The Tax Cuts and Jobs Act of 2017 (TCJA) is the hallmark legislation of the Trump administration, and no American taxpayer was unaffected. But was this legislation a Trojan horse that could lead to you paying higher taxes starting in 2021?
The Joint Committee on Taxation released a chart indicating that federal taxes for those making between $10,000 and $30,000 would actually go up starting in 2021.
The new tax brackets for 2021 have the same rates, and the only changes are the income brackets that have been adjusted for inflation. What's driving this higher tax rate for these particular brackets?
That links back to the Republican efforts to repeal the Affordable Care Act. The TCJA lowered the individual mandate penalty, the penalty paid to the government if you do not have a health insurance policy, to zero. This means there will be no tax implications to not carrying an insurance policy.
Under the ACA, individuals within 100% and 400% of the federal poverty level were eligible to receive tax credits to offset the costs of these plans. With no individual mandate penalty, the expectation is that less people will sign up for insurance. Less people signing up for insurance will lead to less people receiving the tax credits, which would lead to an increase in the average tax rate across this group.
That doesn't mean that you are in the clear if you make above $30,000. Remember how income brackets are adjusted for inflation? The TCJA also changed how inflation is calculated. Tax brackets used to be adjusted off of the Consumer Price Index (CPI), an index that tracks the prices of goods and services across different geographical areas.
The Consumer Price Index tracks how much more you are paying because of inflation each year. But the IRS now measures inflation against the chained CPI. The idea behind the chained CPI is that if prices rise, customers will change their purchasing habits and substitute goods. For example, if the price of orange juice rises faster than the price of apple juice, chained CPI assumes that people will lower the amount of orange juice that they are buying and substitute that by buying more apple juice. CPI tracks a fixed basket of goods while the basket of goods tracked by chained CPI changes periodically.
Because chained CPI assumes that consumers are going to seek out substitutes for products with rising price tags, it rises more slowly than traditional CPI. Thus, the IRS will adjust tax brackets upward more gradually, and you are likely to move into a higher tax bracket faster than you would under the old calculations.
Chained CPI calculates the cost of everyday goods rising more slowly than calculations based on traditional CPI.Federal Reserve Bank of St. Louis
If the cost of consumer prices rises 2% and you receive a similar 2% raise, normally you would be able to maintain your lifestyle. However, if the tax brackets only increase 1.5% because tax brackets are now tied to chained CPI, you will be paying more in taxes because your income and expenses will be rising faster than the rate the IRS is using. Because the tax rate is being adjusted for 2021 and will be adjusted in future years, this will compound over time, and has led to a slew of recent articles discussing a tax hike starting in 2021.
Congress passed the TCJA through budget reconciliation to avoid a filibuster, but that meant that the law could not increase the long-term budget deficit. As a result, Republicans decided to include a provision to have the individual tax cuts expire in 2025 while making the lower corporate tax rates and the chained CPI method of adjusting tax brackets permanent. The increased standard deduction and the larger child tax credit will also expire at this time. And because of the continued use of the chained CPI method, people will actually be paying higher taxes after the TCJA then they would if it had never been passed in the first place.
As anyone who has ever sold a house will tell you, you must prioritize curb appeal. Before a potential buyer even considers looking inside your house, they notice the outside first. Does it attract the right kind of attention? Does it take away from the feel you're going for? If you plan to sell sometime soon, you must think about these things. Here are some landscaping options to increase your home's curb appeal, so you can get the best price on your home.
Extensive Plants and Greenery
A barren front yard won't get you the price you want on your home. So, invest in at least a little bit of greenery to keep the surrounding area from looking too dead. Shrubs and bushes tie the house to the lawn that precedes it, and flower beds bring a pop of color to an otherwise drab structure. You can also strategically plant some trees to improve the overall feel of your home's exterior.
As we mentioned, your lawn is one of the most prominent features of your home's exterior. A patchy, dried-up lawn will quickly drive your home's price way down. Some of the best landscaping options for your home's curb appeal involve improving your lawn for the next inhabitant. Overall fertilization, ground aeration, underbrush removal, proper mowing—all of these lawn care tasks contribute to a greener and more lively area that invites people to see your house, rather than stay away from it.
There's nothing like a broken and disheveled pathway to make someone think twice about buying a property. Just as you want the entryway in your house to be welcoming, so too should the pathway leading up to the house be inviting. The pathway from the street to your front door provides plenty of real estate to get creative with. You don't have to settle for a boring concrete pathway. Consider something more eye catching, like a cobblestone path or intermittent brick patterns, as a way to better welcome potential buyers.
