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That’s probably the most ridiculous question I’ve asked. We’re far enough away from my April Fool’s day article that you know it’s not just an old article. Before I get into that question, though, I have to add the standard disclosure for anything involving macroeconomics these days. I’m going to try not to be too political. However, how taxes fund our country’s security and services will always be inherently political. I know some people who […]
This blog post was originally published on March 28th, 2017. It has recently been updated to give the latest information on how to file for a tax extension, including relevant links. The due date for your income tax return is coming up…fast. It’s less than a week away. But that doesn’t mean you’re ready to file it. Maybe you don’t have all the information you need to complete your tax return. Or you just haven’t […]
Don’t miss an episode of our podcast, Personal Finance for Long-Term Investors. Tune in on Apple, Spotify, or wherever you listen to podcasts. Here’s the latest episode: If you’re looking for a real-world laboratory to understand “behavioral finance,” then tax season might be the perfect choice. Behavioral finance is the broad term used to describe just how irrational humans can be, especially how our emotions and biases influence our choices in personal finance and investing. Adam Smith (the father of economics) assumed that people would behave rationally in their own best interests. Behavioral finance begs to differ. As we approach the April 15th tax deadline here in the US, I’m seeing some fun examples of behavioral finance in the tax world. Let me share some examples with you. The Framing Effect Lots of people love tax refunds and hate owing more in taxes. One is receiving money. The other is paying money. Surely receiving money is just better. But is this rational? Your total tax bill is a function of your income streams, your deductions, and your tax credits. Throughout the year, most of us pre-pay our annual tax bill via withholding. With each paycheck, a portion is withheld to pay taxes. Then, when you “do your taxes,” you plug in all your numbers to see if your withholding throughout the year actually covered your tax bill in full. If you withheld too much, you get a refund. If you withheld too little, you owe more. But in either case, your total bill is identical! The refund vs. owing is simply a way to correct your withholding, which is rarely ever spot on. Example: A couple filing Jointly with $200,000 in adjusted gross income would have an Federal income tax bill of ~$27,000 If they withheld $30,000 throughout the year, they would receive a $3000 refund after filing their taxes. If they withheld $25,000 through the year, they would owe an additional $2000 after filing their taxes. Anyway you cut the cake, this family paid $27,000 to the IRS The love of refunds and the hate of owing more…is irrational! Mental Accounting Mental accounting is a term coined by Nobel economist Richard Thaler. It occurs when people categorize and track financial decisions by assigning money to subjective “accounts” based on its source or its intended use. For example: “I just got my tax refund – free money! – so I’m going to go out and buy some Lotto tickets!” Remember: money is fungible. Whether it came to you via a paycheck or a tax refund or a gift from grandma… Whether you need it to buy baby formula or a new pair of basketball sneakers… The source or intended use of a dollar shouldn’t be a reason to treat it carefully vs. carelessly. Loss Aversion Loss aversion
For those of us who travel infrequently, taking a flight can be a budget minefield. It’s not just the constantly rising price of airline tickets, either. If you don’t plan ahead the next time you fly to Aunt Sylvia’s for the holidays, you may find that the associated costs of flying — from checked luggage to parking to food — may just put a big hole in your travel budget. Here are the ways frequent […]
In the world of information security, the “CIA triad” is often used as a framework of objectives that must be met. (To be clear, it’s a mnemonic device and has nothing to do with the Central Intelligence Agency.) Confidentiality: access to data should be limited to the appropriate parties. Integrity: your data is accurate and has not been tampered with. Availability: you have access to the data when you need it. When most of us […]
One of the most underappreciated components in dividend investing is tax efficiency. That’s why Reader B talked about it at length about it in my Q & A with him. Therefore, understanding how dividend income … Read more
Over the past 19 years of being a stay-at-home-mom, I’ve gathered quite a few tricks for saving money on groceries. We’ve had times where we needed to squeeze every last penny out of our grocery budget and other times when we had a more wiggle room and could even buy organic. I feel like we’veKeep Reading Coupon Tips for Beginners was originally published on WhatMommyDoes.com
Couponing, as my regular readers will know, used to be a slight addiction for me. I had the binder going, I subscribed to four newspapers (yes, 4!), and I set aside hours per week to scour for deals and steals. I’m proud to say I’m now a reformed coupon queen. But I don’t regret itKeep Reading How to Triple Stack Coupons & Apps for Maximum Grocery Savings was originally published on WhatMommyDoes.com