Right about now is the time you’re probably chomping at the bit to figure out any and every deduction and write-off you possibly can in order to not pay an exorbitant amount of taxes this year. Business expenses, dependents, first-time home purchases … these are all things most people are already aware can help save them some cash when tax time rolls around. One thing some people might not consider, though, is how their retirement account — and specifically their IRA — can help reduce their tax obligations.
When it comes to retirement accounts, the gist with traditional IRAs is that an account holder gets to invest her money now and avoid paying any taxes on that money until the time when she takes that money out later.
More specifically, here’s how a traditional IRA works when it comes to:
Returns on your investment: For things like interest, dividends and capital gains, someone with a traditional IRA isn’t required to pay taxes right away, which means they might be able to save more (and earn more in interest) over the long haul than they could have if they had to account for paying taxes on top of their savings efforts.
Your current income: Depending on your income, marginal tax bracket and the amount of money you’re able to put into your IRA this year, you might receive a nice little deduction on the amount of earned income you claim for taxes. This is because you aren’t required to pay any income taxes on that amount until you remove the money from your IRA. In most cases, in order to qualify for this type of deduction you must not have access to an employer-sponsored retirement plan. (So someone who is self-employed, for example, would be eligible for this benefit.) The exception would be if you make less than $61,000 in any one year. In that case, you would be able to deduct your IRA contributions regardless of whether or not you have access to another retirement account through work.
All of this is to basically say, if at all possible, it’s always a fiscally responsible idea to put as much as possible (the actual amount you can put away each year changes and varies based on income, check with the IRS site to be sure) away in an IRA. This will not only help you build a more solid financial future for retirement, but it will also help you out when it comes to taxes in the present day. We like to call that a win-win situation, and it’s pretty cool when that happens.
The Senate’s bill will go to the full Senate for a vote the week following the Thanksgiving holiday. At least 52 senators must vote in favor of the bill’s passing to move it forward. If no Democrats vote for the bill, Republicans can only stand to lose two votes.
The vote was made only hours after the House version of the tax bill passed by a 227-205 chamber vote, just before the chamber’s Thanksgiving holiday. No Democrats backed the bill.
From the looks of it, the Senate isn’t exactly on the same page with their colleagues in the House of Representatives. The plan bears the same name as the House’s bill, but the Senate’s version of the Tax Cut and Jobs Act diverges from the House’s plan on a number of individual and business tax reforms.
Most notably, the proposed Senate Republican plan would delay cutting the corporate tax rate by one year, include more tax brackets than the House plan and retain the mortgage interest deduction, among a few other popular tax breaks.
The bills do share some things in common. For example, neither version calls for any changes in workers’ 401(k) tax contribution limits. And both tax plans would repeal the alternative minimum tax and maintain the charitable contribution deduction. Both plans also repeal personal exemptions, but double the standard income tax deduction for individuals, married couples and single parents.
Complying with a Senate rule known as the Byrd rule is an issue. Under that rule, during the legislative reconciliation process, senators can move to block legislation if, among other reasons, it would possibly mean a significant increase in the federal deficit beyond a 10-year term.
If the Senate is able to pass its tax bill, the differences between the two plans may lead to clashes over tax policy as a pressured Congress tries to get a single tax reform bill to President Donald Trump’s desk by Christmas.
Here is a quick breakdown of the major differences between the two plans. Read beyond the table for further detail.
Under the Senate plan, classroom
teachers can still deduct expenses
up to $250.
The House plan would cut the deduction.
Neither the Senate nor the House
plan would reduce contribution
limits for most 401(k) savers.
However, the senate plan would
not allow employees earning
over $500,000 to make
Income tax brackets
The Senate’s plan maintains the tax system’s seven tax brackets—10%, 12%, 22.5%, 25%, 32.5%, 35% and 38.5% — as opposed to the House’s four. The senate plan notably maintains the lowest tax rate at 10 percent and modifies all but one other. The proposal also adjusts qualifying income levels.
The Senate plan would reduce the income tax on the nation’s highest earners to 38.5% from the current 39.6%. Individuals and heads of households earning more than $500,000, and married couples earning more than $1 million would pay the highest rate. The proposed income thresholds for the Senate’s plan are pictured below.
Alternatively, the House bill proposes four income brackets of 12%, 25%, 35%, and 39.6%.
The state and local tax deduction
The Senate plan fully eliminates the State and Local Tax, or SALT, deduction. Nearly one third of Americans took the deduction in 2015, according to the Tax Policy Center, so the repeal is likely to ruffle some feathers. While the House tax plan reduced deductions for state and local taxes, it still allowed Americans to deduct up to $10,000 in property taxes. The senate plan would completely get rid of the SALT deduction, including the deduction for property taxes.
Some critics fear eliminating the SALT deduction would disproportionately affect earners in states with high taxes, like New York and California. Across the nation, just six states— California, New York, New Jersey, Illinois, Texas, and Pennsylvania— comprised more than half of the value of all state and local tax deduction claims in 2014.
The mortgage interest deduction
Nothing would change under the Senate’s plan. Americans would still be able to deduct the amount of interest paid on up to the first $1 million of mortgage debt under the Senate tax plan. The House tax plan, on the other hand, had proposed to lower the threshold for the mortgage interest deduction to $500,000.
Only about six percent of new homes are valued at more than $500,000, according to an August 2017 report by the United for Homes campaign. The group argues lowering the cap would have “virtually no effect on homeownership rates.”
