I want to talk about another one of our free resources that we have available on our blog at MoneyEvolution.com. The one I’m gonna be talking about today in this video is the Money Evolution Guide to Understanding Your Taxes.
So here we are, it’s almost the end of January, and we’re at that time again where we need to file our income taxes for 2016. So I put together this guide, it’s got some great information here but the most important thing about managing your taxes is that tax planning is something that is done all year long. For most of us, by the time the year has ended and we’re handing off that information from last year off to our accountant or if we’re using one of the automated programs like Turbo Tax, it’s really pretty much too late to do anything that’s gonna have a substantial impact on your income taxes. So really understanding your taxes and really doing some tax planning throughout the year is something that can be beneficial.
There’s a couple things, though, that I wanted to highlight here in the guide. The first one is on page one, understanding your taxes, and this is something that I think has a lot of people confused, I know they’re confused because we get a lot of questions here in our office about this all the time, and that is, if your income goes up, or maybe you’re gonna be taking a distribution from one of your retirement accounts, a lot of people are very concerned about getting pushed up into the next highest tax bracket.
Well we have something in the United States called a progressive tax system, which means that we pay income taxes progressively along the way as your income goes up so in the guide here, I’ve got the married filing a joint tax return schedule and basically, no matter how much income you make for the year, the first $18,550 is taxed at just the 10% income tax level. Then the amount of income that you have between that 18,000 level and 75,000 is taxed at 15% and so on, so let’s say you’re concerned because maybe your income is gonna go from the 151,900 tax bracket, which is the 25% tax bracket, up into the next tax bracket, which is 28%, so let’s say you go over that level by just $5000 and now you’re in the 28% tax bracket. Well, that doesn’t mean that all of your income now is taxed at 28%, it just means that that $5000 that you went over the limit is now taxed at 28%. So keep that in mind, I think that’s something that a lot of people are a little bit confused about.
The other thing that I have here in the guide, I talk a little bit about some things that I call stealth taxes, and these are sometimes not even really necessarily taxes, but they’re things that nonetheless cost us more money and they’re kinda interdependent on what our income is for the year.
Stealth tax number one is Medicare Part B premium so if you’re on Medicare, you may know that your Medicare Part B premiums are related to how much income you had the year before, so you, for 2016, as an example here, if your income was $170,000 a year or less, you’re paying $121 a month for those Medicare Part B premiums, but if your income jumps up to just 170,000 and let’s say one dollar, you go over that limit by one dollar, now your premium goes up from $121 a month to a little bit over $170 a month, so that is one area that just a little bit of extra income can potentially push you up into the next bracket. Another thing that is really important to know is where you are in those tax brackets, know where that’s gonna be.
The other stealth taxes are phased out of itemized deductions so if you hit certain income levels, for example, married filing a joint return, you start getting phased out of your itemized deductions if your total household income goes over $311,000, you start to lose the ability to take some of those deductions.
Stealth tax number three is the Medicare surtax, it’s another 3.8% tax that is gonna be applied to your total income if your income for a joint tax filer goes over 250,000 so that’s something that can really kick in with a lot of extra additional taxes. I talk a little bit about the marriage penalty in here as well, too, that’s something that has a lot of questions and a lot of people concerned about that. And I also talk about the four greatest benefits in the U.S. tax code, so there’s some really interesting things in here, so again, you can download this guide right off of our blog at MoneyEvolution.com. I’m going to put a link directly to the resources page here in the description of the video, you can click on that and it’ll take you over to the resources page, so in addition to this particular guide, We have about six or seven other guides that are available, you can download this one, a couple of them, or you can download all of them if you want.
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A little about me…
Hi I’m Bill Lethemon the founder of Lethemon Financial and the Chief Content Creator here on the MoneyEvolution.com blog.
Over the course of my 22 year career as a financial advisor, I have worked with hundreds of individuals one on one, and given retirement planning presentations to thousands, helping them work towards their retirement goals.