Happy 148th Birthday, U.S. Income Tax
Wednesday, August 05, 2009
On Aug. 5, 1861, the United States' first personal income tax was created when the Revenue Act of 1861 became law. It was 3 percent of all incomes over $800.
It was designed to help finance a military conflict, the Civil War. Taxes weren't actually collected until the next year, when it was officially signed into law by a Republican President, Abraham Lincoln.
This initial income tax was rescinded in 1872, so technically today is not the levy's actual 148th birthday. I guess it's more appropriately viewed as an anniversary, but birthdays usually call for cakes, so that's the celebration I prefer.
To most of us Americans, it seems like the income tax has been around forever. But the taxation system we now know and hate came into being less than 100 years ago, in 1913; I'll get back to you when I find the exact day for that momentous event. Until then, you can check out the Treasury Department's history of our tax system.
I doubt many any of you will celebrate the Aug. 5, 1861, birth of the first U.S. income tax, but I do hope this historic perspective gives you some small comfort in knowing that generations of your ancestors also complained about the government getting a part of their money.
Reducing 2009 taxes: While trip down tax memory lane is always fun, today also is a good time to think about your current taxes.
Yes, the year is more than half over, but there still are some things you can do to help reduce your 2009 tax bill.
If you buy a new car, either with help from the Cash for Clunkers program or totally on your own, be sure you to note the amount of state and local sales and excise taxes you pay. You can claim that amount on your tax return next filing season.
If you opt for extreme fuel efficiency and purchase a hybrid or other alternative fuel vehicle, you might be able to claim a tax credit for your purchase. The most popular hybrids, those made by Toyota and Honda, no longer offer this tax break; similarly, Ford's hybrid credit has been reduced. But some autos still offer this tax benefit, which being a credit means you get dollar-for-dollar tax savings.
If you buy a house this year, you're entitled to many residential tax write-offs on your return. And if you're a first-time purchaser of a residence, the new First-Time Homebuyer Credit can net you up to $8,000.
Yes, I know the market crash ate up a lot of retirement accounts. But it's coming back, at least a bit, and you still need to save for retirement. So use the options that also could net you tax savings.
IRAs can provide either immediate tax deductions for some traditional account owners, or no taxes due when money is eventually distributed if your IRA is of the Roth variety.
Don't forget about your company's pension plan. While many businesses no longer match their employees' 401(k) contributions, putting money into these accounts still provides you with some immediate tax savings since your contributions are made before payroll taxes are calculated.
Flexible spending accounts
Speaking of work, the annual benefits open season is coming up this fall. If your company offers flexible spending accounts (FSAs), either for dependent care or medical expenses, look into these options. With an FSA, as with 401(k)s, you put money into the accounts before your taxes are taken out, then you use the untaxed account money to pay for eligible expenses.
Most of us wait until the end of the year to donate to our favorite causes. Think about giving a bit sooner this year. The tax break, if you itemize, is good any time of the year you donate and in this tough economy, charitable organizations would love to see some of those donations well before December.
More historical events:
Two notable prior Aug. 5 events that caught my eye were Marilyn Monroe was found dead in her home in 1962, and, on a separate musical history list and literally a much happier note, in 1966 the Beatles' LP Revolver was released in the U.K.
And the first song on side one of the album? Taxman.
Birthday cake photo courtesy Dan Taylor/Flickr
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