Corporate tax rate
The Senate plan still reduces the corporate tax rate from 35% to 20%, but corporations won’t get a break until 2019, when the Senate plan phases in the reduction. On the other hand, the House Plan would have initiated the reduced rate in 2018.
The decision to phase in the cut was likely made because a delayed corporate tax cut would make it easier for the Senate to reach its goal of passing a tax bill that does not increase the deficit by more than $1.5 trillion over the next decade.
The estate tax
The estate tax exemption is doubled from $5.49 million in assets ($10.98 million for married couples) onto heirs under both the Senate and House bills.
The House plan doesn’t get rid of the estate tax immediately. The House’s proposal also doubles the exclusion amount to $10 million, but eliminates the estate tax after 2023. The estate tax affects only the estates of the wealthiest 0.2 percent of Americans, according to the Center of Budget and Policy Priorities.
Adoption and child tax credits
Unlike the initial House tax plan, the Senate plan proposes keep some popular tax breaks. The plan proposes to retain the Adoption Tax Credit, which allows families to receive a tax credit for all qualifying adoption expenses up to $13,570. The Senate plan also slightly bumps up a proposed child tax credit compared to the House plan. While the House plan increased the credit from $1000 to $1600, the Senate plan proposes raising the credit slightly more, to $1650.
Student loan interest and medical expenses deduction
Under Senate plan, students will still be able to deduct interest paid on student loans up to $2500. Furthermore, taxpayers would still be able to claim medical expenses as a deduction if they account for over 7.5 or 10% of their income. This is a departure from the House plan, which would have eliminated both.
Pass through business
The Senate tax plan establishes a 17.4 percent deduction for pass through businesses like sole proprietorships, S corporations, and partnerships.The HIll reports the deduction would lower the effective tax rate on the highest earning small businesses to just over 30 percent, according to a Senate Finance aide. The deduction would only apply to service businesses based in the U.S
The House plan establishes a 25 percent tax rate for pass-through companies. But only 30 percent of the business’s revenue is subject to that rate. The remaining 70 percent would be taxed at the individual tax rate. The House amended the bill Thursday to create a new 9 percent tax rate for the first $75,000 of income of a married active owner with less than $150,000 of pass-through income.
What’s next for GOP tax reform?
The future is unclear for either proposed tax plan. The two chambers will likely need to compromise over differences in the coming weeks to get a bill passed and to the President’s desk by year’s end.
Thursday’s news came just as the House Ways and Means Committee finalized its own bill after announcing two amendments, with a vote expected next week.
By now, many consumers know to automatically delete suspicious emails or social media messages requesting wire transfers from Nigerian princes or scammers posing as long-lost relatives.
Even so, people have lost millions of dollars to fraudsters via wire transfer scams. If you’ve fallen victim to a wire transfer scam involving Western Union, you might want to pay attention to this news.
Consumers now can file claims to recoup money lost when scammers told them to pay via Western Union’s money transfer system, as part of a $586 million federal settlement with the company that was announced this week.
The deadline to file claims with the U.S. Department of Justice is Feb. 12, 2018. The settlement applies to scams executed through Western Union between Jan. 1, 2004, and Jan. 19, 2017.
“American consumers lost money while Western Union looked the other way,” Federal Trade Commission (FTC) Acting Chairman Maureen K. Ohlhausen said this week in a press release. “We’re pleased to start the process that will get that money back into consumers’ rightful hands.”
The settlement stemmed from a January 2017 complaint against the company by the FTC, which said that lax security policies have made the popular money transfer service a way for scammers to defraud consumers.
The case was investigated with the assistance of the Department of Justice, the Postal Inspection Service, the FBI and several local law enforcement agencies.
“Returning forfeited funds to these victims and other victims of crime is one of the department’s highest priorities,” Acting Assistant Attorney General Kenneth A. Blanco, of the Justice Department’s Criminal Division, said in a Nov. 13 statement.
Western Union also has agreed to implement an antifraud program and enhance its policies on federal compliance obligations.
Internet purchase scams: You paid for, but never received, things you bought online.
Prize promotion scams: You were told you won a sweepstakes and would receive your winnings in exchange for payment, but you never received any prize.
Family member scams: You sent money to someone who was pretending to be a relative in urgent need of money.
Loan scams: You paid upfront fees for a loan, but did not get the promised funds.
Online dating scams: You sent money to someone who created a fake profile on a dating or social networking site.
How do I submit a claim?
If you’ve already reported your losses to Western Union, the FTC or a government agency, you may receive a form in the mail from Gilardi & Co., the claims administrator hired by Justice to handle refunds. This form will include a claim ID and a PIN that you’ll need when filing your claim online at www.ftc.gov/wu.
You also can file a claim if you did not receive a form in the mail. Visit www.ftc.gov/wu and click on the link indicating that you did not receive a claim form and follow the instructions to complete your filing.
If you sent money to a scammer via Western Union, file a claim even if you don’t have any paperwork, according to the Justice Department. You may still be eligible for a refund.
You can file more than one claim, if you were a scam victim more than once.
Will I definitely get my money back?
Hard to say. Each claim will be verified by the Justice Department. If your claim is verified, the amount you get will depend on how much you lost and the total number of consumers who submit valid claims.
If verified, you’re only entitled to a refund of the actual amount you transferred through Western Union, according to the Justice Department. Other expenses, like fees or transfers sent through other companies, will not be included in your refund.
Congress is working around the clock to get a new tax bill to President Trump’s desk before the year is out. In addition to a host of tax cuts, both the Senate and House GOP tax plans include several proposals that could make saving and paying for higher education more costly for families. Considering Americans hold a collective $1.36 trillion in student loan debt and 11.2 percent of that balance is either delinquent or in default that’s not-so-good news for millions of Americans.
