Whoa! Even if you’ve filed, you’re not done with taxes yet!

Whoa! Even if you’ve filed, you’re not done with taxes yet!

Whoa! Even if you’ve filed, you’re not done with taxes yet!

Whether you’ve filed your taxes or not, you can’t quite put this tax season behind you because you have a few more tasks to complete.

  1. Calculate your average and effective tax rates.
  • The average tax rate is the federal marginal rate plus your state rate (see the chart below). This is the tax that is applied to the last dollar you make. You use this to determine what you really made on an investment – the after-tax return on investment.  It can help you decide whether a tax-free money market or taxable money market is better for you.  When you’re comparing investments, it’s more logical to compare the after-tax and after- fee return.
  • The effective tax rate is calculated by adding your federal, plus state, plus FICA & Medicare taxes together and dividing them by your total income. This tells you how much you really get to keep. For example, if you get a raise or bonus of $10,000 and your effective tax rate is 18.2%, then plan on being able to spend $8,180, since the rest is going for taxes.  Knowing this will help you make better decisions.
  1. Evaluate your withholding amount.
  • Why give the government an interest free loan or set yourself up for possible penalties, when just a few minutes of calculations and one form at work can prevent it?  If you got more than a thousand back in a refund or owe more than a thousand, you need to complete a new W-4 form for your employer.  Kiplinger has an easy to use calculator, if your income is going to be the same as last year’s and you got a refund:  http://www.kiplinger.com/tool/taxes/T055-S001-tax-withholding-calculator-kiplinger/index.php
  • Use the link from the IRS, if your income has changed moderately or you owed taxes this year.  https://www.irs.gov/Individuals/IRS-Withholding-Calculator
  • If you have self-employment earnings or pay Alternative Minimum Tax (AMT), these calculators won’t work.  Ask your tax advisor for help.
  1. Figure out if you should be taking advantage of government enticements to achieve your goals in 2016.
  • The government wants to encourage certain behaviors, like saving for retirement or children’s education, so why not take advantage of these?  We put out a cool chart that shows you what tax breaks to take advantage of based on your goal. Here’s the link: http://fiscalfitnessclubs.com/goals-based-tax-strategies-table
  • It’s time to take a look at what you want to accomplish this year and see if there’s a way the government is going to help.  Remember that average tax rate you calculated earlier?  This is where it comes in handy.  If you take that raise or bonus and put it in your 401k, then the whole $10,000 goes in and the government just contributed $1,820!  If you are working with a Fiscal Fitness Clubs coach, ask how to get the most from any planned savings or cash flow to put towards goals.  If you really want to be ahead of the game, estimate this year’s taxes.  The tax bracket info is at the end of the blog.  Just take last year’s taxes, think of what will change, and use a calculator to calculate your Adjusted Gross Income (AGI) and apply the rates!
  1. File the files in the right places.
  • Keep an electronic or scanned copy of both your federal and state taxes, along with scanned W2s, the summary of your expenses downloaded from Mint, and the year-end statements from any after tax investments in your permanent cloud folder. If you made an IRA contribution, make sure you note whether it was deductible or not as well. That way if your house burns down, and the auditor comes knocking or you decide to buy a new home, and the lender wants the last two years of returns, you’ve got them!
  • Now put the real stuff and all the supporting documents in a box with the toss date written clearly on the outside of the box and stash it somewhere like an attic or crawlspace.  Why use valuable filing space?  You’ve got the returns in your cloud and this can be tossed in 7 years.
  1. Now celebrate ‘cause you’re really done!

Here is the information you may need to calculate your average tax rate and to project next year’s taxes!

Tax Table Source:  The Tax Foundation from an article by Kyle Pomerleau, October 2015.

FISCAL FACT No. 486: 2

Here’s a chart to see your tax brackets for 2015.  Below it is the information for 2016: 

Rate Single Filers Married Joint Filers Head of Household Filers
10% $0 to $9,225 $0 to $18,450 $0 to $13,150
15% $9,225 to $37,450 $18,450 to $74,900 $13,150 to $50,200
25% $37,450 to $90,750 $74,900 to $151,200 $50,200 to $129,600
28% $90,750 to $189,300 $151,200 to $230,450 $129,600 to $209,850
33% $189,300 to $411,500 $230,450 to $411,500 $209,850 to $411,500
35% $411,500 to $413,200 $411,500 to $464,850 $411,500 to $439,000
39.6% $413,200+ $464,850+ $439,000+


Looking ahead! Here is 2016.

Table 1. 2016 Taxable Income Brackets and Rates (Estimate)
Rate Single Filers Married Joint Filers Head of Household Filers
10% $0 to $9,275 $0 to $18,550 $0 to $13,250
15% $9,275 to $37,650 $18,550 to $75,300 $13,250 to $50,400
25% $37,650 to $91,150 $75,300 to $151,900 $50,400 to $130,150
28% $91,150 to $190,150 $151,900 to $231,450 $130,150 to $210,800
33% $190,150 to $413,350 $231,450 to $413,350 $210,800 to $413,350
35% $413,350 to $415,050 $413,350 to $466,950 $413,350 to $441,000
39.6% $415,050+ $466,950+ $441,000+

 Standard Deduction and Personal Exemption

The standard deduction for single and married couples filing jointly will not increase in 2016 (Table 2). For taxpayers filing as head of household, it will increase by $50 from $9,250 to $9,300.

The personal exemption for 2016 will be $4,050.

Table 2. 2016 Standard Deduction and Personal Exemption (Estimate)
Filing Status Deduction Amount
Single  $6,300.00
Married Filing Jointly  $12,600.00
Head of Household  $9,300.00
Personal Exemption  $4,050.00
Source: Author’s Calculations.

INVITATION: We have an upcoming FREE webinar on the “Psychology of Money” on Tuesday, April 5th @ 5 p.m. MST/ 7 p.m. EST. Reply to this email, if you’d like to register and check out our video to learn more about it. 

If you’re a current client reading this post, remember that we are only a click away to set up a call and help you with your situation. If you’re not a client, but are interested in learning more about our services, follow this link to schedule your complimentary call today and find out if we are good fit! 

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