The other day, I was talking with a friend about a few ways that he could start earning some more money. He said something that absolutely stopped me in my tracks: he told me that he didn’t want to earn too much money because it would bump him into the next tax bracket. He was absolutely adamant that he didn’t want to be paying more in taxes.
But, in my mind, a higher tax bracket is a good thing. It’s not something to be avoided. Don’t get me wrong: I’m not quite crazy enough to go out of my way to pay extra taxes. Higher tax brackets, though, are evidence that you’re doing something right. Here are five reasons for that simple fact.
- A higher tax bracket means you’re earning more money: Do I need to say more? Or is there someone out there who thinks that more money is a bad thing? Even in a higher tax bracket, you can expect that you’ll have more money in your pocket at the end of the day.
- A higher tax bracket means you can claim more deductions and exemptions: The average taxpayer isn’t in a position to write off a whole lot on her taxes, which is why the IRS even offers the standard deduction. Most people would wind up with a higher tax bill if they didn’t. But when you’re earning more money, more opportunities open up to use your money in such a way that it can be deducted (like business expenses).
- A higher tax bracket means you can save more: There are a lot of ways to bring down your tax bill and many of them are good for your overall financial situation. More money means that you can put away the extra in tax-advantaged accounts for your retirement or your child’s education or for medical expenses, reducing your tax bill. Sure, you may hit limits on certain savings plans, but a good financial planner can help you put a lot of money away where you’ll be able to benefit from it in the future.
- A higher tax bracket means you can afford a better accountant: There are plenty of ways to keep your tax bills down if you’re earning plenty of money, although they require someone very familiar with the tax law. Assuming you don’t want to read up yourself, you just need a good accountant. It may not be a bad idea to see a financial planner, as well, but if your only goal is keeping your money out of the hands of the government, an accountant can provide plenty of options.
- A higher tax bracket means you have more freedom: If you’re earning enough money that your taxes really are growing by leaps and bounds, you’ve got a lot options. I wouldn’t suggest moving abroad to somewhere that doesn’t even have taxes, personally, but you can take steps to invest your money and make it grow in such a way that the IRS won’t be able to touch it. You can spend it on purchases that are tax deductible (fixing up your home so it’s more eco-friendly can put you in the way of a few tax breaks). You can donate a big chunk of change to charity. You can even pay your taxes willingly and then go out and spend your money however you like. Earning more money is a fast way to buy yourself some freedom, even if you have to send the IRS a check first.
I know there are plenty of people who look at taxes as one of the biggest burdens of their lives, but if you can change the way that you look at your taxes, you’ll eliminate a lot of stress from your life. While I wouldn’t go so far as to say that paying taxes is a badge of honor, I do keep in mind that the money is going to a good cause and that I benefit directly from it. Our tax dollars pay for roads, schools, police forces and far more, along with helping out people who can’t afford that higher tax bracket. There’s waste in the system, but I like to think that the country is still a lot better with our tax dollars than without.
Don’t be scared of a higher tax bracket, if only because it means that you’re earning more money overall. There are plenty of ways to keep your tax bills to a minimum, but they require you to earn money in the first place. Rather than being afraid of a higher tax bracket, it’s better to be afraid that you’ll wind up in a place where your income is so low that you don’t have to pay taxes.