Both plans include proposed ideas that could impact how students and families finance higher education. The House plan, for instance, includes proposed provisions that would affect the benefits parents, students and school employees like graduate students receive, which could ultimately impact the price students pay.
In a Nov. 6 letter to the House Ways and Means Committee opposing the provisions, the American Council on Education and 50 other higher education associations states that “the committee’s summary of the bill showed that its provisions would increase the cost to students attending college by more than $65 billion between 2018 and 2027.” They reaffirmed their opposition in a Nov.15 letter.
The council and other higher education associations weren’t satisfied with the Senate’s version of the Tax Cuts and Jobs Act, either. In a Nov. 14 letter, the council says it’s pleased the Senate bill retains some student benefits eliminated in the House version, but remains concerned about other positions that it says would ultimately make attaining a college education more expensive and “erode the financial stability of public and private, two-year and four-year colleges and universities.”
Where are the bills now?
The House version of the Tax Cuts and Jobs Act passed by a 227-205 vote on Nov. 16, just before the chamber’s Thanksgiving holiday. No Democrats backed the bill.
The Senate Committee on Finance approved The Senate’s version of the bill late November 16 with a 14-12 vote along party lines. The bill will go to full Senate for a vote the week following the Thanksgiving holiday. At least 52 senators must vote in favor of the bill’s passing to move it forward. If no Democrats vote for the bill, Republicans can only stand to lose two votes.
If the Senate is able to pass its tax bill, the two chambers would need to hash out many differences between the proposed tax plans before sending legislation to the president’s desk.
In its plan, the Senate committee says the goal of tax reform in relation to education is to simplify education tax benefits. MagnifyMoney took a look at a few of the major proposed changes to the tax code that would impact college affordability most.
Streamline tax credits
The House tax bill proposes to repeal the Hope Scholarship Credit and Lifetime Learning Credit while slightly expanding the American Opportunity Tax Credit. The new American Opportunity Tax Credit (AOTC) would credit the first $2,000 of higher education expenses (like tuition, fees and course materials) and offer a 25 percent tax credit for the next $2,000 of higher education expenses. That’s the same as it is now, with one addition: The new AOTC also offers a maximum $500 credit for fifth-year students.
The bigger change is the elimination of the other credits. Currently, if students don’t elect the American Opportunity Tax Credit, they can instead claim the Hope Scholarship Credit for expenses up to $1,500 credit applied to tuition and fees during the first two years of education; or, they may choose the Lifetime Learning Credit that awards up to 20 percent of the first $10,000 of qualified education expenses for an unlimited number of years.
Basically, in creating the new American Opportunity Tax Credit, the House bill eliminates the tax benefit for nontraditional, part-time, or graduate students who may spend longer than five years in the pursuit of a higher-ed degree. According to the Joint Committee on Taxation, consolidating the AOTC would increase tax revenue by $17.5 billion from 2018 to 2027, and increase spending by $0.2 billion over the same period.
The Senate bill does not change any of these credits.
Make tuition reductions taxable
The House bill proposes eliminating a tax exclusion for qualified tuition reductions, which allows college and university employees who receive discounted tuition to omit the reduction from their taxable income.
A repeal would generally increase the taxable income for many campus employees. Most notably, eliminating the exclusion would negatively impact graduate students students who, under the House’s proposed tax bill, would have any waived tuition added to their taxable income.
Many graduate students receive a stipend in exchange for work done for the university, like teaching courses or working on research projects. The stipend offsets student’s overall cost of attendance and may be worth tens of thousands of dollars. As part of the package, many students see all or part of their tuition waived.
Students already pay taxes on the stipend. Under the House tax plan, students would have to report the waived tuition as income, too, although they never actually see the funds. Since a year’s worth of a graduate education can cost tens of thousands of dollars, the addition could move the student up into higher tax brackets and significantly increase the amount of income tax they have to pay.
The Senate bill doesn’t alter the exclusion.
Eliminate the student loan interest deduction
Under the House tax bill, students who made payments on their federal or private student loans during the tax year would no longer be able to deduct interest they paid on the loans.
Current tax code allows those repaying student loans to deduct up to $2,500 of student loan interest paid each year. To claim the deduction, a taxpayer cannot earn more than $80,000 ($160,00 for married couples filing jointly). The deduction is reduced based on income for earners above $65,000, up to an $80,000 limit. (The phaseout is between $130,000 and $160,000 who are married and filing joint returns.)
Nearly 12 million Americans were spared paying an average $1,068 when they were credited with the deduction in 2014, according to the Center for American Progress, an independent nonpartisan policy institute. If a student turns to student loans or other expensive borrowing options to make up for the deduction, he or she could experience more financial strain after graduation.
The Senate tax bill retains the student loan interest deduction.
Repeal the tax exclusion for employer-provided educational assistance
Some employers provide workers educational assistance to help deflect the cost of earning a degree or completing continuing education courses at the undergraduate or graduate level. Currently, Americans receiving such assistance are able to exclude up to $5,250 of it from their taxable income.
Under the House tax plan, the education-related funds employees receive would be taxed as income, increasing the amount some would pay in taxes if they enroll in such a program.
A spokesperson for American Student Assistance says if the final tax bill includes the repeal, it may point to a bleak future for the spread of student loan repayment assistance benefits, currently offered by only 4 percent of American companies.
Take care not to confuse education assistance with another, growing employer benefit: student loan repayment assistance. The student loan repayment benefit is new and structured differently from company to company, but generally, it grants some employees money to help repay their student loans.
