Mastering The Hidden Taxes


It’s been said that there are two certainties in life — death and taxes.  With February nearly upon us, I’m starting to seriously think about paying my federal income taxes.  That can certainly feel like death.

In the United States, paying taxes can be a pretty complicated affair — with hundreds of possible deductions, credits, write-offs, and tricky maneuvers that can be used to avoid paying taxes.  Wealthy people frequently find ways to avoid paying taxes by employing tax accountants that are experts in traversing the complicated tax laws.

It’s just another way the rich keep getting richer….

But what about the other taxes?  What about the hidden taxes that both the rich and the poor pay without realizing it?

Can they be avoided, worked-around, or otherwise erased by the savvy individual?  Let’s find out!

 

The Convenience Tax

You could say that convenience is one of the single largest economic forces in our modern world.  People want things the easy way and they they’re willing to pay for it.  From premade microwavable food to same-day deliveries from Amazon, convenience is the “killer app” of our modern world.

But another way to look at it is a tax.  All convenience comes at a higher price, and it’s a tax that can be avoided (albeit with additional effort)

Here’s some examples:

  • Instead of picking up take-out for dinner, you could cook the same meal for less at home.
  • Instead paying for that snow-removal service, you could shovel the snow yourself.
  • Instead of going to the hairdresser for a trim, you could simply cut your hair yourself.
  • Instead of paying for a data-plan for your phone, you could simply wait until you’re in wifi range.
  • Instead of driving to work every day, you could walk or take the bus.

And so on…

The bus isn’t as convenient (or as fast) as driving, but it can definitely be cheaper

Convenience is literally everywhere you look!  But it comes at a cost — There’s an economic choice to be made here, and convenience is the choice that’s going to cost more.

Frequently I hear the argument from people that “it’s not worth my time” to do things the inconvenient way… but in my experience what they end-up doing with all that spare time amounts to sitting on a couch and watching Netflix for multiple hours a day.

Do we really need more leisure time?

 

The Last Minute Tax

This kind of tax I see most frequently in the travel industry.  Have you ever wondered why plane tickets cost more the closer you are to the travel date?  It obviously doesn’t cost the airline more to fly the plane because you purchased the tickets later.  Neither is it a malicious on the part of the airline, they’re simply charging more based on supply and demand around a given date.

This is what I like to call “The Last Minute Tax” — a tax on individuals who make snap decisions or those who don’t plan far enough ahead.  If you plan far enough ahead, supply will be plentiful enough you’ll be able to score tickets at affordable prices.  But, if you wait until the last minute, the supply of available airline seats becomes very limited.  Thus higher prices.

travel prices
You can see from this Google Travel itinerary that current prices are nearly double the prices 1 month from now.

This tax starts about 30 days out and climbs steadily the closer you get to the current date.  There are exceptions to this rule (such as a airline trying to fill an empty plane on a unpopular date), but for the most part it holds true — The closer you are to the travel date, the more expensive it’s going to be.

Concert tickets, hotel rooms, and other entertainment venues with variable pricing are good examples of where The Last Minute Tax can bite.

Avoiding this tax can be as simple as planning ahead of the actual event by a few additional weeks.

 

The Impatient Tax

Have you ever paid for faster shipping to get a package across the country?  How about paying for faster internet speeds?  Or, maybe you pay to drive on a fast toll road?  Then you’ve definitely paid the impatient tax.

The impatient tax is paid when we trade money for additional speed.  This happens more often than you might think, because we live in a society absolutely addicted to speed. Speed is everything these days!  When we want something, we want it yesterday not next week!

All this speed comes at an economic cost, and this cost is what I call the Impatient Tax.

As a general rule, humans *hate* standing in line or waiting around.  Business owners know this and they almost always make a faster option available… if you’re willing to pay.  This is why you can pay for priority boarding at the airport, buy additional Fast Passes at Disney World, get high-speed fiber optic lines to your home, or have nearly anything delivered to your door in less than 24 hours.

All that speed is addicting too — Once you’ve had a taste of same-day shipping, it’s hard to go back to waiting an entire week with free shipping.  This is exactly why Amazon offers free 30 day Prime trials.  It’s hard to go back to slow once you’ve gone fast.

