Tax Brackets

One of the only tax-related concepts that I find people misunderstand more than the tax returns themselves are the tax brackets. People usually don’t understand how our progressive tax system works. I’ll admit, it is quite confusing, at least in the beginning. To make things more complicated, the tax brackets change constantly based on new tax laws such as tax relief laws or tax increase laws (you can guess which one makes them go up and which one makes them go down).

So what is a progressive tax system? Basically, the more money you make, the more you pay. But wait, there’s more. Not only do you pay more, you also pay a larger share of your income. As an example, if you make $1,000 and pay 10% you would pay $100 in taxes.  If someone else made $10,000 and paid 10% they would pay $1,000. Both of you paid 10% in taxes, but the person who made more paid more. That is a flat-tax system. Now if the second person had to pay 20% because they made more money, they would pay $2,000 in taxes (20% x $10,000). You see, not only did they pay more ($2,000 compared to $100) but they also paid a larger share of their income (20% compared to just 10%). That is a simple example of the progressive tax system. As you’ll see, it is slightly more complex than that.

An important point to remember is that different amounts of your income are taxed differently at each bracket. In other words, if you are in the 33% tax bracket it does not mean that you pay 33% taxes on all of your income. If you are in the 33% tax bracket, your marginal tax rate is 33%. You will pay 33% on each additional dollar you make. The first portion of your income was taxed at just 10%. Look at the example below, based on the 2007 tax rates for a single filer.

For this example, we’ll assume the taxpayer has $40,000 in taxable income.  As you can see, this taxpayer would be in the 25% tax bracket.  To calculate the tax liability, take the first $7,825 x 10% = $782.50.  The next $24,025 x 15% = $3,603.75 and the last $8,150 x 25% = $2,037.50.  So, this person’s tax liability is $782.50 + $3,603.75 + $2,037.50 = $6,423.75.

As you can see, they are not paying 25% of all of their income, just the portion that is greater than $31,850. If they were to earn $1 more, they would pay 25 cents in tax on that dollar. If they were to get a $1 tax deduction, they would pay 25 cents less in taxes.

Of course, you also pay other taxes as well from your income. Most people pay a state tax. Also, we pay Social Security tax and Medicare tax. Your employer normally takes these “payroll” taxes directly out of your paycheck. Social Security and Medicare combine for 15.3%. However, your employer pays 7.65% and you pay 7.65%. Your employer may also take other non-tax payments out of your paycheck including your 401(k), health insurance, life insurance, etc.

Minimizing Taxes

 Perhaps your biggest concern is minimizing your tax burden. The details of how the system works may not be as important as making sure you don’t pay any more than you absolutely have to. In order to minimize what you pay in taxes, you have to first understand the three basic ways of paying less, credits, deductions, and deferrals.

A tax credit is a dollar for dollar reduction in the amount of taxes you will have to pay. For instance, a $100 tax credit reduces your total tax contribution by $100. That’s simple enough. A tax deduction reduces your total taxable income by the amount of the deduction. Another way to look at it is that a deduction reduces your tax contribution by the amount of your tax bracket. For example, if you are in the 25% tax bracket and you get a $100 deduction, you will save $25.00 ($100 x 25%) in taxes. As you can see, you want to make sure you claim all of the credits that you are eligible to take.

Bill Pratt is a former credit card executive turned student-advocate. He is the author of Extra Credit: The 7 Things Every College Student Needs to Know About Credit Debt & Ca$h and The Graduate’s Guide to Life and Money. Bill speaks at colleges to educate and entertain students about real-life issues in money, leadership, and success. His goal is to help students succeed personally and financially so they can improve the lives of those around them. You can learn more at www.ExtraCreditBook.com or www.TheGraduatesGuide.com.

Saks (NYSE: SKS) is Slow

Earnings Info: Earned $.01 cent per share versus a loss of $.32 cents per share in the same period a year ago.

Revenue dropped 8.5%.