The Senate plan does not repeal the employer-provided educational assistance exclusion.
Update: House Republicans have passed a sweeping tax bill that would cut both corporate and income taxes by $1.5 trillion, bringing the country one step closer to the biggest taxation overhaul in decades.
The House passed the Tax Cuts and Jobs Act in a 227-205 vote, bringing President Trump nearer to his first major legislative accomplishment since he took office in January.
“Today’s vote brings America one step closer to historic tax cuts that will allow Americans to keep more of their hard-earned money,” Ronna McDaniel, chairwoman of the Republican National Committee, said in a statement shortly after the vote. “President Trump and Republicans in Congress are keeping their promise to give workers a raise, support American businesses and grow our economy.”
Some experts say the whopping $1.5 trillion tax cut will benefit many taxpayers. But will some lose out? And what does it all mean for you?
As expected, in order to pay for the tax cuts, lawmakers chose to get rid of or limit many key tax breaks. Some of the items on the chopping block under the Republicans’ plan, which include personal exemptions, deductions for medical expenses, paid student loan interest and paid mortgage interest, could impact millions of Americans.
“It really depends on the individual situation whether they’ll be more helped or hurt,” Mark Luscombe, principal federal tax analyst at Wolters Kluwer, told MagnifyMoney. You can read the entire bill here.
What happens next?
The bill will move for a vote in the Senate, which hasn’t yet voted on its own version of a tax cut plan. Trump has called for lawmakers to pass one cohesive bill by Christmas. Republican lawmakers would like to see the reforms take effect in 2018.
But the tax overhaul has a long way to go. The House and Senate proposals differ on a number of major provisions, which will make it tough for the two bills to be reconciled and spur clashes over tax policy. To see what the Senate has in store, check out this post.
Keep reading for a summary of the tax changes to come and how they might affect your bottom line:
The bill compressed the current seven-tier tax system into four tax brackets: 12 , 25, 35 and 39.6 percent. The top individual tax rate remains unchanged at 39.6 percent.
The new bottom bracket of 12 percent is higher than the current bottom bracket of 10 percent but replaces the 15 percent bracket as well. The proposal will also push some in the current 33 percent bracket into the 35 percent. So there will be some shuffling, and its impact on you depends on your earnings picture.
Here’s the breakdown of brackets for married filers:
The income threshold for the 25 percent bracket moves to $90,000, up from $75,900 for married couples. The 35 percent bracket starts at $260,000, and the top tax rate starts at $1 million.
Next, let’s look at tax deductions. Under the plan, some would increase.
Deductions that would be increased
Under the House plan, the standard deduction would be almost doubled. The standard deduction is a dollar amount that reduces the amount of income on which you are taxed.
For individuals, the standard deduction would rise from $6,350 to $12,000. For married couples, it would go up from $12,700 to $24,000.
But personal exemptions, currently $4,050 per person, would now be included in the standard deduction, so the actual increase isn’t as big as it seems at first blush. Under the current tax code, taxpayers could claim one personal exemption for themselves and one for a spouse.
The change in personal exemption will likely offset the benefits from the standard deduction for many to some extent. “If they are doubling the standard deduction but eliminating the personal exemption, a single parent with a number of kids could actually be hurt by that on a net basis,” Luscombe said.
Child tax credit
The House bill also proposes to expand the child tax credit, which allows parents to offset expenses of raising children, from $1,000 to $1,600.
The bill also will provide a credit of $300 for each parent with a dependent who is not a child, such as a grandfather or a college student. Those $300 credits expire in five years.
Those credits are seen by advocates as helping some families make up for the loss of personal exemptions.
401(k) contribution limits
Unlike what was suggested in an earlier round of rumors, the Republicans did not call for reducing the contribution limits for 401(k) accounts. Phew.
For 2018, workers under age 59.5 can contribute $18,500 to a 401(k) on a pre-tax basis.
But still, more changes are proposed, with some deductions changed or ended under the proposal.
Deductions that will be eliminated or altered
The House bill keeps the home mortgage interest deduction for existing mortgages. But for newly purchased homes, the home mortgage interest deduction is lowered to $500,000 from the current $1 million debt limit.
It could well put a damper on higher-end home purchases, where half of a $1 million mortgage is not eligible for interest deduction, Luscombe said.
Medical-expense deductions are going away. Right now, individuals can deduct qualified medical expenses that exceed 10% or 7.5% of their adjusted gross income (depending on age). Households with outstanding medical costs and are eligible for the deductions will feel significant effects from the repeal. The provision could have big implications for families with high medical costs during the year.
Student loan interest
The deduction for student loan interest could also be eliminated under the Republican tax reform.
Under current rules, borrowers may deduct up to $2,500 in interest payments on student loans on their federal income tax returns. The loss of the deduction would put a heavier financial burden on hundreds of thousands of college graduates grappling with significant education debt.
The state and local income tax deduction
The Republicans are further calling for an end to the deduction for state and local income/sales taxes.
The IRS allows those who make payments for state and local income taxes to deduct them on their federal tax return. The loss of the deduction is seen by some critics as hurting people in high-income tax rate states, such as New York and California.
But the proposal would keep in place the state and local property tax deduction, although capping it at $10,000.
The estate tax
Republican lawmakers proposed to double the estate tax exemption from $5.49 million to nearly $11 million and eventually do away with it. The estate tax is the tax you pay to inherit property or money from a deceased person.
This means families don’t have to pay taxes on any inheritance under $11 million. The bill calls for repealing the estate tax after six years.