On the flip-side, there are slower and cheaper option available, but you have to be patient.  Think of a package shipping by train instead of airline.  Or the slow-boat from China.  It’s slow, but it’s also cheap.

Patience in this day and age is rare, but it truly is the only way to avoid the Impatient Tax.

 

The Pink Tax

This is a hidden tax that’s sure to irk the ladies reading this post.  The so-called “Pink Tax” is a higher price given to female versions of products or services.  It doesn’t happen on all products, but it certainly does happening often enough that women are noticing.

Take for example, a razor.  A men’s razor might cost $5 — for some bits of plastic and a very sharp blade.  A nearly identical razor marketed at women (perhaps the product is pink instead of blue) might cost $7.  A higher price for essentially identical bits of plastic and a sharp blade.

The same goes for services — a pair of pants cleaned and pressed at your local dry cleaners might cost $5, but a dress might cost $10 instead.  Does your local dry cleaners hate women?

While the Pink Tax seems entirely unfair towards women, we can’t tell if there is a real economic reason why the feminine version of a product costs more.  Maybe that particular shade of pink plastic costs more?  Or, perhaps the marketing costs around female targeted products is higher due to higher demand in the advertising channels that women view.  We just don’t know.

My point is, it seems like gender discrimination if we look at price alone, but we might not understand the full economics around product pricing.  Vote with your dollars instead.  Buy the blue version. If the two different colored products are truly identical it shouldn’t matter.

Another option is to skip brands that appear to use gender-based pricing.  Eventually manufacturers will figure out “The Pink Tax” just doesn’t work anymore and they’ll make adjustments — either by lowering the price of the pink version, raising the price of the blue version, or some combination of the two.

 

The Kid Tax

Unless you have kids, you likely have no idea how much new clothing costs for kids.  It’s incredibly expensive, and the clothes are tiny!

Take for example, a kid’s pair of tennis shoes — they cost about $52.  That’s more than I would pay for an adult version of that shoe ($45), and my feet are size 11.  A shoe that fits my foot probably requires twice as much material as a child’s shoe, yet the adult version still costs less.

Kids clothing and shoes frequently cost the same (or more) than adult versions despite the smaller sizes.  How unfair is that?

kid shoes
One of these shoes costs more and is significantly smaller!

Just like The Pink Tax, we don’t exactly know all the economic forces at play here, but screaming “It’s a bloody ripoff!!!” in the shoe store isn’t going to solve anything.  (I know, I’ve tried!)  Kids still need shirts and shoes; even though they grow out of them frequently.

With two boys, our family knows The Kid Tax very well — my kids are constantly growing out of shoes, pants, and other clothing.  We avoid the Kid Tax primarily by using hand-me-downs, and thrift stores.  Kids outgrow stuff so fast there’s usually A TON of used clothing available at very reasonable prices.

But shoes are a tough one I don’t have a solution to.  Finding good quality used shoes for kids is really hard (next to impossible) for some reason.  So, we try to carefully shop for shoe sales.  Occasionally we find kid’s shoes at half-price when a good sale happens.

It’s also possible to find ‘unbranded’ or little-known brand shoes that sell for much less than popular brands like Nike or Reebok.  For some reason the popular brands seem to have a large markup on kids shoes.

 

The Safety Tax

Every night of the year, every home in my neighborhood has outside lights on.  When I ask my neighbors why they do this, they claim “Oh it’s safer, so we keep the lights on.”  (I should also add that these homes all have security systems and pay a regular monthly fee for the monitoring service.)

These costs used in the name of “additional safety” are what I call the Safety Tax.

While we do live in a nice neighborhood, crime is a reality even in high-price neighborhoods like mine.  Cars have been broken into, bikes have been stolen, packages have gone missing, and prowlers have been seen in our neighborhood.

I even have one neighbor that’s had his car broken into three times.  Walking past his house at night is like walking past the sun — he’s got extremely powerful lights setup to deter thieves.

While all of these extra costs (security systems, lights, extra locks, etc) might provide additional deterrents, they certainly won’t completely stop skilled thieves.  They only provide the illusion of safety.

house at night
Do outside lights really stop thieves? Or do they simply say “Hey, we’ve got money to burn!”

