Is your bank offering competitive rates which beat inflation and taxes? If not, you may be able to earn a better rate & make your money work harder by shopping around.
The following table lists currently available rates for savings accounts, money market accounts and CDs.
Knowing your income tax rate can help you calculate your tax liability for unexpected income, retirement planning or investment income. This calculator helps you estimate your average tax rate, your tax bracket, and your marginal tax rate for the current tax year.
The old saying goes nothing in life is certain except death and taxes. Since we're not into the macabre, let's talk about taxes. The history of taxation in the United States is an important one. It was a protest against unjust taxes that led to the formation of our country when we broke away from England over tea imports. Over the years, citizens have despised the existence of an income tax system whilst sometimes enjoying the governmental benefits it provides. One thing is certain. Calculating and filing annual taxes has become increasingly complicated and a task most of us do not look forward to each time April 15th rolls around. Hopefully, the following information will make your life easier.
To give yourself the best chance of success and reduce the chances of a frustration headache, the first order of business should be to collect every possible document or bit of information you could possibly need to fill out the appropriate forms. Since our marginal tax system is based on income, you need to have exact numbers of what you did or didn't earn. The following list breaks down the documents needed into four categories: personal information, income, adjustments, and deductions.
The preceding list may be daunting but, rest assured, collecting all this information beforehand will save a lot of grief when it comes time to sit down and fill out your tax forms. Also, if you're expecting a refund you'll need the name of your bank, checking account number, and routing number to have it directly deposited.
Part of what makes the American tax code so complicated is the sheer number of allowed deductions. This is a good thing, though, because it reduces your income and can move you into a lower tax bracket. Most people love it when they can pay less in taxes. The following lists the most common deductions taken. Be sure you don't miss any of these.
Standard Deduction: this is an amount that you deduct right off the top just for being a living, breathing, tax-paying U.S. citizen. The current rate is $12,000 for an individual or married filing individually, $18,000 for head of household, or $24,000 for a couple. In some instances, itemizing your deductions might be a better choice but many simply opt for the standard deduction. If you decide to itemize, the following are a few not to miss.
The tax rate you pay on income is, obviously, foremost in your mind when you fill out the IRS paperwork. One would think that understanding tax rates would be inherently simple, but the government likes to keep things interesting with terms like “effective tax rate” and “marginal tax rate.” It's a good idea to understand how both work.
Effective Tax Rate: In simple terms, this is the average tax rate you pay. It takes into account the reality that our tax system is progressive, which means that those with higher income pay a higher rate. Tax rates are applied through a five-tier setup that starts at 10 percent (for those who make less than $9,276) and works its way up to 33 percent (for those earning $190,150 or more). Individual income for a single person is taxed at various rates across the spectrum of tiers. For example, your first $9,275 is taxed at 10 percent. Income between $9,275 and $37,650 is taxed at 15 percent. The pattern continues on up the chart. To find your effective tax rate, add up the amounts of the varying tax rates to find a single sum. Divide that number by income to find your average tax rate.
Marginal Tax Rate: An easy way to think of marginal tax rate is to define it as the rate you would pay on a fictional additional dollar of income. Considering the American progressive system, your marginal tax rate rises with income and is equal to the rate of the highest tier you reach through what you earn. The marginal tax rate is the highest rate you pay and is always higher than the effective tax rate. The latter is a more reflective vision of reality since it takes into account the varying rates paid as you move through the tiers.
While you can certainly choose to sit down at the kitchen table with nothing but IRS forms, financial documents, and a pencil, a growing number of people choose to cough up the extra cash to use tax prep software or even a real, live tax professional. The best part? This expense is deductible. The question remains, how much does it cost?
There are a variety of online tax filing solutions. Names you've heard of like TurboTax, TaxAct, H&R Block, Quicken, Tax Slayer...the list goes on. In general, expect to pay more the more complicated your tax life is. The cost to use software also rises when you need to file self-employment forms or a Schedule C. Credit Karma Tax is the only software that offers a free option to file simple federal and state returns at no cost. For the rest, expect to pay around $50 to $100 to accomplish the task.
If you prefer to interact with a human being, there are a multitude of choices, from well-known franchises like H&R Block on down to independent one-person bookkeeping services. As with tax software, you pay more for complicated circumstances. A brand-name chain might cost in the $400-500 range to get the deed done. Local independent tax professionals are all over the map when it comes to price. You might place less than with the big names or you might pay more. Your best advice is to nail down the exact cost upfront so there are no surprises.
There are some issues that arise frequently and cause some consternation. How do you get your refund? How do you pay a late amount? How can you file for an extension? Let's take each in turn.
And there you have it. The world of taxes in a single article. Good luck out there with your Uncle Sam.