In addition to reducing or eliminating several tax breaks, Republicans hope that the tax cuts will boost the economy, foster business growth, make the U.S. business environment more competitive with other countries’ in terms of tax rates, and even spur wage growth. This, in, turn, would bolster tax revenue, supporters say. But critics fear a surge in the budget deficit, with implications for future generations.
Senate Republicans on Tuesday proposed to repeal the individual mandate under the Affordable Care Act by 2019 as a part of their tax reform plan.
With open enrollment for 2018 Obamacare coverage well underway, and after two failed attempts earlier this year to repeal the ACA, the Senate’s proposal has reignited feelings of uncertainty over the health care law’s future.
The Senate’s proposal also came a couple of days before House Republicans’ planned Thursday vote on their own tax reform bill. (The House’s version does not propose to touch the insurance coverage requirement.)
Part of the reason behind the Senate’s proposal to cut the individual mandate is to help free up federal dollars and partially offset a sweeping $1.5 trillion tax cut proposal. Without the mandate, fewer people would likely sign up for coverage and that would mean less money the government would need to spend on the tax subsidies it offers to balance out the cost of premiums for millions of Obamacare enrollees.
The Congressional Budget Office estimates that if the individual mandate is eliminated, it will save the federal government $338 billion, and 13 million more people — mostly the young and healthy — will be uninsured by 2027.
Here is what you need to know about the individual mandate and what it means if it goes away:
What is the individual mandate?
The individual mandate is a provision under the ACA that requires most U.S. citizens and noncitizens who lawfully reside in the country to have health insurance. It was signed into law in 2010. Consumers who can afford health insurance but choose not to buy it have to pay tax penalties unless they are otherwise insured or meet certain exemptions.
The purpose of the mandate was partially to ensure that even healthy and young Americans would sign up for health coverage, balancing the so-called insurance risk pool and helping to keep premiums affordable.
Why is the mandate unpopular?
The provision has been widely unpopular since its introduction. The Kaiser Family Foundation’s latest poll suggests that 55 percent of Americans supported the idea of removing the individual mandate as part of the Republican tax plan.
More than 27 million people in the United States remained uninsured in 2016, the foundation reported, down from 47 million prior to the implementation of the ACA.
How does the individual mandate work?
The tax penalty for nonexempt individuals who do not sign up for health coverage is calculated as a percentage of household income or as a fixed amount per person. You’ll pay whichever is higher.
For 2017 the penalty was either:
$695 per adult and $347.50 per child, up to $2,085 per family, or
2.5 percent of household income
The maximum penalty can be no more than the national average price of the yearly premium for a Bronze plan (the minimum coverage available in the individual insurance market) sold through the insurance marketplace.
HealthCare.gov hasn’t yet published the 2018 guidance, but Kaiser has launched a calculator using 2018 projections from Bloomberg BNA. For 2018, the calculator estimates the amount of penalty is $3,816 for a single person and $19,080 for a family of five or more, according to the foundation.
You meet exemptions if coverage is considered unaffordable based on your income — under the ACA, “unaffordable”’ is if you would have had to pay more than 8.05 percent of your household income for the annual premium amount for health coverage in 2015 or 8.13 percent last year.
If you have experienced economic hardships or difficult domestic situations, such as homelessness, the death of a family member, bankruptcy, substantial medical debt or the toll of a disaster that damaged your property badly, you may apply for a hardship exemption.
People who are ineligible for Medicaid because their state hasn’t expanded that program also qualify for a hardship exemption. Those whose incomes are at or below 138 percent of the federal poverty level are eligible for Medicaid. That 138 percent means a little over $16,600 every year for a single person and nearly $34,000 for a family of four.
See more examples of people who qualify for penalty exemptions at IRS.gov.
You can find out if you are exempt from health care coverage using this tool:
What does it mean if the individual mandate is lost?
The immediate concern is that without fear of a tax penalty, not enough young, healthy people would get covered. When these low-risk people drop out of the market, coverage is skewed toward older, sick people who really need coverage. And that can lead to rapid increases in premium costs and even induce some insurers to drop out of the market.
Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation and senior adviser to the foundation president, summarized his thoughts on the loss of the mandate in a series of tweets Wednesday, saying he’s “doubtful” insurers would remain in the marketplace if the mandate were removed:
Repealing the ACA's individual mandate doesn't sound like something that could be bad for anyone. But, it's the mechanism that allows guaranteed coverage for pre-existing conditions.
The housing market is heating up again. Home prices have risen faster than income growth in the past five years, and the combination of low housing supply and increasing demand is driving home values ever higher.
Could we be in danger of another housing bubble?
Economists don’t seem to be too worried about the national housing market.
Across the U.S., increases in home prices have outpaced income growth by 34 percent since 2012, driven by economic expansion. However, this percentage is less than half the pace seen between 1997 and 2006, according to a recent Urban Institute study.
For the most part, homes are still affordable relative to household incomes, experts say.
According to the Urban Institute, a Washington D.C.-based think tank that carries out economic and social policy research, a median-income household can afford a house that is $70,000 more expensive than the price of the median house sold on the market. In contrast, in 2006, there was a $22,000 shortfall between what the median household could afford and the median sales price.
“Yes, prices are high, yes, the market is expensive, and yes, housing is unaffordable for some people, but that does not mean we are in a bubble yet,” Nela Richardson, chief economist at Redfin, a Seattle-based real estate and technology company, told MagnifyMoney. “Those attributes of a classic bubble are missing.”