Before you suggest that NOT having lights, security systems, and fancy locks when a neighbor does is going to make ME a target, I would like to counter with the fact that I live on the exact same street and I’ve never had a break-in.  I don’t even have a security system.  The locks on my house are pathetic and old.  We don’t even keep outside lights on.

According to conventional thinking, I should be the perfect target.  Yet I’ve never had a break-in in all of the 10 years we’ve live here.

Why?  If I was a thief, I’d skip my house too — My cars are parked safely in the garage and not visible from the street.  My landscaping is less than perfect.  We have nothing valuable visible from the windows.  By all appearances we look poor compared to my neighbor who parks his BMW and Mercedes outside, and then spends money on fancy lights and locks to deter criminals.

Perhaps the best crime deterrent is simply not showing off.

 

Final Thoughts

Well, this post got rather long!  Thanks for sticking through to the end!  I feel like I’ve barely scratched the surface of all the “hidden taxes” out there too.  While not taxes in the traditional sense of the word, there are certainly plenty of categories in life that are big economic drags on the pocketbook.

The worst part is, we don’t really need to pay most of them!  With a little extra effort and planning many of these “hidden taxes” I’ve discussed can be reduced or avoided entirely.  This can be an incredible tool to find additional savings for anyone on the path to financial independence!

Now it’s your turn — Are there any more hidden taxes you can think of?  Let me know in the comments below!

 

[Image Credit: Flickr1, Flickr2]

22 thoughts on “Mastering The Hidden Taxes

  • January 26, 2019 at 6:40 AM
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    Very interesting take on taxes. The home security thing is something I ponder. I grew up in Baltimore City, where our chances of having our home broken into were pretty substantial. The city was and still is teeming with criminals and bad actors. We couldn’t afford a system when I grew up. Now I live in the DC suburbs, the richest area in the country. The chances of having your home broken into here are very very small. Yet almost everyone around me has a security system. I don’t. I think they’re taxing themselves. But if it gives them piece of mind, then who am I to judge.

    Reply
    • January 28, 2019 at 10:29 AM
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      Exactly. For me, peace of mind comes from knowing I have nothing really worth stealing… but if other people feel like they need a professionally installed security system, go right ahead.

      Just as an aside, I know several people that had a professionally installed system and still got robbed. The thieves disabled the security system and just walked out with the goods. No problem.

      Others are just smash and grab robberies. The thieves are gone in seconds, and the alarm doesn’t matter.

      Reply
  • January 26, 2019 at 9:18 AM
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    Forgetful Tax – where you forget to pay your bills on time and have to pay late fees and/or interest

    Stupidity Tax – Not following instructions and breaking an item like where it says 50 lb capacity but you think 100 lb will be fine

    Reply
    • January 28, 2019 at 10:23 AM
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      Oh yes, I’ve paid the stupidity tax more than one time! 🙁

      Reply
    • January 28, 2019 at 10:23 AM
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      Haha, you’re the first person to notice that Angela! 🙂

      Reply
  • January 26, 2019 at 11:44 AM
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    How ’bout the Careless Tax. Not being careful / not taking good care of things and having them break before their time. Seemingly common with cell phones nowadays.

    And the Indecisive Tax – knowing you’re going to buy something and ready to purchase and for some imaginary benefit of waiting, you delay until the price goes up. Close cousins to the Last Minute Tax.

    Nice stuff, and a good framework to think about all of the premiums you pay and for what.

    Reply
  • January 26, 2019 at 6:30 PM
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    Nice article, Mr Taco.

    I’d also add the new fad or latest gadget tax – this applied to everything from the latest IPhone to an electric car as well as paying more to see the latest movie, performance or exhibit. Likely these will be substantially cheaper with the passing of time so it pays to wait.

    Some of the other commenters also have some good additions to your otherwise comprehensive and insightful list.

    -Mike

    Reply
    • January 28, 2019 at 10:22 AM
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      Oh, good one Mike — Most of the tech geeks in this area are totally addicted to paying the gadget tax and buying the latest electric car. Tax addicts!

      Reply
  • January 26, 2019 at 9:38 PM
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    Wedding tax: anything for a wedding is at least 2x the price of that same thing in any other context.

