As featured in The Wall Street Journal, Money Magazine, and more!

Can you believe we’re already in September? The year has flown by, and IRS Tax Year 2016 will soon be coming to a close. While your filing deadline isn’t until April 17, 2017 (the 15th will fall on a Saturday), now is the perfect time to begin thinking about your taxes, maxing out your retirement contributions, and tying off of deductible expenses/donations.

So you can plan ahead, here are the IRS tax rates for your 2016 earnings, along with a little insight. Many of these have changed from last year, as they will almost always do in order to avoid a “bracket creep.” This is what happens when you get bumped up to the next tax bracket based on inflation, and not because you are actually earning more.

If you work for an employer, you’re probably very familiar with the taxes that are automatically withdrawn from your check each month. You are essentially prepaying your tax bill. Depending on how much you make before midnight on December 31, the number of exemptions you qualify for, etc., you will either owe additional money to the IRS or get a refund for overpayment. (Unless you’re a tax whiz who calculated your payments perfectly all year, of course, in which case you’re welcome to do mine, too!)

Curious how much the highest earners will pay in tax year 2016? The top marginal rate will again be 39.6 percent.

What are the 2016 marginal tax rates?

For those not well-versed in tax structure (which includes most people, I’d imagine), there’s a common misconception. Many people are afraid to earn more money because they don’t want to be bumped up into the next tax bracket. They don’t want to have all of their income taxed at an even higher rate than they’re already paying. Well, this is not actually how it works, as your effective tax rate and marginal tax rates are often very different. The only income tax applied at the highest rate, is on that income above and beyond the lower limits for that rate.

Confused? Let me explain further.

Pretent you make $50,000 this year. Or $5,000. Or even $500,000… the number is arbitrary. No matter what, your first $9,275 of earned income (if you file as a single individual, not jointly), will be taxed at the lowest tax rate: 10 percent. It doesn’t matter how many zeros are in that Income Earned box… your first $9,275 is taxed at 10 percent. This is called the “lowest tax bracket.” To determine your effective tax rate, you divide the amount of total tax owed by your entire income — if you don’t earn enough to get out of that lowest bracket, your marginal tax rate and your effective tax rate will be the same. Again, 10 percent.

This dynamic is why Warren Buffet says his secretary ‘pays more tax than he does.’ He earns a large portion of his income from investments, which are taxed at a lower percentage and therefore drop his average (effective) tax rate. As most of his secretary’s income (presumably) comes from wages, her effective tax rate is higher. I would still imagine that his actual tax bill is considerably larger than hers, however.

Let’s look at the chart:

[click to continue…]

{ 0 comments }

Most taxpayers can choose between itemizing tax deductions to reduce taxable income, which requires accurate record-keeping and support, and taking the standard deduction. The standard tax deduction is a fixed amount that reduces the amount of money on which year-end taxes are calculated. Generally, if you can show that you’ve had more deductible expenses than the amount of the default standard deduction, it’s better to itemize.

IRS publication 501 outlines each year’s deduction amounts. There are some cases where adjustments should be made to the standard deduction. For example, if you are 65 or older, or if you are blind, the standard deduction increases.

The personal exemption is another deduction to your income that you can take for yourself and for any dependents.

Tax Year 2016 2015 2014 2013 2012 2011 2010 2009
Single $6,300 $6,300 $6,200 $6,100 $5,950 $5,800 $5,700 $5,700
Married filing jointly $12,600 $12,600 $12,400 $12,200 $11,900 $11,600 $11,400 $11,400
Married filing separately $6,300 $6,300 $6,200 $6,100 $5,950 $5,800 $5,700 $5,700
Head of household $9,300 $9,250 $9,100 $8,950 $8,700 $8,500 $8.400 $8,350
Personal exemption $4,050 $4,000 $3,950 $3,900 $3,800 $3,750 $3,650 $3,650

Note: When you file taxes in April 2017, you’re actually filing for your 2016 earned income. Review the numbers in the 2016 column and understand the federal tax brackets.

A dependent child can increase the standard deduction by as much as $1,000, if certain requirements are met.

