The discussion centers on calculating true spending power, specifically focusing on disposable income after accounting for various taxes and expenses. Participants detail the deductions from gross income, including council tax, income tax, car tax, VAT, and fuel tax, which collectively reduce take-home pay by approximately 37.2%. Additionally, the conversation highlights the importance of understanding all forms of taxation, including stealth taxes like those associated with waste disposal. The use of Flexible Spending Accounts (FSAs) for medical expenses is also discussed as a tax-advantaged strategy.
PREREQUISITESIndividuals seeking to understand their financial situation, personal finance enthusiasts, tax professionals, and anyone looking to optimize their disposable income and manage tax liabilities effectively.
russ_watters said:Huh? Subtract your income from your income?
Could you be a little clearer about how you define "spending power"? Do you mean "disposable income"?
OK, so now deduct all the other taxes you pay.Evo said:If I subtract 38% from my gross income, I come close to my take home pay.
Ok if I buy anythng, then I have to pay sales tax. Not sure how much the total is.wolram said:OK, so now deduct all the other taxes you pay.
Evo said:Ok if I buy anythng, then I have to pay sales tax. Not sure how much the total is.
I paid property tax last year, but they are deducted from my Federal Income Tax, you pay an annual fee to license your car.wolram said:And do you pay car tax/pay tolls, do you pay property taxes?
Yes, but you can put them into special savings that defers the tax. Also, I can place money for medical expenses into a Flexible Spending Account so the money I use for medical purposes is not taxed.wolram said:Do you get taxed on your savings/investments?
brewnog said:Of my gross income:
- Council tax ~ 3%
- Income tax ~ 22%
- Car tax ~ 0.7%
- VAT ~ 6%
- Fuel tax ~ 5.5%
Total 37.2% of what I earn is taken by the taxman, in one form or another. Plus National Insurance.
Evo said:I can place money for medical expenses into a Flexible Spending Account so the money I use for medical purposes is not taxed.
That's the catch, you have to guess how much to set aside for medical expenses for the next year and use it all or you lose what you don't spend. So you always put less into the account than you think you'll use. It's great for medical emergencies because even though the money comes out of your paycheck in equal monthly amounts over the next year, you can use all of the money interest and tax free on the first day of the year even though you haven't paid anything into the account yet.wolram said:Try not to use it up.