    List price tax: common in healthcare, nobody is really expected to pay list price, but it’s sure nice for the provider when someone does. I imagine there are other industries where this happens.

    Middle-man tax: real estate agents still have a firm hold on getting commissions on most real estate transactions. This tax is anywhere that a small group of people are entrenched in any transaction, and tends to be real hard to avoid.

    Reply
    • January 28, 2019 at 10:21 AM
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      Oh, those are definitely some hidden taxes! 🙂

      Reply
  • January 27, 2019 at 7:00 AM
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    The last minute tax can also work in reverse sometimes too. For instance, with sports games and concerts, if the supply is still high the price can drop 2-3 hours before the event if demand isn’t equally as high since resellers don’t want to walk away with nothing. Using this strategy, we’ve been able to get Seattle Seahawks tickets (which normally resell for $150) for $60.

    Reply
    • January 28, 2019 at 10:20 AM
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      Yup, I know people that often do this. Often the best deals happen a few minutes after the game/concert starts.

      Reply
  • January 27, 2019 at 7:20 AM
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    Love your classification of these hidden taxes (i.e. the impatient tax). I think your readers via the comments have come up with several additional hidden taxes we should keep in mind! Maybe I should have titled this post – THE LAZY TAX.

    Reply
  • January 27, 2019 at 10:10 AM
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    I wouldn’t classify those as taxes. They’re all avoidable. Try avoid paying taxes and there will be some serious consequences.
    Interesting about the safety issue. We’re moving into a house soon and I was wondering about keeping the light on and getting a security sign. I’ll probably get some kind of motion sensor light. That will be useful with our long dark winter.
    Good job with kid stuff. We need to check out the thrift store more often. I never find anything there. Our kid destroys his clothes and shoes very quickly. They’re not even donatable once he’s done with them.

    Reply
    • January 28, 2019 at 10:19 AM
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      Yeah, I think that’s why shoes are so hard to find used — they’re too worn out by the time kids that age are done with ’em.

      Reply
  • January 28, 2019 at 4:54 AM
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    Interesting angle Mr. Tako. Re the Safety Tax, I tend to agree. I believe crooks can break into any home if it becomes a target. The key is to not become a target by not drawing their attention.

    Reply
  • January 28, 2019 at 9:19 AM
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    The impatience tax always baffles me. I mean, I want stuff quickly too, but I don’t understand paying for expedited shipping. I think I’ve done that twice in my life. Once because my husband needed some pants ASAP and they were significantly cheaper online (even with the expedited fee), and once because I was leaving on a trip and needed the item before I went away. Both times I felt sick for paying it.

    Speaking of patience, I have a friend who, when he wants to go to concerts, goes to a ticket resale site and waits for the concert to get about 15 minutes in to the opening act. By then, the sellers have dropped their ticket prices down to almost nothing in the hopes of recouping any of the cost. He misses just a tiny bit of the opening act and sees great artists for a fraction of the price. It’s friggin’ brilliant!

    Reply
    • January 28, 2019 at 10:18 AM
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      Great idea! I know people that do similar stuff, and it’s often a great way to get premium entertainment on the cheap!

      Reply
  • January 29, 2019 at 3:52 AM
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    Awesome take on the hidden taxes we never think about. I actually didn’t think about the “pink tax” until you mention it, but now that I think back, women’s razor are more expensive than mens, etc. I don’t even remember thinking about it much, I just purchased men’s razors because they were more durable and price lower. The same thing goes for anything related to weddings. When you get flowers normally, they are 1/2 or 1/3 the price of flowers for weddings. Even though it’s the exact same flowers! That’s marketing for you.

    Thanks for reminding us to notice all these “hidden taxes” we don’t normally think about.

    Reply
  • February 7, 2019 at 6:37 AM
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    Very funny about the illusion of safety piece in your post. I feel the same way. I live in a nice neighborhood but my neighbor who park his Mercedes outside get frequent break-ins and now he has camera and security system installed in his home. Our family drives 2005 and 2007 civics and we too park our cars outside but never had a break-in. I think the thieves feels sorry for us just by looking at our cars. Oh and our yard look a bit sad too. After spending so much money on grass seeds and water for 2 consecutive years, I gave up on wanting the perfect yard. Lol.

    Reply

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