Provide an example of what is meant by, "we work in a pre-tax world, but work and play in a post-tax world."

Question

What will be an ideal response?

Answer 1

Taxes are so confusing that almost everyone fails to recognize the obvious. You work in a pre-tax world, but live and play in a post-tax world. When you think of how much you make it's in pre-tax dollars. "I make $30,000 per year." But you have something far less than $30,000 to buy food, clothes, and make the house payment. You only have post-tax dollars that you can spend. Let's continue with our $30,000 per year example. Your hourly earnings (assuming a 40-hour workweek) are about $15 per hour. When you buy a $60 pair of shoes, you might think you worked for four hours to make that purchase ($60/$15 per hour = 4 hours). That is because you are thinking in pre-tax dollars. The tax man always gets his portion first. You really are making your purchase with post-tax dollars. You really only get to keep about $10 per hour after all taxes are deducted, which means you actually worked six hours to buy those shoes instead of four ($60/$10 per hour = 6 hours).