuals."But we are even more acutely aware of this at a time when we as a government have a £44 million deficit."This isn't the panacea for our financial woes, but we're taking action to close this loophole to make sure that we're collecting tax that belongs to the public purse."
Times
a day ago
- Business
- Times
An additional 420,000 pensioners set to pay income tax this year
Hundreds of thousands more pensioners will pay income tax in retirement this year as they fall victim to a deep freeze on tax thresholds. About 420,000 more people over state pension age will pay income tax in 2025-26, bringing the total to 8.7 million, according to data from HM Revenue & Customs. The rise is a result of consecutive increases to the state pension and a long-running freeze on income tax thresholds, which began in 2021 but is set to continue until at least 2028. Millions of pensioners and workers have been dragged into a higher tax bracket as their income rises because of the freeze, a process known as fiscal drag. • Two million to be hit by 'stealth tax bombshell' by end of decade David Brooks, the head of policy at the consultancy firm Broadstone, said: 'While the country's demographic shift naturally increases the number of pensioners liable for income tax, fiscal drag is unequivocally pulling hundreds of thousands more into the income tax bracket each year.' The amount of income you can receive each year before paying tax has been stuck at £12,570 since 2021. The full new state pension has increased from £9,332.20 to £11,973 over the same period. This means that those with other sources of income like dividends, rental payments and cash could easily be tipped into paying tax. The state pension is protected by the so-called 'triple lock', which ensures it rises each year by the highest of average earnings growth, inflation, or 2.5 per cent. It was designed to shield pensioners from the rising cost of living, but its success is somewhat of a double-edged sword — the state pension is on track to soon be enough to exceed the 20 per cent basic-rate tax threshold. • Johanna Noble: Tax is a small price to pay for a good state pension The Office for Budget Responsibility has predicted that by April 2027 the full new state pension will be worth £12,885.50 — £315.50 over the £12,570 personal allowance. Pensioners who had paid national insurance contributions for 35 years to qualify for the full state pension would then have to repay 20 per cent of that £315.50, losing £63, according to Quilter, the wealth manager. Last year, the Conservatives pledged a 'triple lock plus', in which the personal allowance for pensioners would rise in line with the highest of earnings, inflation, or 2.5 per cent, mirroring the protection afforded to the state pension. At the time, Labour dismissed the proposal as lacking credibility. More than seven million people are expected to pay the higher rate of income tax, at 40 per cent, this year, up from just over 5.1 million in the 2022-23 tax year. The number of people paying the top rate of tax, 45 per cent, is expected to hit 1.23 million this year, more than double the 570,000 who paid it three years ago. The number of basic-rate taxpayers has risen from 28.8 million to 30.8 million over the same period. • Is Britain a high-tax nation compared with other countries? Neela Chauhan, a partner at the accountancy firm UHY Hacker Young, said: 'Though it might seem equitable for higher earners to be paying more tax, there are real concerns over the impacts of placing an ever higher tax burden on high earners. 'Increasing the tax burden too high could push these individuals to leave the country or deter talented individuals from moving to this country. There are already concerns of a 'brain drain' in the UK.' The Treasury has been approached for comment.
