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Financial Word of the Week: Tax Exemptions

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Financial Word of the Week

To wrap up this tax month, let’s talk about exemptions—special deductions that you can use to lower your taxable income.

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Exemptions are a set amount of income that is not subject to income tax. This amount could change each year and could be reduced if your adjusted gross income is above a certain amount. For 2014, you may deduct up to $3,950 for each exemption you claim. You may claim exemptions for yourself, your spouse and any dependents.

Phaseout of Exemptions (2014)

Filing Status                                       Adjusted Gross Income Level That Reduces Exemption Amount

Married Filing Separately                                       $152,525

Single                                                                                 $254,200

Head of Household                                                    $279,650

Married Filing Jointly                                               $305,050

Qualifying Widow(er)                                               $305,050

For example, if you are married and have two qualifying children, you may be able to claim four exemptions. For 2014, this would equate to an exemption amount of up to $15,800 ($3,950 x 4).

If you can be claimed as a dependent by another taxpayer, then you are not allowed an exemption for yourself on your own tax return, even if the other taxpayer does not actually claim you as a dependent.

A dependent can be either a qualifying child or other qualifying relative, but your spouse can never be considered a dependent. Special rules are used to determine whether someone can be considered a dependent.

For more information on exemptions, refer to IRS Publication 501.

 

*This post is not meant to replace the advice of a tax professional.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.



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Financial Word of the Week: Tax Bracket

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FWOTW

Earlier this month, we discussed tax deductions and charitable deductions. This week, we want to talk about tax brackets.

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The United States has a progressive tax system, which means your marginal tax rate increases as your taxable income increases. Tax brackets indicate the marginal tax rate that applies to you based on whether your taxable income falls within a certain range or “bracket.” There are seven tax brackets in the United States, with marginal tax rates ranging from 10 percent to 39.6 percent.

A marginal tax rate is the tax rate you pay on each additional dollar of income. In other words, the first dollar of taxable income is taxed at the lowest rate. As your taxable income increases into the next bracket, only those dollars within that bracket are taxed at the new marginal tax rate.  The actual percent of your taxable income that you pay to the IRS is called your Effective Tax Rate.

Remember that your taxable income is the income left over after subtracting all allowable deductions and exemptions. We’ll discuss exemptions in our next tax-related financial word of the week.

To see which tax bracket might be applicable to you, please refer to the IRS website or see the below example.

Income-Tax-Rates-table

*This post is not meant to replace the advice of a tax professional.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.



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