Both earnings and revenues beat the consensus earnings estimates by analysts.

Same-store sales declined 10.1%.

“I’d hate to say that things are great. I’d say that things are a lot less bad,” CEO Steve Sadove said.

Comment: Luxury retail needs a long time to recover. Madoff victims are still in fear mode when it comes to spending, and big ticket items are continuing to sit dusty on shelves as the discounts are steepening to create appeal.

Target (NYSE: TGT): It’s pronounced ‘Tarj-ay’

Earnings Info: Earned $.58 cents a share versus $.49 cents a share in the same period a year ago. Consensus earnings estimates by analysts was $.50 cents a share.

Revenue increased 1.1% and beat analyst expectations by a slim margin.

Executive provided a very cautious outlook, “Target remains cautious about fourth quarter performance and is planning conservatively in both business segments.

Comment: Target issued a very conservative report. Their quarter was positive for both profits and sales. Target continues to remain lean and mean during the retail recession. Target continues to provide the luxury thunder to the middle-market consumer.

TJX (NYSE: TJX): TJMaxx taking it to the max

Earnings Info: Profit was $347.8 million, or 81 cents per share — up 32%. Revenue rose 10 percent to $5.24 billion.

Comment: TJX continues to benefit from the down-scaling of the American consumer. Based on their stellar performance, we anticipate many shoppers to flock to TJMaxx for holiday bargains.

No positions in the stocks mentioned.

Answer: Morningstar is an investment research company that provides information on a wide range of financial products to individual investors, financial advisors, and large institutional clients. 

For an individual investor, Morningstar provides some of the best investment research services available, and many of their services are free.  For example, on Morningstar’s website you can sign up for free email alerts so you can receive an email anytime one of your stocks, mutual funds, or ETFs is in the news or releases new financial data.  They also offer a premium membership which includes extra features like analyst reports, stock picks, and advanced screening tools.  The premium membership costs money, but Morningstar allows a 14-day free trial so you can test their services to make sure they’re worth your money. 

As a financial planner, I use Morningstar to aggregate clients’ accounts into one comprehensive portfolio, and to research stocks, mutual funds, and ETFs.  Morningstar also provides unbiased commentary on thousands of investments and offers recommended buy and sell target prices. 

Whether you’re a beginning investor or a large institutional stock trader, Morningstar is a valuable resource that can help you make smarter investment decisions.

Matthew Brandeburg, CFP® has seven years of financial planning experience and runs his own business, Bridgeway Financial Group, LLC, based in Columbus, Ohio.

One effective way to track customer behavior and buying patterns is to keep purchasing logs, which allow you to analyze who is buying what type of product. These logs can be written or computerized, depending on the size of the clientele. Once you recognize a client’s buying pattern you will be in a position to recommend similar products, whether in the same price range or product category. It is helpful to know the general quantity of the product your customers buy, too. If you know their purchasing patterns, you can keep well stocked on popular items, or recommend similar products. Understanding buying habits is important because you can set aside products that your customers usually purchase. Sending out mass emails to buyers, on occasion, is a smart idea. It lets them know you have them in mind and serves as a reminder that your product may be needed soon. When it comes to satisfying customers, knowledge of their expectations is very helpful. For instance, know whether a client is quality driven or would be just as happy with a lower cost generic offering. Offering a client, driven by quality, a less costly, lower-end product could be insulting.

Understanding the value of your clients’ time is a vital part to a smooth running business with a steady client base. In my business of selling golf balls, many of my customers are doctors, lawyers and small business owners who understand that time is money. When notified that one of these clients is coming to purchase my products, I prepare for a fast transaction. I always attempt to concisely and succinctly tell them what they are purchasing. One of my repeat customers, Robert, who I see on a bi-weekly basis, works in a professional setting and has very little “dead time” in his schedule. When we do find a time that is convenient for both of us, I am always well prepared upon his arrival, as I know he is coming from the city during his lunch break and will not have much time. I understand customers like Robert appreciate the quick, reliable service I provide and that this type of service is why they keep coming back despite the existence of cheaper competition.

