How Progressive Tax Works in Practice

To say that the percentage of tax you pay is determined by the amount you earn can mislead people. Although an individual who earns $60,000 will pay a higher tax rate than somebody who earns $20,000 they will not pay this higher rate for the full $60,000.

So let’s imagine that the individual who earns $20,000 will pay tax at a rate of 10%. The individual who earns $60,000 might pay 10% for the first $20,000 of their money, 15% on their earnings from $20,000 to $40,000, and 20% on all the money they earn above $40,000. As you can see here then they will not be paying the 20% rate for all their income; only the amount over $40,000. Working out the tax that people need to pay can be a bit complicated if you are not good with mathematics. Here the individual earning $20,000 would pay $2,000 while the person earning $60,000 would pay $9,000.

The above examples only give an idea of how things work in practice. In reality things can be a lot more complicated. People will be able to reduce their tax bill due to different available deductions. They will also pay a lot of tax on taxable goods. In fact, over the course of a year the individual may pay a lot more in sales tax then they have paid in income tax.

The Arguments for and Against Progressive Tax

There is a lot of support for a progressive tax system because it is considered fair. Those individuals who earn more money should be expected to give more back to society. Those who are less well off just can’t afford to pay a lot of tax so they shouldn’t be expected to. It is in everyone’s interest to prevent poverty and hardship within a society. This isn’t only for moral reasons but also for practical ones too. When poverty is high it leads to increasing crime and social unrest.

Other people argue that those who earn more money should pay a lower rate of tax. This would still mean that they would be pay more tax than the average person, but considerably less than they are now. This type of system is viewed as fairer to the rich who can pay huge sums of money each year in tax. It is argued that by allowing these people to pay less tax they will be more productive and this will be better for the economy.

• You need to seek out those sellers that specialize in dealing with customers who have bad credit. You can find out about such dealerships online or from people you know. There are a lot of people in a similar situation so you are likely to find these car sellers in most urban areas.
• One thing that you should expect when looking for finance with bad credit is to be asked to pay a deposit. The amount this will be varies but it is unlikely that you will get any credit without providing this. If you are unable to put down sufficient funds now you may have to wait and save some money.
• All that the finance agent really wants to know is that you are good for any money they lend you. You need to be able to convince them that you will be able to make the repayments despite your bad credit rating. You do this by providing documentation of your income and available spare cash that you will use to pay off the car. You will be expected to provide documents such as payslips, bills, and proof of address.
• You will probably be asked to pay a higher interest rate than lenders with a good credit rating. Think about this carefully and make sure that the vehicle is going to be worth the expense.
• You will want to check out a few options before deciding on the best deal. Remember that if one finance company is prepared to give you a loan that there are sure to be others. If you just accept the first finance you are offered it will be unlikely that you have found the best deal.
• Never agree to any finance repayment scheme unless you are sure that you can live with it. Work on the amount of money you can afford to pay now and not on expectations of improved finances in the future. If you can’t afford the repayments on the car don’t ask for finance.
• You are more likely to get finance for a car that is considered high quality. This does not mean an expensive car but one that is considered dependable.

Deductible.  The deductible is the amount you are responsible for paying should you ever be in the situation to have to make an insurance claim.  Let’s say you get into a little fender bender.  If your deductible is $500, then you will have to pay the first $500 and the insurance company will have to pay everything after that.  A very simple way to lower your insurance bill is to raise your deductible.  That only makes sense, considering  a higher deductible for you means less out of pocket for your insurance company.

Medical coverage duplications.  If you have health insurance with medical coverage, then it is just not necessary for you to carry that same coverage through your automobile insurance company.  It’s not like the insurance companies are going to pay double your bill, and you shouldn’t either.

Choice of vehicle.  Drive a car that’s cheap to insure.  If your car is safe, easy (and inexpensive) to work on, and not too tempting to thieves, then you can expect to pay much less for your insurance than if you were to drive a European sports car, per se.

