Income Taxes

Hello Everyone!  It is tax season, so I thought I would talk a bit about taxes. One of the most important aspects of investing and saving is tax deferment. This is because if you can defer paying taxes and earn interest on the money that would have gone to Uncle Sam, you can significantly increase you net worth. However taxes are confusing so let's start at the beginning.

As we all know when we get our paycheck there is a nice chunk that goes to taxes, and if you don't pay it out of each paycheck, then you owe a pretty penny on April 15th. And maybe if you are lucky you get a refund, but how much are you paying and how is it determined? Let's start answering this question by looking at tax brackets. With the extension of the Bush tax cuts, these are the 2011 tax brackets.

These income values are based on your adjusted gross income (AGI) not your net income. So if you make $35,000 don't go running to your boss and ask him if you can make $500 less each year because you don't want to be bumped up a tax bracket. There are ways that you can shelter some of you income so that it does not appear in your AGI. Some of the most common ways are: deducting business expenses, putting money into a health savings account (HSA), or contributing to a tax deferred retirement account such as a traditional IRA or 401(k). These are just a few ways to defer taxes and reduce your AGI, there are many others. Therefore, the key to making sure that you don't pay too much in taxes is by putting your money in places that you would prefer to see it going and reducing your AGI.

Hopefully you are all as pleasantly surprised with your refund this year as I was!


Cheers,


Bre

Tax Bracket	Married Filing Jointly	Single
10% Bracket	$0 – $17,000	$0 – $8,500
15% Bracket	$17,001 – $69,000	$8,501 – $34,500
25% Bracket	$69,001 – $139,350	$34,501 – $83,600
28% Bracket	$139,351 – $212,300	$83,601 – $174,400
33% Bracket	$212,301 – $379,150	$174,401 – $379,150
35% Bracket	Over $379,150	Over $379,150