By “classic bubble” attributes, Richardson is pointing to telltale signs of trouble, such as lax mortgage lending standards, rapidly rising mortgage rates and the levels of speculation in the housing market we experienced 10 years ago.
Even as home prices were skyrocketing, soft underwriting practices allowed a record number of people to purchase homes with very low down payments. As the crisis intensified, housing prices began to nosedive and borrowers who bought more home than they could afford eventually defaulted on mortgages.
In the wake of the Great Recession, the federal government implemented stricter mortgage lending regulations that have made it much harder for financially unstable borrowers to qualify for a mortgage loan.
“Any of the mortgages made today [are] just super clean” and there is a historically low default rate, Bing Bai, an Urban Institute researcher, told MagnifyMoney. “We are not in that kind of risk like the risk we had before in previous bubble years.”
Mortgage default rates have fallen to 3.68 percent for single-family homes, not quite as low as pre-recession levels but much better than the peak of 11.53 percent in 2010.
10 Metros at Risk of a Housing Bubble
So, the nation as a whole might not be facing an imminent bubble. However, Urban Institute economists have put certain cities of the country on the “bubble watch” list.
In the study, they analyzed 37 metro areas across the U.S. to find how much housing prices have gone up since their lowest point following the financial crisis and how affordable homes are based on the median income for that city. Below are the top 10 cities in danger of a housing bubble.
#1 San Francisco-Redwood City-South San Francisco, Calif.
California snags five of the top eight spots, led by the San Francisco metro area.
In San Francisco, for example, a family earning the median income for the area needs to dedicate at least 70 percent of income for a typical 30-year fixed-rate mortgage, Bai said. The median home sales price is $1.2 million in the Bay Area, according to Redfin and Trulia, an online real estate resource for homebuyers and renters.
The overheated housing situation in the Silicon Valley and Seattle is largely a result of the tech boom during the years of economic recovery, Richardson said. Yet demand is still going strong with healthy job increases despite stunning home prices.
“There’s a lot of money looking for a place to land,” Richardson added.
“It’s not just about the local economy in these markets,” Richardson said. “It’s about the global economy.”
Advice for home buyers in super expensive cities
The truth is, experts don’t see a sign of price decline in hot markets any time soon.
“Demand is still there, with low supply, [and] it’s just going to keep prices high,” Cheryl Young, senior economist at Trulia, told MagnifyMoney.
If you are looking to buy in cities where home prices are sky-high and competition is extremely fierce, here is what pros suggest you can do to bid for a desirable house:
Time it right
“Home buying is all about timing,” Young said. “We always say you shouldn’t rush to enter the housing market if you are not ready.”
If you’ve definitely decided to buy, the best time to start looking might be during the fall. Young said home prices are, in general, at their nadir in the wintertime, so you may want to start looking in the fall when prices started to dip as home supply is higher than they are at other times of the year.
When you are ready to start looking, you also need to save up for a down payment, Young said.
A good rule of thumb for a down payment is 20 percent. That way you could avoid paying for the additional cost of private mortgage insurance. But the reality is that it’s tough for buyers to put down that much money, especially if you are in a super-expensive market. It’s fine if you can’t save up for 20 percent, but of course the more you can scrounge up, the better.
Also recommended: Have all your financial statements ready and compare mortgage rate offers from several financial institutions to be sure you’re getting the best deal. Avoid these common mistakes homebuyers make before they apply for mortgages.
“Working with someone who knows the local area, who knows how to strategize how to make an offer that is as good as cash or almost as good as cash if you are in a competitive market is very important,” said Richardson.
These are the places where the most capital gains have been realized
Just a few years ago, in the aftermath of the Great Recession, Americans were constantly reading about how home ownership had let Americans down. There was red ink everywhere: Not only had stocks lost nearly half of their value between 2007 and 2009, but home prices had declined in virtually every real estate market in the country.
That trend has long since been reversed. Last year, incomes grew an average of 4.7 percent. When adjusted for inflation, they have finally fully recovered to levels seen before the 2007-08 financial crisis. But even better, their investments have been paying off. Stocks, as based on broad market indexes, have more than tripled in value from their 2009 lows. And in most local markets, home prices have also since recovered.
So, who’s cashing in?
MagnifyMoney analyzed five years’ worth of Internal Revenue Service (IRS) data — from 2012 to 2016 — to see where American taxpayers are getting the most return on their investments. In particular, we focused on capital gains: a tax on the sale of appreciated assets like real estate and stocks.
For the 100 largest American metros, we looked at two facets of capital gains: How much in gains, per resident, were realized; and, to get a sense of the breadth of wealth being realized and taxed, the percentage of individuals who filed federal taxes that cited a capital gain.
We ranked each metro on these metrics and weighted them evenly to create a Cashing In Score, from 0 to 100 (with 100 representing a metro that would rank first in both capital gains per resident and the percentage of returns with capital gains).
Topping the list were Fort Myers, Fla.; San Francisco; and Sarasota, also in Florida. Others in the top 10 include tech-heavy places like Seattle and Austin, Texas.
#1 Fort Myers, Fla.
Cashing In score: 98 (Scores are rounded in this list.)
By far, the place with the most cashing-in was Fort Myers, on Florida’s west coast. With a relatively small population of well-off retirees, the city and surrounding area realized nearly $103,000 in capital gains per resident, easily eclipsing other American cities. Moreover, with a capital gain appearing on nearly one in four returns over the past five years, there’s been significant activity in the region.