Low mileage.  Many insurance companies offer low mileage discounts, so try to drive your car less often.  Car pool, take public transportation, or even walk or ride a bicycle when possible to lower both your car insurance bill and your carbon footprint.

Safety gear.  The more safety features your car has, the less expensive your insurance bill will be.  This pertains to air bags, anti-lock brakes, automatic seatbelts, and car alarms.

One carrier.  You can often get a discount on insurance by purchasing all of your insurance needs – homeowner’s, health, life, and auto – through one carrier.

Special discounts.  Ask your insurance company about any and all special discounts that they offer.  You might be surprised at what you qualify for, for being a student (or a parent of a student), a senior, a safe driver or more.

There are many ways to cut back on your auto insurance bill.  Call your insurance carrier today to see how many of these tips apply to you.

About the Author: Dona Collins is a freelance writer with a passion for saving money. When she’s not writing about personal finance she can be found teaching college graduates how to use IT staffing services and agencies to find new work.

So what is a Hardship Withdrawal?

The option to make a hardship withdrawal is not available with every 401k plan. There are also usually restrictions as to the circumstances you will be able to do this. If you just want a bit of cash to go on holiday with or to buy a car it is unlikely that the withdrawal will be permissible. Therefore you will need to check with your plan to see under what conditions you can make such a withdrawal. You are likely to find that the rules governing such early withdrawals are quite strict. The rules governing this type of transaction are usually referred to as safe harbor rules; it means that you need to meet specific criteria to qualify.

Safe Harbor Rules

The usual safe harbor rules that apply to hardship withdrawals include the following:

• If you or a dependent becomes sick and you are unable to pay medical expenses then this may mean that you qualify for a withdrawal under the safe harbor rules
• If you are about to be evicted from your home because of non-payment of rent or mortgage then this too could qualify you for a withdrawal.
• Funeral expenses are another possible justification
• If there has been a natural disaster and your home has been damaged then this too would be a good reason
• If you need money to pay for secondary education for one of your dependents then you may qualify for a hardship withdrawal

If you do manage to get a hardship withdrawal you will not be allowed to contribute to the plan again for six months after the withdrawal. This can be problematic because of the long term consequences and will put people off making such a withdrawal. The 401k companies introduce the six month rule because of its effectiveness in discouraging people from making such withdrawals.

Types of Unearned Income

As well as the money received for unfinished work there are also other ways that people can have unearned incoming including:

• If you have made investments and these return a dividend then this can be classified as unearned income.  This includes foreign exchange deals and profits from shares and commodities. It also includes any interest you have made from your savings or checking account.
• If you own some property and are currently renting it to another individual then this too can be considered unearned income. This type of money can also be referred to as indirect income. The fact that the owner of the property isn’t actually doing something to get the money is why it is referred to as unearned.
• Alimony and other types of support can also be classified as unearned
• Gifts could also fall into this category
• Money obtained as a prize for winning something

These are just some examples of unearned income and there are many more. It is always a good idea to consider any money you get from anywhere other than work as unearned income.

Things to Consider with Unearned Income

Even though this money is unearned it still needs to be declared to the tax people. On the tax form there is actually a category for earned and unearned money. Not only does this money need to be declared but it is usually taxable as well. This tends to be the same amount of tax as you pay on your regular earned income – although this can vary between different jurisdictions. In some countries they can even tax unearned income at a much higher rate because it is felt that the individual did not have to work hard to get it.

Most individuals will usually have at least some unearned income. This might only be something like a bit of interest from a savings account. It is easy to forget about this when it comes to paying taxes, but failing to declare it could lead to problems later on. There are also certain types of unearned income where there won’t be an expectation to pay any tax. Some prizes and awards may be given tax free, but it is important to always be sure about where you stand in regard to tax. The information you need is easy to obtain on the web.

So What is a Cashbook?

In its simplest form a cashbook is a hard cover notebook that contains a number of blank columns. You will find this type of note book on sale in any stationary shop and they are quite cheap to buy. It is up to the individual how much information they wish to have in this book, but the different columns allow for the recording of different information. The most usual way of doing things is to have a date, an amount of money which is either expenditure or income, a description of where they money is coming from or going to, and a running balance of cash. It is possible to use the columns for much more information and a lot will depend on how closely you wish to monitor your money.

