Effective Tax Rate

Now that taxes have been turned in (unless you filed for the 6-month extension) you can calculate what your effective tax rate was for the following year.  I am only going to look at Form 1040 which is probably the most commonly used form for federal taxes.  Calculating this percentage is quite simple: you take line 61 which is your total tax and divide it by line 22 which is your total income for the previous year.  For 2012, mine came out to around 5%, mostly because I didn't make a lot of money so deductions and credits had a large impact on the overall percentage.

The Fiscal Cliff Deal

With the new year, the much anticipated fiscal cliff was partially averted, partially delayed as U.S. leaders reach some sort of compromise.  It makes permanent the Bush administration's tax rates for those earning less than $400k per year ($450k for couples) but raises rates on those earning more than those thresholds.  Above that, the income tax rate increases from 35% to 39.6%, bringing back the top bracket from the Clinton era.  Dividends and capital gains will also be taxed for people in that bracket at a new 20% level instead of the normal 15%.  Obama is now able to say that he succeeded in raising income rates on the wealthiest of Americans but not his initial target of those earning more than $200k annually.  Also, the temporary lower payroll tax rate implemented in 2011 (lowered to 4.2% from 6.2%) has also expired which will cost $50 a month for those making $30k a year and about $190 a month for those making around $114k.  Itemized deductions will also be capped for those making more than $250k ($300k for couples).  Taxes on inherited estates over $5 million will also increase to 40% from 35%.

To Itemize Or Not

It is a big relief to be finished with my hell week. I had 5 midterms in 4 days this past week so I've been extremely busy the past couple weekends studying. I thought I'd talk this week about itemizing deductions on an individual tax return and when you should do it over taking the standard deduction.  of course, this means you stay organized throughout the year and keep track of all your expenses. 

Rising Income Tax Rates

There is a lot of talk about an upcoming "fiscal cliff" in the U.S. where current policy has a lot of tax increases and spending cuts going into effect in the beginning of 2013.  If a different solution cannot be agreed upon by both parties, it is said that the economy will go off this "fiscal cliff" into another recession and have the U.S. face a similar crisis in Europe.  It seems like higher taxes will be a certainty in the future; it is only to what extent.  A lot of it will also depend on the results of this year's election as well.

How to Effectively Save for Retirement

I've talked about the 401(k) and the IRA separately before, but I thought I'd do a more consolidated post comparing the two.  There are two main types of accounts that you can use to get tax advantages to save for retirement and they each come in two forms.  The two main types of accounts are 401(k)s and IRAs and the two forms are traditional and Roth.

Waiting4 pay with W4

With many people beginning internships, it may be a good idea to think ahead about the taxes that will be withheld from your paychecks.  I've posted before about whether you should file a tax return or not, but when you begin to fill out the paperwork necessary to begin working, you'll likely come across the W4.

What Free Gifts?

Everyone gets such a great feeling from getting a gift, especially since it is usually something unexpected, something we wouldn't get for ourselves, and it shows the feelings of the giver.  It also feels great to give gifts to others, but we have to beware that the act of gift giving may not always be free.  Yes, I am talking about a gift tax.

Tax Strategies

Now you should know whether or not you should file your own tax forms, but before learning about the forms themselves, it may be good to learn a little bit about tax strategies to minimize your bill to Uncle Sam and maximize how much in cash you take home from your hard work.  There is a way you should approach your taxes so as to maximize the cash that reaches your pocket and it is good to learn these early so that they can work to your advantage for they ears to come.  I also go over some of the basics in an earlier post on taxes.

Should You File?

So tax season is approaching for all those who have to file for year 2011.  Deadline for filing your federal tax return this year falls on April 17th (fun fact: tax day is usually the 15th but this year it's two days later since the 15th falls on a Sunday followed by a holiday celebrated in the District of Columbia).  Many of us college students probably don't deal with our own tax return yet.  If you don't work part-time or had a paid internship over the summer, you probably don't have income to report.  For others of us, we still fall under the category of dependent and just let our parents file our taxes under their return.  However, after we graduate and step out into the real world, it is essential to know how to file your tax forms so that the IRS doesn't have to hunt you down.

End of the Year Losses

Merry Christmas everyone and thank you for supporting me in reading my blog.  While you open those expensive family presents you bought each other (which hopefully you have budgeted), I thought I'd end this year with an educational post about what almost everyone does near December 31st: take capital losses to offset any capital gains or some income.  The reason why you would want to offset capital gains or income is to save on taxes.

Only Death and Taxes