April 17 is Tax Freedom Day – What That Means, and Why You Should Care

Posted in Financial News
April 11th, 2012 at 2:48 pm by Ally

You already know that April 17, 2012, is America’s tax-filing day, but this year, April 17 marks another income-tax milestone: Tax Freedom Day®. That’s the date when the average American has theoretically earned enough to cover his or her tax burden for the entire year.

Put another way: Every dollar you’ve earned from January 1 to April 17 represents the amount you’ll send to the government this year (from local to national). Every dollar you make from April 18 to December 31 is yours to keep.

Your personal Tax Freedom Day may differ greatly from the average. If you pay a high tax rate, you may not be “free” until weeks after Tax Freedom Day. And, of course, your state’s income tax rates affect when you’re in the clear.

Aside from calculating Tax Freedom Day, The Tax Foundation, a tax-policy think tank, has assigned each state a Tax Freedom Day of its own. The average taxpayer paid off his or her national and local taxes on March 31 in Tennessee and April 12 in Ohio. In Connecticut, Tax Freedom Day comes later – May 5.

Although you can’t do much to move the U.S. Freedom Day forward, you can take steps to make sure you’re properly handling your own tax burden.

  • If you’re self-employed, putting money aside can help you pay your estimated quarterly taxes. Estimating the amount you’ll owe next April could help you avoid a huge annual tax bill. Opening 3-month CDs can be one strategy to help you with that effort.
  • Stay up to date on all the deductions you’re entitled to. Tax-preparation company H&R Block created an infographic showing how to navigate the most basic deductions.
  • Consult a tax professional if your finances are complex. A professional may help you avoid mistakes that can invite an IRS audit.
  • Review our recent Ally blog Tax Checklist to help you get a head start on organizing your finances for next year’s taxes.

When do think your own Tax Freedom Day is? How are you getting organized for Tax Day next year?

This information is not, nor should it be, considered tax advice. We recommend that you consult with your tax advisor or other tax professional regarding any tax matters.

Leave a Reply

This is how you'll be referenced on the site.
Your email address will not be published.