An apples to apples explanation of taxes

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Aaron-headshotAh, spring.  Can you feel it?  The sweet chorus of chickadees chirping; “Sun’s up in an hour. Hey. HEY! Fifty-nine minutes now.”  The gentle tingle of an afternoon breeze radiating warmth, hope, and the seeds of renew…ah-Choo! Can you ah pass ah me Choo…a Kleenex?   The mysterious migration from glen to glen of the species taxicus collecticus signaling subtly, almost imperceptibly that: “You can use Form 1040A if your income is only from wages, salaries, tips, interest, ordinary dividends, capital gain distributions, pensions, annuities, IRAs…”

Hey!  Stay with me.

Taxes aren’t as simple as April showers, so it’s only natural to find them confusing.  To some they’re like a treacherous forest, where one dollar or step too far can lead you over a cliff.  You’ve probably heard the notion: “If I pick up more hours it will push me into a higher tax bracket, and I’ll end up with less money than if I hadn’t taken overtime in the first place.”  To put it simply, that’s almost never true.  It’s important to remember that as taxable income (minus deductions and exemptions) pushes into higher brackets it is subject to a “graduated rate” that applies specifically to…to…

You fell asleep, didn’t you?

All right, forget all that.  We’re not learning about taxes.  No “alternative minimum” this, no “federal withholding” that.  It’s spring.  So let’s talk about strawberries.

My family goes strawberry picking every year in my uncle’s humongous strawberry patch.  He loves strawberries.  Loves ‘em so much he thinks everyone should have some.  But he also wants everyone to see the “fruits of their labor”.  So instead of splitting ‘em all evenly, or letting everyone keep what they pick, he came up with a system of colored buckets and freezers.

Yeah, he’s kind of crazy.  But here’s how it works:

First, everyone gets a white bucket.  The white bucket is special.  Every strawberry you put into the white bucket you get to keep.  Some people get bigger buckets: the Joneses and their four children get a very large one, while a schmuck like me gets a small one.  But the idea is the same.  My uncle wants everyone to go home with strawberries that they don’t have to share.

You get a green bucket once you fill up the white bucket.  The green bucket is different.  For every ten ounces of strawberries you plop into the green bucket, my uncle takes one ounce.  It doesn’t matter whether you fill it up or only have a few berries at the bottom of your pail; it’s still one for ten.  Once you’re “in the green”, so to speak, my uncle says you have to start sharing.

And so on and so forth.  Every time you return with a full bucket, you get a newer, larger, different colored bucket.  Every new bucket has a greater proportion of strawberries taken out of it.  Red, blue, orange, purple, and finally…magenta, I think?  I’ve never made it that far.  I’m pretty sure you have to be some kind of strawberry genius to reach the magenta bucket.

So how does the freezer factor into all this?  Well, just as everybody’s got a spring, they’ve also got a summer, fall, and winter.  It is very hard to pick strawberries in the winter.  So my uncle takes roughly 7.65% of the strawberries from everyone’s buckets) and freezes ‘em.  During the winter he’ll dole ‘em out, giving more frozen berries to those who filled more buckets.  But it’s not on a one-for-one basis.  The freezer berries also go to those who fall in pits, or get bitten by the plump, delectable, but vicious strawberry viper.

Oh!  Oh.  One more thing.  My uncle has a yellow bucket for those who plant strawberries in the garden.  When they come back and pick any strawberries that have grown from the new plant, they just bring the yellow pail and they get special treatment on those strawberries.  Sometimes they don’t have to give any of them back.  My uncle really, really likes it when people have a long-term perspective towards gaining strawberries.

Now, people tend to have all sorts of questions about the strawberry patch.  Should a married couple use two smaller buckets or a single bucket jointly?  Should people with a purple bucket get a strawberry deduction if they freeze extra strawberries for their strawberry winter retirement?  Is the solvency of the strawberry freezer supply in jeopardy with so many baby boomers developing a healthy appetite for fruit?  How likely is it that my uncle will give you a strawberry audit for violating chapter 26 section 7201 of the strawberry code?

I don’t know the answer to any of those.  I’m no strawberry expert.

But I do know that if you replace “bucket” with “bracket”, “strawberries” with “income”, “freezer” with “social security”, and “winter” with “retirement”, you may have been tricked into a working knowledge of the US tax code.  I also know that if you have questions about taxes, the advisors and tax specialists at Winch Financial are ready to help.  They’ll even let you close your eyes a little while they explain the pros and cons of itemizing.  It’s alright.  We won’t judge.