Do you itemize your tax deductions or take the standard deduction?

{ 23 comments }

Everyone hates bank maintenance fees. (If you don’t, email me – I have a few you’re welcome to take.) So, what would you think if you discovered that your bank had been charging you fees for an account you never opened? In fact, THEY secretly submitted an application and opened that account on your behalf. I’d imagine, you’d be furious.

So, you might be surprised to learn that Wells Fargo has fired over 5,300 employees over the past few years for this exact practice. A practice which, we’re learning, has affected a surprising number of customers. In fact, a consulting firm was hired by Wells Fargo to conduct an external investigation, and found that bank employees may have opened as many as 1.5 million deposit accounts without their customers’ permission or knowledge.

They also submitted 565,443 applications for credit card accounts without consent of the customers. These accounts racked up annual fees, interest charges, and even fees for overdraft protection. The resulting damage equates to almost half a million dollars in erroneous fees – over $400,000 from 14,000 credit card accounts alone, in fact.

Apparently, this practice has been going on since 2011, with employees fraudulently opening both these bank and credit card accounts. But why? Richard Cordray, director of the Consumer Financial Protection Bureau, says that,”Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses.” Ah, it’s starting to make sense now.

‘How could they possibly get away with something like this, though?’ you may be asking. Well, for fake bank accounts, employees were moving customers’ existing funds from authorized accounts into the new, fraudulent ones. Because of this, many customers were hit with insufficient funds or overdraft fees, as they didn’t have as much money in their bank accounts as they had deposited. Many employees were even going as far as creating fake email addresses and PIN numbers, in order to enroll the victimized customers in online banking services without their knowledge.

As expected, people are fuming. Many are asking how such a large bank, with an extensive network of internal controls, could even allow this to happen on such a large scale. Between the discovered deposit accounts and credit card applications, that equates to over 2 million victimized customers. Keep in mind that 5,300 employees have been fired over the past few years for this practice. It has obviously been a well-documented problem within the company for a while. So, why wasn’t something done years ago to prevent it from continuing?

Regardless of how it got so out of hand, Wells Fargo is in quite a bit of hot water now. They have, of course, agreed to pay “full restitution to all victims,” as well as been slammed with $185 million in fines — which is the largest penalty imposed on a company since the CFPB’s founding in 2011. On top of that, Wells Fargo will also refund $5 million to its impacted customers.

While $185 million sounds like a lot of money, some are questioning whether it’s even enough. Wells Fargo, after all, is worth over $250 billion, with Warren Buffet as the leading stakeholder in the company. These fines equate to a mere 0.074% of their worth. That’s a drop in the financial bucket, after such a grievous breach of trust and ethics.

This betrayal will surely have impacts on the company for years to come, though. When picking the financial institution that will hold your money (and often, your credit) in their hands, it’s imperative that they been deemed trustworthy. Most people wouldn’t choose a bank with a history of fraudulent activity or unauthorized use of personal information and funds. Maybe they will be able to earn back their customers’ faith in the coming years. Personally, I’ll be keeping my money and information at my existing credit union, whom I trust.

Are you a Wells Fargo customer? What are your thoughts on this being brought to light? If you’re not a WF customer, would you consider opening an account with them in the future?

{ 2 comments }

If you’re unhappy with your 401(k), rest easy… you’re not alone. In fact, on August 19, over 60,000 employees joined up and filed a class action lawsuit against their employer, Morgan Stanley. Their reason: questionably managed and poorly performing 401(k) plans.

It’s one thing to ask workers to stay late or forget to restock the break room. Messing with their retirement plans, though? That’s a whole different animal.

The filed suit alleges that Morgan Stanley, a company with over $8 billion in 401(k) assets, chose to invest employees’ money in its own funds in order to maximize profits and benefit itself. Using only in-house investment funds would have been a questionable practice on its own. The unfortunate and compounding fact, though, is that these funds have also been grossly underperforming.

In fact, its Morgan Stanley Institutional Small Cap Growth Fund IS Class was 99% less profitable than other small cap growth funds in 2014. It didn’t get much better in 2015, where the fund performed worse than 95% of the others.

