Suze Orman Says Owing More Taxes Isn’t a Bad Thing. Here’s Why

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  • The U.S. tax system tends to impose a higher tax rate on higher dollars of earnings.
  • If your tax obligation has increased, it could be because you're doing better financially.

Talk about a silver lining.

There's one thing Americans with different backgrounds and incomes can agree upon: It would be nice to pay the IRS less in taxes, and it's a bummer to have to pay more. If your tax obligation seems to be going nowhere but up, you may be aggravated over that fact. But financial expert Suze Orman says you shouldn't be. And there's a good reason for that.

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Higher earnings tend to lead to higher taxes

The U.S. tax system is a marginal one. What that means is you're charged a lower rate of tax on your lowest dollars of earnings, and a higher rate of tax on your highest dollars of earnings. So if your tax bracket has gone up recently, or if your overall tax bill has gone up, Orman says that's not a bad thing, because chances are, it means you're earning more money.

Now to be clear, owing more in taxes doesn't necessarily mean your income from your job has increased. There are other reasons you might owe the IRS more money this year than you did, say, three years ago.

For one thing, savings accounts and CDs are finally starting to pay a generous amount of interest. But interest income is taxable. In fact, it's taxed at the same rate as your ordinary income from your job. So even if your savings balance hasn't increased this year, you may have a higher tax bill than in the past due to higher interest rates. But again, that means at the end of the day, your total income is higher than it was in the past.

The same goes for capital gains on assets sold at a profit in a brokerage account. Those, too, can add to your tax bill, but it also means you've earned more money in one way or another. And Orman insists that's not something to be upset about.

Ways to lower your tax bill

If you're tired of seeing your tax bill go up, there are different steps you can take to lower it. For one thing, aim to max out a traditional IRA or 401(k) plan. The money you contribute will represent income the IRS can't tax you on.

Along these lines, if you have a health insurance plan that's compatible with a health savings account, contribute to one. The money you put in will serve as a tax break. If you can't fund a health savings account, your next best bet is a flexible spending account. Your contributions there will be tax-free as well.

Finally, be smart about tax credits and deductions -- and work with an accountant to make sure you're claiming the ones you're supposed to. A higher tax bill may not necessarily be a bad thing, but you also shouldn't pay the IRS a dollar more than you have to. And with the right strategy, you might manage to lower your tax bill, even at a time when your income is higher than it's been before.

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