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How Tax Brackets Work

June 14, 2019 by Jon

You can’t go through tax season or file your taxes without knowing how tax brackets work. The U.S. has a progressive tax system that does one thing well, it tells you the tax bracket you fall into, but it doesn’t tell you the whole story.

While someone may sit in the 25% federal tax bracket, that doesn’t mean they actually pay that much in taxes. In fact, they pay less than 25% in taxes because of how the tax system works. Let me explain.

Marginal Vs. Effective

The tax bracket you fall into is your marginal tax rate. The marginal tax rate represents the tax you pay on the last dollar you earn. But it’s not the tax rate you pay on every dollar you earn.

To find the tax rate you pay on your total taxable income, you need to find the average tax rate, called your effective tax rate. To do that, you need a bit of math.

How It Works

The best way to explain it is with an example. I’ll be using the 2012 federal tax brackets for a single person as a reference. For this example, assume this single person, let’s call her Sue, has a taxable income of $500,000. Sue’s income is far above average (because I wouldn’t be able to use the entire table below that I labored over for hours). Continue Reading…

Set Up Automatic Saving For Success

February 14, 2012 by Jon

The biggest reason anyone fails at their finances is because they never really start. Sure, they may get through a few weeks. But then it falls off. We lead busy lives and sometimes we let things slide. So it becomes tomorrow’s problem.

It happens with exercising, dieting, curbed spending, and how we save. It’s something that we have all done at some point and it’s a weakness everyone deals with at some point in their lives.

So, instead of trying harder next time, lets take advantage of what’s available, to do the work for us now.

An automatic saving plan will successfully end all the worry and procrastination we have with our finances and force habit change. Let’s work smarter and start automating our savings.

The Automatic Saving Plan

Most people get paid by direct deposit and it happens on a regular schedule. Continue Reading…

Happy Hour: It’s Bacon!, Filling A Loophole, and 101 Posts

February 10, 2012 by Jon

Welcome to Happy Hour and our 101st post. Something I’d never imagine happening based on how much I never wrote before starting this endeavor. Even piecing together a few words into a phrase was a long shot not too long ago. Anyways, here are some of the more interesting reads I came across this week.

It’s Bacon!

If you happen to live near a Jack In The Box, here is a limited time only opportunity for you. The company has come up with a drink that only Homer Simpson would love, a bacon milkshake. If you are craving a pork smoothie, the new bacon shake won’t be listed on the menu. It’s a secret item, just ask for it when you order.

Filling A Loophole

Our Congressmen and woman will have to find another way to profit on their ability to influence laws, government contracts, and more. While Martha Stewart had to sit in jail after avoiding a $45,000 stock loss, our elected officials have been able to profit from nonpublic government information for decades. This might be coming to an end, if these same elected officials actually approve a bill to end insider trading off of government information. Guess we’ll find out just how greedy they are? Continue Reading…

Two Guaranteed Ways To Improve Your Finances

February 9, 2012 by Jon

There are only two ways of improving your financial situation and neither involves an insurance scam, lottery, gambling, selling a kidney, or a myriad of other legal or illegal activities. In fact both are covered abundantly on finance blogs and websites. Yet the topic is skirted around rather than just getting to the point.

No matter how you dress it up, rewrap it, spin it, discuss it on a per item or action basis, improving your finances only comes down to two things. Spend Less and Earn More. Doing both is not required but it certainly makes improving things easier.

Spend Less

Spending less is a simple concept. Take what you spend now and stop spending so much of it. Take it down to a bare bones approach. Other sites will go on and on about all the different ways to spend less. If you can’t figure out how to do it on your own. You’ll never take the first step. Do a budget, write down everything you spend money on each month, grab a red pen and start marking all the areas that spending can be cut. See how much extra you have at the end.

This is a topic written about every day. I see dozens of posts each week telling me Continue Reading…

The Facebook IPO: It’s About Tax Savings

February 7, 2012 by Jon

The Facebook IPO news is rolling strong this year as one of the biggest IPOs since Google went public years ago. It’s not surprising really, with 800 million people using the social site and the billions of dollars the IPO will generate for early investors and employees. Just think of all the new millionaires and billionaires that will be added to Forbes richest people list once the company is public. Which is the real reason behind the Facebook IPO this year and a great lesson in tax planning.

The current estimates value Facebook at $75 to 100 billion with an estimated $3 billion in revenues. The IPO will raise $5 billion for the company. It doesn’t need the extra funds with a current cash hoard of over $3 billion still sitting in its coffers and has no plans for the money either. Which leaves the real reason for going public, to allow early investors and employees to take advantage of tax savings from the $70 to 95 billion in personal wealth generated at the IPO.

All those newly created millionaires and billionaires will want to cash out a couple of those shares to buy big houses, expensive cars, yachts, all the things new-found wealth can buy. The kicker, by going public in early 2012, the shareholders will save on capital gains tax. Which means more money for them. It’s good to see greed and smart tax planning alive and well in Silicon Valley. Continue Reading…

Happy Hour: Golden Cross, One Less Dollar Bill & March Money Madness

February 3, 2012 by Jon

It’s Happy Hour again. Time to breath a sigh of relief, review what you may have missed and just point out some interesting reads I came across this week.

Golden Cross

It sounds the next installment of the Indiana Jones series, but the golden cross is one of those technical indicators that may signal good things to come. The stock market finally hit a golden cross in the S&P 500 on Tuesday when the 50 day moving average crossed above the 200 day moving average signaling a short term bull market may be on the horizon. A sign of more good things to come?

One Less Dollar Bill

In the ongoing effort to eliminate the $1 bill, a few senators introduced legislation that would eliminate paper $1’s for coins. It sounds like a good deal. It saves the government money long term, but the people don’t want the change. We can’t have it both ways, lower government spending and more paper in our pockets. Like this is the biggest issue this country has. But hey, in 4 years the $1 bill could be phased out. Just in time for debit cards, credit cards, Google Wallet and other smartphone spending systems to take over the world and have no need for coins either.

March Money Madness

The folks at Free Money Finance have an annual event known as Continue Reading…