Knowing where and how to market is arguably the single most important aspect of business. You need to understand how far your customers are willing to travel to buy your product. If you own a business that doesn’t ship its product and has a target audience of people within a forty-five minute to one-hour radius, it doesn’t make sense to market any further than that radius. If you are involved in a business that ships, it would make sense to start out advertising in the major cities of the country, and then, through trial-and-error, find out which places are generating the most traffic. After finding out which areas generate the most traffic, you should focus on advertising in just those areas where the return on your marketing dollar is greatest and grow your clientele in an established area. Also, it is important to know what brought new clients to you. Was it a certain advertisement that grabbed people’s attention or a special discount? Answers to these questions can really help you grow a business. There are many services which monitor website traffic. Such services can tell you where your Internet website visitors are geographically located and from what website source they learned about your business. If you are struggling to find an effective place to market your product, simply ask your current customers how they found out about you. If you can notice a pattern and understand where they are coming from, it could potentially help you to more effectively market and move on to the next level.

Knowledge about your customers is critical to the success of your business. If you know who they are, their likes and dislikes, buying patterns, location, etc. it can help immeasurably in making your business both more efficient and profitable.

Evan Ruccolo is an 11th grade student at St. John’s Preparatory School in Danvers, Massachusetts.  He is the proprietor of the Boston Area Golf Group.

I am 21 years old. I had a checking account with a local bank. I had an overdraft protection amount of $400. This was my first checking account and I didn’t know that there was an overdraft protection. They bank paid my overdrafts in the amount of $400. I never heard anything from the bank so I thought I had the money in my account.

Anyway, I closed my account out. Then, a few weeks later I received a letter from TransWorld Systems. This is a collection agency. I told them that I would pay $50 a month, because that was all I could pay. I told them that I didn’t have a job. They told me to go borrow the money and that I had to pay them $168 right now and to pay the rest off within two months. They said they wouldn’t accept my $50 a month and that if I sent it they would send it back. I told them that I was willing to pay this debt but I only had so much money.

If I send them $50 and they accept it, do they have to accept it the rest of the time?

Thanks for your answer,
Terry L.

Dear Terry,

They will accept your money! The collection agency may inform you that it is not an “acceptable payment arrangement,” but they will cash your check and credit your account.

I would not let them bully you into paying something that you cannot afford. The debt is not a huge amount and if you pay $50 a month, you will be paid off in less than a year.

They will probably not sue you, because it is not worth it. First of all, you are paying the money every month; they want to sue people who are not paying. And second, the account is less than $1,000. Most collection agencies will not sue for less than this.

Continue making your payments every month and request that they only contact you by mail.

Legally, they must abide, and then you will not have to deal with the phone calls.

Melissa Douros Dovco Collection Solutions, Inc.

As the owner of Dovco Collection Solutions, Inc., Melissa Douros uses her eight years of being a collections specialists to offer advice and answer questions pertaining to debt collection. With running her own successful collection agency, she seeks to keep debt collectors accountable for their actions and in line with the law.

Do YOU have a question for Melissa? Email her at melissa@dovcocs.com

Are you in debt? Try PayOff Live, the revolutionary new debt payment software. Pay off your debts in less than half the time! Take the Young Money Challenge and get six months free.

This list includes the degree and average salary:

Accounting      $48,993
Mechanical Engineering    $58,766
Electrical Engineering     $60,125
Computer Science     $61,407
Business Admin/Management  $44,944
Economics/Finance     $49,884
Information Sciences and Systems   $52,089
Computer Engineering    $61,738
Management Information Systems   $50,275
Marketing/Marketing Management   $43,325

 Source: National Association of Colleges and Employers Job Outlook 2009 and Summer 2009 Salary Survey

USAA, a diversified financial services group of companies, is among the leading providers of financial planning, insurance, investments, and banking products to members of the U.S. military and their families. For the past three years, BusinessWeek magazine ranked USAA among the top two “Customer Service Champs,” highlighting our legendary commitment of providing highly competitive financial products for approximately 7 million members. For more information about USAA, or to learn more about membership, visit usaa.com.