#2 San Francisco
Cashing In score: 94
The City by the Bay is famous for both its tight real estate market as well as Silicon Valley, and the data bear this out. Even with a significantly large population, San Francisco realized more than $76,000 in capital gains per resident, many of the realized gains likely the result of selling stocks which have greatly appreciated in value.
#3 Sarasota, Fla.
Cashing In score: 75
Sarasota has the distinction of having a higher proportion of federal tax returns with a capital gain than any other metro in the nation, including its Fort Myers neighbor to the south. The capital gains per resident, at more than $56,000, are less than those realized in Fort Myers (as well as No. 9 Miami).
#4 New York
Cashing In score: 70
The nation’s largest metro also sports large gains: more than $60,000 in capital gains per resident over the five-year period we examined. One in five returns included some sort of capital gain. And where the average price of a home in Manhattan has now exceeded $1 million, a healthy percentage of the gains realized were from real estate sales.
Cashing In score: 63
Another metro with a hot real estate market, Boston realized more than $48,000 of capital gains per resident from 2012-2016, while, as in New York, 20 percent of federal filings from the Boston area included some sort of capital gain.
What is a capital gain?
According to the IRS, a capital gain can arise from a sale of stock, a private business, real estate or art. In other words, it’s the money that you earn on an investment after you sell it, less the cost of the initial investment. And while these assets are taxed at differing rates, all may be subject to federal taxes, if they are sold for more than the original purchase price.
Homes are still how most Americans typically accumulate wealth. Overall, 64 percent of American households are homeowner households, according to the most recent Census data . The median value of the primary residence of Americans still exceeds the median value of the stocks and bonds they hold outside of retirement accounts and other managed assets like annuities. And homeowners have a net worth of nearly $230,000, versus an average of about $5,000 for renters.
But housing markets are still local, which may in part explain the variance among the 100 largest metropolitan areas we examined for the most capital gains realized from 2012 to 2016.
The second-home factor
Not all home sales will result in a capital gains tax. Currently homeowners only pay a capital gains tax on gains that exceed $250,000 ($500,000 for couples filing jointly), if it’s their primary residence.
But other property – such as vacation homes and rental properties – aren’t afforded the same protections from capital gains as a primary residence.
Thus, all the gains from these sales may be subject to capital gains tax, which may explain why we found that many of the cities that top our list s are in vacation spots like Florida and Lake Tahoe (considered part of Reno, Nev., by the Census Bureau).
Stocks still likely result in some significant realization.
It’s probably not a surprise that both New York and San Francisco are near the top of the list. Not only do both have tight residential real estate markets, but both Wall Street and Silicon Valley are homes of dozens of public corporations with thousands of employees. Stocks, whether in the form of compensation given to employees or simply bought and sold on the open market, may also result in significant capital gains.
Local economies still a factor.
Finally, local economies may also be a factor in how much in capital gains are realized. Consider two major cities in Texas: Houston and Austin. Despite being fewer than 200 miles apart, Austin ranks significantly higher than Houston on our scale. One explanation: Austin’s tech-heavy economy continues to flourish, while the energy centric economy of Houston is slogging through a period of depressed energy prices, weighing on the residential real estate market there
MagnifyMoney analyzed IRS Statistics of Income data for tax returns filed January 1, 2012 – December 31, 2016, covering five years of tax filings, along with U.S. Census Bureau 2016 population data to create a ‘Cashing in score.’
The 100 largest metros in the U.S. were ranked by the % of returns that declared capital gains, as well as the total capital gains reported per resident over the five year period. These rankings were weighted evenly to create the score for each metro, with 100 the highest possible score for a metro that ranks #1 for both metrics.
Many caterers charge a minimum amount based on the number of guests or the amount of food. Paying to have staff for a catering event can cost m
ore because they are working on holidays, when companies typically provide extra pay.
Your food is going to cost the same no matter the day, but caterers may require that you meet a higher spending minimum to book events on certain days, says Carruth, who also is the director of catering at Braeburn Country Club in Houston. The higher minimums offset the cost of paying staff.
For example, events held on holidays and weekends generally have higher minimums.
“Buffets aren’t always the best way to save.”
The common perception is that a buffet is less expensive, but plated meals can sometimes be cheaper, depending on the caterer and the size of an event. A carving station for your turkey or ham also will increase your cost because of the labor required, so consider cutting that to save money.
“With a buffet, if you have a 100 people, you have to prepare 110 of everything because you have to assume that everyone’s going to take one of everything,” Carruth explains. “Whereas, with a plated dinner, portion sizes are controlled.”
Buffets typically have more options—such as two entrees—than a plated meal, too, which also can lead to additional costs. When deciding between a buffet and a plated meal, check with your caterer’s pricing before making a wrong assumption about the cheapest option.
“Heavy hors d’oeuvres sometimes cost as much as plated meals.”
A heavy hors d’oeuvres party can cost as much, if not more, than both plated meals and buffets because they can be labor-intensive affairs, Carruth says. First, they require making tiny bites by hand and making enough pieces to satisfy appetites. You need to make enough hors d’oeuvres to replace what people would typically eat for an entire meal.
They also often require servers on hand to make sure the small bites are passed around the room and that platters are refilled as they empty.
But if you want to do an hors d’oeuvres-heavy party and save money, you can have the food set up on tables without a wait staff.
“So while you’re spending more money on the catering itself, you’re not going to pay for so much labor because everything can just be dropped off, set up and you can typically take care of it based on the size of your group,” she says.
“To-go will always win over on-site service.”
Picking up your food for Thanksgiving can help significantly reduce your total bill.
According to the NACE, pickup catering averages $45 per person because staff or service item charges are not included.