As well as the traditional paper cashbook it is also possible to find computer software that can do the exact same function. Some people will use a program like Excel to record this type of information, but there are also specially created cashbook programs. Some of this software allows for advanced functions which really gives you a clear picture of your income and expenditure. If you like graphs and diagrams then these computer programs can be the ideal way to keep an eye on your personal finances. Some people also find it easier to record this type of information on the computer; although there are others who still prefer the paper method. These software programs are not only good for personal finance but will work well for the individual who is trying to manage the finances of their small business.

The Benefits of a Cashbook

A cashbook can be a great asset for the individual or small business owner. The reason why a lot of people fall into trouble with their personal finances is that they haven’t been keeping a close eye on things. The mere fact of recording income and expenditure ensures that we always know what is going on with our money. We can also get to see patterns and find it easier to plan for future outgoings. People tend to be a lot more careful with their money when they are keeping records. It is harder to justify unnecessary expenses when it is there in black and white or on the computer screen.

A cashbook is a simple way for people to keep an eye on their finances. This type of accounting is simple to learn and easy to maintain. Once people get into the habit they will just do it automatically and reap the rewards.

When you find yourself unable to meet your repayment commitments, you will find that there is considerable pressure on you to try and make the required repayments or to find some other solution to the problem.

Loan Forbearance

Loan forbearance is one of the ways that can help you meet the commitments that you’ve made and take some of the pressure off you. It is important to know that not all debtors will qualify for forbearance and therefore you need to make sure that you meet the requirements of forbearance.

Forbearance happens when you are given an extra amount of time to pay off the loan, or you are given lessened repayments over a period of time. Although there is also deferment, forbearance is different as you are not automatically entitled to it. You need to apply for forbearance and there is no guarantee that you will be offered the opportunity to implement forbearance.

How it works

In the application process there are several things that you need to prove. The first few things have to do with your personal situation. Are you doing a residency in either a hospital or for a social services institution? What are your commitments in terms of a federal study loan? What other conditions can you offer to motivate why you should be granted a loan forbearance?

Once the loan forbearance has been granted, you will negotiate around the repayment period, the interest that your loan will accrue and the amount of your reduced payment. If you at any time do not comply with this agreement, there is a possibility that the forbearance can be forfeited and your loan becomes immediately payable.

Loan forbearance should not be taken on lightly, as it may affect your credit rating and it may also cost you more money in the long run as interest still accrues on the capital amount. If you can’t pay the interest as it accrues, it becomes part of the capital amount that you need to pay and interest now accrues on that as well. This is called compound interest.

Conclusion

No matter what your situation, it is always better to take loans out that you know will not jeopardize your financial situation. If you know that it is going to be a stretch to pay the loan back, you probably need to look at a lesser amount, or try a different option all together.

Loan forbearance is often just a lengthening of your agony. It is far better to be either debt free, or to be responsible with the debt that you incur. Repayment is a crucial part of becoming debt free.

The Need for POD Accounts

Sometimes there can be a long time period before family members can get access to money in the deceased person’s account. This can be a real problem because when somebody dies there are usually a lot of expenses. The money has to come from somewhere and this all puts added stress on those who are left behind. The nice thing about POD accounts is that getting access to the available funds is a lot easier. So long as there is enough in the account there will be money available to pay any immediate costs.

How POD Accounts Work

Payable on death accounts are also sometimes referred to as Totten trusts. They are set up by a bank account holder who chooses an individual to be their beneficiary. In most banks setting up this type of account will be fairly straightforward. It just involves deciding on which of your accounts will be eligible for the Payable on Death account. The whole process usually involves filling out a form and that’s all that is required. If you die then this means that the beneficiary will have automatic access to the accounts that are tied to the Payable on death account.