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Get information about going to school online.

YOUNG MONEY: What gave you the idea to start this business?
ANDREW SHURE: I established the company in 2002 because of my appreciation of the connection people share with their pets, and an aspiration to further foster these relationships. The nationwide presence of Shure Pets is coast to coast as a result of our passion for animals, competitive edge, work ethic and dedication to a “listen and learn” philosophy regarding both our Pet Consultants and customers. I have always been intrigued with people’s relationship with our pets, and I believe that Shure Pets empowers pet lovers to be their own boss in a profession they love as well.

YM: What surprised you the most?
AS: The high degree of interest and enthusiasm from the consultants that sign up. I’ve found that people are very interested, passionate, and dedicated to growing their business with Shure Pets and motivated to make as much money as they can through the process, all the while networking and having fun. Traditionally, consultants signing up were interested because of their passion for animals and their pets. In recent years however, they are still just as passionate but this interest has shifted to a different breed of consultants who are really looking to make as much money as they can and be successful with the company, which has been very surprising.

YM: How many employees do you have?
AS: We have five employees within the Shure Pets office that work for our company directly. Since we are a direct sales company, thousands of consultants conduct business through Shure Pets across the country, although they are not direct employees of Shure Pets, they are out their promoting the business and making money through their own endeavors every day.

YM: How do you get your name out there and get customers? What has been your most effective marketing technique or tactic?
AS: Network, network, network! Every time I meet someone new I mention my endeavors and the opportunity to become a Shure Pets consultant. I tell my consultants to carry catalogs with them, so they can give them to new friends, acquaintances, and even people in line at the grocery store. I also utilize Facebook and MySpace to meet new people and tell them about the business, and my consultants do the same. Many of my consultants have their own personal web pages as well. We create an interest virally, providing our consultants with the tools to encourage each to host parties and sponsor others, and as a result, the business keeps growing!

YM: What effect has the recession had on your business?
AS: In the current economic environment, I’ve found that people are seeking new and innovative ways to supplement their income, and direct selling provides people with a platform to make great money while networking and keeping busy. People are turning to direct selling because it can be immediate solution to earn supplemental income in a world where the job market is not secure or consistent. It also gives people the freedom to make their own schedule, with successful direct sellers getting as much out of the experience as they put in. The current economic situation is yielding people to be more adventurous and aggressive with their sales, pushing the envelope to deliver even greater results. Shure Pets offers a unique opportunity bridging the entrepreneur sprit with the growth of the pet category.

The number of independent Shure Pets representatives has increased throughout the last year, with the number of leads increasingly steadily over the course of 2009. More interestingly, the type of consultants signing up has changed drastically over the last year—originally, consultants were often looking for a fun hobby, and now they are really seeking a main or supplementary source of income during these dismal times. People are now asking, “How can I make money and be successful? What do I need to do to excel in direct sales?” And I give my consultants all the tools and insight they need to be successful, particularly telling them to be as active and involved in the community as possible, and they will see great results.

YM: If you could offer one piece of concrete advice to other people, what would it be?
AS: As far as direct sales is specifically concerned, success will follow if you believe in the product you’re selling. Convey a positive attitude, think outside the box when you’re considering who to market to and be honest and forthright. Learn as much as you can about the details and/or ingredients behind the products, have face-to-face conversations with people about the products you’re selling—it’s oftentimes more effective than email.  Touch everyone that you meet in your day—those you least expect to become a customer may very well surprise you.  Be personable, knowledgeable and friendly, and this business will be good to you.

