When More Money Actually Is More Problems

People let’s get over it: More money usually isn’t more problems. And if it happens to lead to more problems it is usually the kind of problems you want (I have never heard a man say that he wanted a slower Ferrari, or a woman complain that her gold and diamond tennis bracelet were too big, but I suppose it is possible). HOWEVER, there actually are a few circumstances where I can say that too much money actually does cause problems: Whenever a cliff tax is involved.


As a rule of nature, cliffs only effect people when they fall off of them, but many people face financial cliffs without knowing about them and, in the dark of night, fall right off them like a blind kid running through the Grand Canyon. In these cases, you may at first appear to have earned more money, but you pass a threshold where you now owe taxes on all of the amount earned, meaning you actually end up with less money than if you earned less money! Cliff taxes are also all around: They apply to some cities, state and federal taxes.


CITY CLIFF INCOME TAXES: If you are working in a city such as New York you owe no income tax at all, until you earn over $100,000, at which time you get taxed on all of your income. Thinking of celebrating your first year earning a few dollars over $100,000 of income? Surprise! New York City just took 4% of your cash, so you actually earned LESS than if you made just under $100,000.


IRS SECTION 199A TAXES: If you are a business owner, new income tax laws allow you to deduct up to 20% of your gross income…unless you earn too much income in which case you may receive no deduction. This is particularly stinging to professionals – attorneys, doctors, accountants – who are discriminated against in favor of real estate developers. I can begrudgingly appreciate that no one is bemoaning incomes earned by white collar professionals (other than white collar professionals) until you realize who those real estate developers are (HINT: It’s a group that includes the guy who helped pass the law).


STATE ESTATE TAXES: For as “deplorable” as the federal income taxes are, state income tax laws are downright shameful. Imagine your breath the moment after you have woken up with the worst hangover of your life…that’s about how attractive state estate taxes are. Let’s stick with New York, since it is a horrible place that is taxed worse than every other state. In New York you can transfer a little over $5.49 million without an estate tax. Sounds good, no one thinks this hurts too many people and the tax-free amount seems pretty high even to the upper-middle class. But transfer 5% more than this amount and you now owe more than $500,000 in New York estate taxes. You would do better going to Atlantic City with your oxygen mask, playing some rounds of roulette on the same square that drunk college kid just chose and losing the difference, and yet your family will come out ahead of the estate of the chump who was dumb enough to save as much money as possible.


So yes, “More money equals more problems” is a true statement, especially when it comes to taxes.

DISCLAIMER: Attorney Advertising. Please note that prior results do not guarantee a similar outcome. This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.