The Difference between POD Accounts and Joint Accounts

A joint account is one where two people will be able to access the accounts at any time. With the payable on death account the other party will not be allowed to withdraw from the account so long as account holder is still alive. Most joint accounts are held by couples, but there are some couples who prefer to have separate accounts. Using the payable on death accounts means that partners can have separate accounts, but still be able to quickly get hold of the cash in each other’s accounts should the holder pass away.

Problems with POD Accounts

Although the whole point of payable upon death accounts is to allow family member easy access to cash there can be problems. In some situations the family won’t be able to get the money quickly because of legal holdups. The most usual reason for such a delay will be tax issues; in particular estate tax. In some parts of the US it will be necessary to pay estate tax before the money can be touched.

While there may occasionally be a hold up with payments from a POD account it is generally a good idea to have one. It will certainly be easier for family to gain access to the money then with a regular account.

What is Child Support?

It is usual for the amount of child support that needs to be paid by the absent parent to be decided by a judge. Once this amount has been stipulated it then becomes a legal requirement to pay it. This money is used for the support and financial care of the child. This money is not only always awarded to the mother of the child; in many instances it can be awarded to the father with the mother required to provide child support.  Child support only refers to financial support and not emotional or spiritual support. The court will use a formula to determine how much child support needs to be paid; each case is unique and a fair amount will be decided.

What Can Be Done if a Parent Refuses to Pay Child Support?

In a lot of cases the parent who has been told to pay child support they may refuse. This could be because they feel the order if unfair or because they just don’t feel like they can afford to pay. When a parent refuses to pay child support it can cause a lot of problems for the parent who is relying on this money.

If a parent refuses to pay child support there can be a number of options. The first action that most parents will take is to document the non-payment; this is down by informing the court where the child custody order was issued. It is then up to the court to work with both parents to reach an amicable solution. In some instances the parent who is refusing to pay child support may be found in contempt of court and legal proceedings may commence to get the money back. The court can take a number of measures to get the money back including taking it directly from a parents wages. In some cases the deadbeat parent can be put in jail.

Dealing with the problem of a parent who refuses to pay child support through the courts can be slow. The process is generally free, but it can take a long time before the parent caring for the child sees any money. This is why some parents will turn to a private agency in order to hurry things along. This type of service will usually cost a bit of money but it may well be worth it if it means that child support is obtained.

How IRA Works

The way an IRA works will depend on the exact type. The traditional Individual Retirement Account allows you to contribute anything up to $4000 each year and you won’t have to pay tax on this amount. In order to qualify for the traditional IRA though you will need to be at least 50 years old. When we say that this type of account is tax deductable we mean that you will be able to deduct the amount you put in your IRA from your yearly income; thus ensuring that you pay less tax. If you were to remove this money though it would then become subject to income tax. In fact if you withdraw the money before you reach sixty years of age (before 59 ½ years old to be exact) you will need to pay an additional penalty of 10% of the amount you withdraw. There may be certain circumstances where you can escape this penalty; for instance if you wish to purchase a home or pay for your child’s further education.

As well as the traditional Individual Retirement Account there are also other options and one of the most popular of these is the Roth IRA. This type of account is not tax deductable but it is exempt from many taxes. The way that the Roth works is that instead of getting tax deductions during the year of saving the money there is a tax break provided during retirement when the money is to be withdrawn. This type of IRA isn’t suitable for everyone but it is particularly liked by the middle classes.

There are also other Individual Retirement Account’s such as the SEP IRA where the employer is able to put money into the account; this is usually instead of a pension fund. A self directed IRA is an account where directions are given to make certain investments with the money in the account. A SIMPLE IRA is where both the individual and their employer can put money in the account and this will later be used as the basis for retirement income.

How to Choose an IRA

Choosing an IRA can be difficult because there are a few options. In order to make the best decision it is often advisable to seek the opinion of an expert; a financial planner can be ideal for this type of advice. It is important to understand the limitations as well as the advantageous of any Individual Retirement Account you are considering. If you pay money into this type of account but find that you need to withdraw it again before retirement you may end up paying a high price.