As a self-employed individual, I already find it difficult to scrape together enough money to fund my own retirement. In fact, most years, my contributions are solely in the form of the payroll taxes I put toward Social Security (both employer and employee portions – over 12 percent of each dollar I earn – as a self-employed person). Therefore, as you can imagine, when my tax rate increases to cover the retirement of someone else, it gets me a little hot under the collar to say the least.
And having to pay the pensions of employees at the local, state and federal level is not something I’d choose having more of my tax dollars devoted to. Unfortunately, these costs are often out of my hands.
Illinois income tax increase
In 2011, it was decided that there would be a “temporary” income tax increase in the state of Illinois, raising individual income tax rates from 3 to 5 percent. It might not sound like much, but it’s a more than 66 percent increase. And of course now (surprise, surprise), Illinois is considering making the tax increase permanent.
However, little seems to have been accomplished with the money from the initial hike. According to IllinoisPolicy.org, the $31.6 billion in revenue raised from the hike seems not to have had the desired effect. It notes, “Despite dumping billions of the additional tax-hike revenue into the state’s pension systems, Illinois’ pension systems are still among the worst in the nation. And the pension reform passed by the Illinois General Assembly in 2013 did little to stabilize Illinois’ pension crisis.”
Focusing on what I can do
There isn’t much I can do about the Illinois income tax policy and how they spend my tax dollars. Therefore, I have to focus on what I can do can better bolster my own retirement future. My first step has been to ensure that a previous retirement account from my old employer is performing as desired. Therefore, I moved this money into a dividend reinvestment fund that pays out dividends each month that are reinvested into the plan as additional shares. This helps me build share value – and my retirement savings as a whole – without having to contribute additional outside funds to the account.
Maximizing my tax benefits
To reduce my liability to others in the form of the income taxes I pay, I do my best to maximize benefits in this area. I carefully track both income and expenses by collecting necessary information and retaining documentation as I move through the year. This not only helps me better prepare my tax readiness throughout the year but be on the lookout for various tax advantages. I can ensure that while not manipulating the tax system, I’m at least taking advantage of the deductions and credits afforded me.
Therefore, I keep careful records of business expenses, make sure that I’m not counting income that is tax-free, and including any exemptions and claiming any deductions that I’m allowed. And in this way, while I’m paying what I owe, I’m also avoiding overpaying additional dollars toward taxes that rather than be put toward someone else’s retirement could be put to my own.
More From This Contributor:
Building a Revenue Producing Blog
I Won’t Be Waiting to Take Social Security
Preparing to Publish My First E-book
The author is not a licensed financial or tax professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.