Usable Outdoor Furniture
Landscaping doesn't just involve the ground you walk on; also included are the items you use as extras to the overall look. Outdoor furniture is one such extra that you don't necessarily need but can look quite attractive if done correctly. Staging is important with outdoor furniture. Old, broken-down pieces will only look like more work to the potential buyer. A few comfortable chairs, a bench, or a table with an umbrella really go a long way to improving your outdoor aesthetics.
A good tip for deciding on curb appeal items is to decide what you personally would want to see as a part of a welcoming home's exterior. You don't need to go overboard, but a little bit of forethought could net you quite a lot of extra cash in the sale.
Many people strive to support their community by donating their time or their money. When you find a meaningful cause, you might be quick to cut a donation check. Though it's admirable to be quick to act charitably, you should be wary of several common mistakes made when giving to charity. Being mindful of these mistakes and learning tips for making informed charitable choices can help you make the most out of your generous check.
Acting Quickly Out of Emotion
Mission statements are meant to be compelling. If you're an emotionally driven individual, it's natural to pull out your wallet at the sight of a sad puppy on TV or when informed about food insecurity over the phone. Unfortunately, not all charities are as effective or official as they may seem.
Take your passion for helping others one step further by making sure your chosen charity is legit. Speaking with a representative, reviewing their website and social media accounts, and looking at testaments online can give you a better idea of whether the organization is worth your donation.
Forgetting to Keep Record of the Donation
Don't forget that you can reap some financial perks from giving back! With the proper documentation of your donation, you can acquire a better tax deductible.
If you donate more than $12,400 as a single filer or $24,800 as one of two joint filers, you're eligible to deduct that amount from your taxes. So, when a charity asks if you'd like a receipt of donation, always answer yes.
Donating Unusable Materials
Most charities can utilize a monetary donation—it's the physical donations that usually cause some issues. Providing a local nonprofit with irrelevant materials or gifting them with unusable products are surprisingly common mistakes made when giving to charity.
Always check your intended charity's website for a list of things they do and do not accept. The majority of places will provide a guideline to donating or offer contact information to clarify any questions.
Strictly Giving at Year's End
As more and more people get into the holiday spirit at the end of the year, nonprofit organizations see an influx of donations. While it's great to spread holiday cheer via a monetary donation, it's important to keep that spirit going year-round.
With regular donations, charities can more effectively allocate their annual budget. Setting up an automatic monthly donation with the charity of your choosing can maximize your impact. You can account for a monthly donation by foregoing a costly coffee every once in a while.
Knowing how much you should spend on home maintenance each year is hard to figure out and may be preventing you from buying your first home. The types of costs you'll incur depend on the house you buy and its location. The one certainty is that you should start saving now. Read on to figure out how much to start setting aside based on the home you own.
The Age of Your House
Consider several factors when budgeting for home repairs. If you've purchased a new home, your house likely won't require as much maintenance for a few years. Homes built 20 or more years ago are likely to require more maintenance, including replacing and keeping your windows clean. Further, depending on your home's location, weather can cause additional strain over time, so you may need to budget for more repairs.
The One-Percent Rule
An easy way to budget for home repairs is to follow the one-percent rule. Set aside one percent of your home's purchase price each year to cover maintenance costs. For instance, if you paid $200,000 for your home, you would set aside $2,000 each year. This plan is not foolproof. If you bought your home for a good deal during a buyer's market, your home could require more repairs than you've budgeted for.
The Square-Foot Rule
Easy to calculate, you can also budget for home maintenance by saving one dollar for every square foot of your home. This pricing method is more consistent than pricing it by how much you paid because the rate relies on the objective size of your home. Unfortunately, it does not consider inflation for the area where you live, so make sure you also budget for increased taxes and labor costs if you live in or near a city.
The Mix and Match Method
Since there is no infallible rule for how much you should spend on home maintenance, you can combine both methods to get an idea for a budget. Average your results from the square-foot rule and the one-percent rule to arrive at a budget that works for you. You should also increase your savings by 10 percent for each risk factor that affects your home, such as weather and age.
Holding on to savings is easier in theory than practice. Once you know how much you should spend on home maintenance, you'll know what to aim for and be more prepared for an emergency. If you are having trouble securing funds for home repairs, consider taking out a home equity loan, borrowing money from friends or family, or applying for funds through a home repair program through your local government for low-income individuals.