“Many restaurants and caterers offer Thanksgiving meals to go, and allow you to bring your own dishes, so it looks like you cooked,” says Carruth.
You can save generally 20-30 percent on the total bill because you won’t have to pay for staffing or delivery, she says. Many of these “Thanksgiving to-go” meals are cost effective because everything is done in bulk, and then portioned out for individual orders.
“Don’t rent your utensils from us.”
Providing your own items, such as flatware, glassware and plates, can save you money. You can buy them for less at a discount online or at party supply stores.
NACE says utensils can be rented from anywhere, at 15 cents apiece and up, but when the caterer supplies utensils, it takes on the liability and the time and money spent to set up, deliver and clean them. The minimal price is offset by the convenience factor, according to NACE.
The majority of caterers include the dinnerware and build the cost into the per-person pricing structure, according to NACE. If they do charge separately, they typically line-item it out so you can see the costs.
“Book your caterer early and be upfront about your budget.”
You typically need to book your caterer three months in advance, but Thanksgiving catering can often be booked more short-term because it is less in demand than Christmas or New Year’s Eve.
Between Thanksgiving and Christmas, for a lot of companies, that’s what called the season. We’re pretty much crazy-busy from Thanksgiving through New Year’s Eve,” says Carruth.
When booking a caterer, it’s easier for caterers to first know your budget, and then come up with creative ideas of what they can do with it. “Say, ‘Here’s what I have. What can you do for me?’ ” she says.
Whether it’s for themselves or their children, many people are at some point forced to decide if braces are a worthy investment. The American Association of Orthodontists (AAO) recommends that children have their first orthodontia checkup by age 7.
Orthodontic treatment is becoming increasingly more commonplace, leading to industry growth, more patients and more money for practitioners. Worldwide, the industry has reached $11 billion in revenue, according to a 2016 market research report by IbisWorld. (Though this represents only a modest pace of revenue growth, demand is soaring, the report found.)
An estimated 5.41 million patients in North America sought orthodontic treatment in 2014, according to the most recent data from the AAO. Annual salaries for orthodontists in the United States have increased to $228,780 annually in May 2016, up from $186,320 in May 2012, the U.S. Department of Labor.
Still, the debate over braces remains largely a financial one, as parents have to consider if the long term effects justify the expense, or if their their children’s dental problems aren’t severe enough to warrant the cost.
Still, prices can vary widely based on location, with practices in larger cities tending to charge more. Rates are also dependent on the length of the treatment itself, which on average lasts about 24 months. With these variables in mind, ValuePenguin, a financial site, estimates the entire process could range from $3,000 to $10,000.
Dr. Nahid Maleki, president of the AAO, says many orthodontists offer initial consultations for little to no cost.
Learning the costs beforehand is the only way to make a truly informed decision, says Dr. Dawn Pruzansky, the administrative director of the Arizona School of Dental and Oral Health postgraduate orthodontic program in Mesa, Ariz.
“When you look at the overall price, it does seem to be a bit daunting,” says Pruzansky, who owns a practice in Glendale, Ariz. “Just go get the consultation and don’t automatically think that it can’t be done.”
When are braces worth the price?
While some parents may want to take a “wait and see” approach to braces, Maleki says there are certain dental problems that should be resolved before a child gets too old, as many irregular bone structures can’t be fixed after a person gains all their permanent teeth. Additionally, an improper bite can cause permanent damage to the teeth, making some damage irreversible after adolescence.
“We can prevent problems from developing fully,” but a child cannot “un-grow” undesirable growth in their bones, says Maleki, who has a practice in Washington, D.C.
However, there are problems that may not require immediate action. While Pruzansky notes that issues such as overcrowding won’t resolve themselves, she says dental problems that don’t inhibit a person’s ability to speak or eat properly — for example, minor spacing flaws — don’t normally justify braces.
In these cases, it may be feasible to wait until adulthood to re-evaluate the situation. Pruzansky says holding off on treatment can be beneficial because adults can be more compliant, meaning they’re usually more likely than children to do what it takes to get the most out of having braces.
“Sometimes it’s hard to get kids to understand the importance of braces,” she says, “or to get them to wear their retainers afterward.”
This decision to wait seems to be growing in popularity. The number of adults receiving orthodontic care throughout North America increased by 67 percent from 1989 to 2014, the most recent data available, and 27 percent of all patients — 1.46 million people — were adults, according to AAO estimates from its membership of 19,000 orthodontists. The increase may be due in part to the price difference between age groups, as ValuePenguin estimates that, on average, braces for adults cost only about $150 more than they do for children.
What if I can’t afford braces?
There are a number of payment plans available, most of which involve making consistent monthly payments on a low-interest loan, typically giving you around five years to pay off the total.
There also are no-interest plans, typically in the form of medical expense credit cards that have to be paid off in less time. CareCredit, which has financing options ranging between six and 24 months, is a popular example. Just watch out for deferred interest clauses, which can result in hefty fees if you don’t pay off the debt before the 0 percent intro period is over.
Pruzansky says she also has seen patients use their Health Savings Account (HSA) — a special pretax account — to pay for braces. HSAs can typically be used to pay for orthodontic treatment, but check with your bank.
Additionally, getting braces through a dental school could help save on certain fees, as some schools will charge only for materials and equipment.
While the most cost-effective solution may differ from situation to situation, Pruzansky says people are often surprised by the number of affordable options they actually have at their disposal.
“I never want someone not to start simply because they can’t afford it,” Pruzansky says. “I don’t know any private practice that doesn’t offer some kind of interest-free financing.”