President Joe Biden and Vice President Kamala Harris recently released their annual tax returns, shedding light on their financial activities in 2023. The details revealed in their tax filings offer important lessons that average Americans can learn from, according to tax experts. In 2023, President Biden and first lady Jill Biden reported a joint adjusted gross income of $619,976, marking a 7% increase from the previous year. They paid federal income taxes amounting to $146,629, resulting in an effective tax rate of 23.7%. On the other hand, Vice President Harris and her husband, Douglas Emhoff, disclosed an adjusted gross income of $450,299, slightly lower than their earnings in 2022. Their federal tax payments totaled $88,570, with an effective tax rate of 19.7%.
Both couples primarily earned their income from salaries in 2023, with federal and state taxes being withheld by their employers. Additionally, they generated interest income, which can lead to surprises during tax season if not managed properly. Certified financial planner David Silversmith emphasized the importance of monitoring taxable activities, such as dividends and fund distributions, in brokerage accounts to avoid unexpected tax liabilities. While the couples made extra tax payments, they incurred minor estimated tax penalties due to underpayments at each quarterly deadline, resulting in additional interest charges.
Over the years, the Bidens have strategically reduced self-employment taxes by structuring their income through S-corporations. By receiving wages and distributions from their companies, the couple has been able to minimize the Social Security and Medicare tax burden. Although their royalties for 2023 were modest at $4,115, the S-corporation setup has previously enabled significant savings for the couple’s book deals and speaking engagements. However, certified financial planner Catherine Valega cautioned that individuals with self-employment income should consider the long-term implications of lower wages on their future Social Security benefits. The calculation for Social Security benefits relies on up to 35 years of earnings history to determine the monthly payments, highlighting the importance of strategic income planning for working-age taxpayers.
Typically, taxpayers receive a refund when they overpay their taxes throughout the year, while underpayments result in tax bills. Both President Biden and Vice President Harris’ tax returns revealed a balance between the total taxes paid and owed, with minor discrepancies. When filing tax returns, aiming for a margin of around $500 for either a refund or a balance is considered optimal, as stated by Valega. This equilibrium in tax payments reflects the couples’ diligence in managing their financial obligations and optimizing their tax efficiency.
The annual tax returns of President Biden and Vice President Harris offer valuable insights for average Americans on income sources, tax management strategies, and the implications of structured income on long-term financial planning. By examining the financial practices of high-profile individuals, taxpayers can glean important lessons to enhance their own financial literacy and make informed decisions regarding tax planning and wealth management in the future.
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