YM: Is there anything else you would like our readers to know?
AS: Overall, becoming involved in direct sales through Shure Pets is a great way to network, meet new people, learn new skills, and prevent gaps on resumes that can turn-off future employers. Consultants can gain valuable work experience that will further their goals in the job search. Through Shure Pets, independent consultants can enjoy the advantages of working in direct sales while searching for a full time-job. This includes a flexible working schedule, gaining valuable sales experience to bolster your resume, and making money while preventing gaps on a resume. It is easy to become involved, and consultants can work on their own schedules and on their own time to make money during the interim. Consultants can take on other freelance jobs and work, have a flexible schedule when job interviews do arise, and work as much as their schedule allows.  

Are you interested in direct sales? For more information, visit: http://www.shurepets.com/

While researching communication techniques, I came across an article written by Amy Hertz for Oprah.com in November 2007 called “How to Get What You Want from Anyone.” Hertz discusses her own struggle with communication skills at the workplace and reveals that her epiphany came when she worked with communication coach, John Artise. After extensive research and field work with thousands of people, he identified four major communication types: Feelers, Sensors, Intuitors, and Thinkers. Artise teaches his clients to tune into a person’s communication style to identify ways to promote collaboration in the workplace. Cooperation/teamwork?

Here are some characteristics and communication tips for each style:

• Feelers: The person who uses language to express themselves and loves to help others. The feelers look for empathy to be reciprocated by acknowledging challenges he/she may have. At the same time they like to be reminded of their ability to help people in difficult situations. When you strike a balance of asking for help and at the same time showing appreciation, the feeler will be happy to assist you.
• Sensors: The person who likes to get it done and get it done fast. They often have short attention spans because they are thinking about the deadline at all times. Before approaching a sensor, have the information you want to share condensed into small pieces that can be understood quickly. Any idea you present should give them a feeling that you can help them reduce their workload.
• Thinkers: The person who is very logical, organized, and loves completing tasks. When there are errors in any projects or plans, you can win them over by letting them know that you will help to fix them. Thinkers like to see preciseness in the way others approach their research.
• Intuitors: The person who is all the about looking at the big picture concepts and the future but don’t necessarily want to be part of implementation. They are the idea people who want you to fill in the details because the idea is very clear in their own mind. Known to be impatient with questions, you should let the intuitor talk about ideas at length before questioning them. Then emphasize what you like about the ideas in order to get more details.

It’s not about using persuasion to get people to collaborate with you; it’s about meeting them where they are and building compromise by tapping into their communication and working style.

November Life Coach Contest

Are you looking for some free advice? Enter the Young Money/Life Coach Contest and win a free hour long session. For our November contest, please answer the question: “What was the best advice you were given to achieve your goals?”

Email your answer to Laura@corelifedesign.com and she will choose one random winner.

The winner will receive a 60 minute coaching session from Life and Career Coach, Laura Tirello of Core Life Design. The session will be conducted by telephone at a time agreed upon by the winner. The session will focus on an area in the client’s personal or professional life in which they are seeking improvement. The client will be coached through their particular issue and given tools that may help them continue to create successful outcomes in their personal and/or professional life. The winner will also receive an email summary of the session from Laura Tirello.

You have until December 1 to enter. Winners will be notified by email by December 5. Include a working email address with your answer.

*YoungMoney.com reserves the right to publish your answer. You may request to be kept anonymous.

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I typed “tuition help” into Google and was a little surprised when an ad for SeekingArrangements.com popped up. This site is site for Sugar Babies, Sugar Daddies & even Sugar Mommies.

According to the site a Sugar Baby is: “Attractive, ambitious & young. Sugar Babes are college students, aspiring actresses or someone just starting out. You seek a generous Benefactor to pamper, mentor and take care of you—perhaps to help you financially?”

Also according to the site, a Sugar Daddy is: “Rich and successful. Single or married, you have no time for games. You are looking to mentor or spoil someone special—perhaps a “personal secretary”? secret lover? student? or a mistress for an extra-marital affair?”

Read the rest on YoungMoneyTalks.com