Personal Finance Advice

Great post…
This year I limited the amount of money I sent the gov’t by adjusting my withholdings, and when I told a friend that my refund “might be 300 dollars or so…”, he, laughed and proudly stated, “man, I’m getting back over 3000 dollars!”… it was like he didn’t understand that he’d basically loaned the gov’t 3K for a year… as for the amount of actual taxes paid, i’d bet 1 in 100 could actually give you a number within 500 dollars of what they actually paid…
NCN

Great article. As a self-employed individual, you can bet that I know just how much I pay… right around 24% plus an extra 15.3% in Social Security (nicknamed the self-employment tax.) Total? 39.3% goes to the (extremely wasteful) US Govt.

This is why the article you had written Nov of ’05 entitled “Double The Worth Of Your Money – Save Before You Earn” really meant something to me.

I too have heard the comment “Ohh, I get back so much!” And many people always seem surprised when I tell them how much I have to PAY every year while they are all getting their refunds back…

I can easily tell how much I paid in federal income tax. $0. I’ll be receiving a refund for 100% of the money I paid in federal income tax last year.

Just as frightening is the number of people that don’t understand tax brackets and how they work. Many seem to think that by earning $1 into the next tax bracket, all their money gets taxed at that rate. They also don’t understand effective tax rates and that they are much lower than the tax bracket rates.

I am new to this blog bt absolutely love it! I am a college student trying to take control of my financial life and was wondering how I could find out more info on taxes and such. I am mainly interested in how the tax brackets work and how to adjust my withholdings amount.

Thanks!

Cholin,

For basic tax information, http://www.irs.gov is actually a very clear, helpful site.

If you want to dig into it, take a tax class from a preparation company in the fall. It runs about $150 with much of it given back if you work the following season (plus you get paid for a student-friendly job). Prep companies also offer advanced classes for free throughout the year to their employees.

(Disclaimer: I work for big green tax prep co but don’t speak for them at all.)

I actually can’t tell how much I’ll pay in taxes total from my paystub – my taxes are really weird with:
–two jobs
–renting half my house (yay depreciation!)
–ESPP
–stock options
–dividends
–non-deductible IRA
–extremely variable charitable contributions

I usually enter my W-2 data, panic, and then start adding the other stuff in to end up owing a thousand dollars or so.

As an aside, again, it’s difficult to estimate the EITC, which is frequently what gets people back the huge refunds – they aren’t getting back withholding but a special credit for the working poor. People eligible for it can set it up to get it with their paychecks over the year, but who wants to bet that they’ll be equally low-earning next year?

Besides income and Social Security taxes, there’s also sales tax, property tax, gas taxes, sin taxes, weird taxes that show up on utility bills, not to mention taxes that businesses pay and pass along to us, etc.

Most of these we can reduce only by reducing the thing that is taxed (income, property, etc.) The exception is deductions for income tax, but only if you have enough deductions to exceed the standard deduction.

I don’t really see how knowing what I’m paying helps me figure out how to pay less. Perhaps it motivates me to research how to pay less? Am I missing something?

I agree with Debbie. We have a plethora of taxes and we should really consider them all when talking about “taxes”. Many Americans pay far more in FICA than federal income taxes. But what about all the excise taxes we pay on gas, cigarettes, utilities, etc.?

I wonder if anyone has done a study on this. I think if you look at the total tax picture (federal, state, local, payroll, property, excise), you’ll find that our tax system isn’t just not progressive, it’s downright regressive.

It’s time for real tax reform. The current tax code is so complex, you can’t really have intelligent discussions about it. We need to design the tax code instead of letting it evolve at the whim of legislators. Design a code that’s fair, simple, transparent and, most importantly, resistant to special interests.

I too know how much i pay in taxed, although I don’t always understand how it is calculated. These figures are from denmark, please note they are simplified and I am no tax expert, this is what a quick google found

You take the salary and deduct any pension savings you pay. From what is left you then pay 8% as pre-tax (pre-tax meaning tax you pay before they start calculating which income tax you must pay)

From what is left you have a few deductions and then pay a city tax (mine is 24%), church tax (1%), and income tax

Income tax is in mainly 3 bracket
for the lowesr bracket you pay 5%
for the medium bracket you pay a total of 11% (5+6)
for the top bracket you pay a total of 26%(5+6+15)

My current rates are thus 8% pre-tax and 41% income tax, which in total leaves the with 53% of my salary as disposable income.

If you earn money by stock investment then you pay either 28% or 41% depending on the amount you make. Loses are deductable but only within the same year

I read a study once that showed americans pay 50% of their income to taxes…not just income tax and ss plus others on the pay stub, but also sales tax, tax on interest (you know you were taxed on that once…and if you buy something with the interest you will be taxed again…)

50% folks…..sad

How about addressing the fact that the Federal Reserve is a privately held institution with virtually no oversight? All income tax paid by Americans ends up as profit in the hands of the families that own the Federal Reserve, including the incredibly wealthy and powerful Rockefellers, Rothchilds,Warburgs, Morgans, Lehmans, Loebs and Harrimans

i think we give out too much money for taxes. if we could take out at least 1/4 of that we pay each year then we could feed many people that are starving right now not only in our country but in others too. 29,000 children die each night of starvation. i dont know about you but i have a heart and i think we should do something about it. Join Starve Hunger in your city. On October 12 and 13th me n my youth group are not eating startin oct. 12th n not eating for 30 hours. to starve hunger. and we ask people to give us a certain amount of money an hour we dont eat. so if they give u 1 dollar an hour then theres 30 dollars to help feed people and children. Help Me Save People