So, why would the company continue to toss 401(k) funds into obviously poor choices such as these? Self-promotion and siphoning profits for themselves are two potential reasons. The class action suit last week alleges that these were indeed the motivating factors, but it gets better.

The lawsuit also claims that on top of these 401(k) plans earning less than they could have with 99% of the other options out there, the costs were also exorbitant in comparison. It accuses Morgan Stanley of charging its own employees higher mutual fund fees than it charged outside investors.

These fees are also higher than those that other funds on the market currently carry. For instance, Morgan Stanley was apparently charging a fee of .98%, whereas a similar fund from Vanguard charged a mere .07%. The effects of this percent difference on a retirement account could be astronomical!

Of course, this would not only be shady business practice, but is potentially illegal. The federal Employee Retirement Income Security Act (ERISA) of 1974 places a fiduciary obligation on companies to act in the best interests of the plan participants. Managing funds in a way that primarily benefits the company, instead, is a potential violation.

Seeing how 401(k) plans play such a large role in the retirement savings of today’s working class, this sort of practice would have detrimental effects on the future financial security of each of their employees. Most of us pay into retirement plans and give blind faith that our employers are managing our money with our best interests in mind. Morgan Stanley, it would seem, has let a lot of people down.

It will be interesting to see how this suit plays out in court. It has the potential to be a harsh reminder of companies’ ethical and legal obligations to their workers. The class action suit is seeking damages of $150 million on behalf of its approximate 60,000 proposed participants. Morgan Stanley has not yet responded to requests for comments on the suit.

Have you worked for Morgan Stanley? Leave a comment to let us know your thoughts on their 401(k) plan and the class action lawsuit.

{ 0 comments }

Another Insurance Giant Withdraws from Obamacare — What Does This Mean for You?

by Stephanie Colestock

This year has been a rough one for health insurance companies of all sizes. With the recent news of Aetna withdrawing from most of its Obamacare exchanges, many Americans are beginning to worry about their shrinking options, skyrocketing premiums, and where they’ll even find services. Scarily enough, Aetna is not alone in its decision, and […]

0 comments Read the full article →

Cheap Flight Day: Now’s the Time to Plan Those Last-Minute Getaways

by Stephanie Colestock

A few weeks ago, Rick Seany of FareCompare published an article about the upcoming Cheap Flight Day. This certainly piqued my interest. While I have heard of National PB&J Day (April 2) and Men Make Dinner Day (the 1st Thursday in November — mark your calendars, ladies), I hadn’t ever heard of an airfare discount […]

0 comments Read the full article →

9 ways to reduce student loan debt before you owe

by Richard Barrington

It’s late May, and a new crop of students is preparing to go on to college. One of my less pleasant memories was the agonizing process of securing financing so I could pursue my degree. Though it’s many years later, I’d like to share what I learned that can make paying student loans more manageable […]

2 comments Read the full article →

How Much to Save for Retirement in Your 30s, 40s and 50s

by Satta Sarmah Hightower

Saving for retirement is a long game, but the idea of preparing for something decades away is counterintuitive for many of us. However, consistent saving is crucial for retirement planning. Here’s expert advice for how to prepare in your 30s, 40s and 50s. Your 30s Saving for retirement really should begin in earnest during your […]

1 comment Read the full article →

Travel reward credit cards — more vacation for your money

by Aaron Pinkston

If travel is in your plans, you may want to know about this offer from American Express. It’s the Starwood Preferred Guest Credit Card, and it offers 25,000 bonus points when you make $3,000 in purchases in the first three months after opening your account. You can redeem those points for free nights when it […]

2 comments Read the full article →

2015 Federal Income Tax Brackets and Marginal Rates

by
Taxes

Tax Day 2016 for IRS Tax Year 2015, also known as your return filing deadline, is April 18. If you haven’t yet filed, here are the IRS tax rates for your 2015 earnings with background and commentary. These change from year to year to protect against something the Tax Foundation calls “bracket creep” or when […]

0 comments Read the full article →
Page 1 of 31612345···50100150···Last »