With this question in mind, I wanted to see a histogram of household incomes, so I grabbed the data from the latest CPS survey, which includes 2010 income data. Unfortunately, they lump all households above $250,000 in the same category. Looking for other sources, I found that you can generate something called a “Dollar Cut-Off” table from IRS data. (See one at taxfoundation.org)

In terms of Adjusted Gross Income from 2009 returns:

Top 0.1% starts at $1.4 million
Top 1.0% starts at $355,000
Top 5.0% starts at $155,000

So, roughly speaking, the dividing line between the 99% and the 1% is an income level of $350,000.
Granted, this is AGI, and I expect that these folks are paying accountants to minimize taxable income, so their income before adjustments, deductions, and other strategies is likely above $400,000.

Do we ever fully understand what’s in our tax return? No.  But that’s okay, because it’s not because we aren’t smart enough—it’s difficult because the IRS made the tax code incredibly complicated.  To make it even harder, the tax laws also change every year!

The Individual Income Tax Return is what we must deal with every year.  It’s based on Form 1040, which is the primary piece of paper that summarizes a person’s income and taxes for the past year.  People with more complicated financial situations have to find and complete other forms, and then enter those results on Form 1040.

Let’s walk through each section of the 1040.

Exemptions are calculated based on information about your household. If you are married, raising children, or supporting other family members, you will get to take a greater number of exemptions, which will reduce your income tax. Each exemption you take reduces your Taxable Income by $3,650.

Here, the word Income means everything that qualifies as income under the IRS’ definition, such as wages, salary, business income, interest income, and investment gains.  Certain things like alimony and employer-paid health insurance are outside this definition, so they don’t need to be included in your tax return.

First, let’s explain Deductions.  Deductions are items that the IRS allows you to subtract from your income.  Lower income means less income tax due.  That’s a good thing.  These deductions include things like 401k contributions, business expenses, and moving expenses.

AGI stands for Adjusted Gross Income.  AGI is important because it determines your tax rate (from 10% to 35%) and also affects how much state and local tax you owe.  Basically, you start with your Income, take these deductions to get AGI, and then use the AGI number to finish your Federal tax return and complete other forms like state returns and financial aid forms for college.

AGI = Adjusted Gross Income. It’s an important number.

Deductions from AGI are less beneficial than Deductions for AGI because they have a smaller impact on the amount of tax you will owe.  Deductions from AGI will consist of either a Standard Deduction or a list of Itemized Deductions.  Itemized Deductions are things like mortgage interest, charitable donations, and medical expenses.  For most people, their total Itemized Deductions are not greater than the Standard Deduction, so most take the Standard Deduction, which for 2010 is $5,700 for a single person, $8,400 for the head of a household, and $11,400 for a married couple completing their tax return together. There are other amounts set for other types of taxpayers.

After this step, you now know your Taxable Income.

Now we’ve arrived at the main point of this painful procedure—to answer the question, “How much tax do I owe this year?”   Your Income Tax is calculated based on the Taxable Income number as determined by the previous steps.  To find out the exact amount of Income Tax, you can look up your Taxable Income starting on page 74 of the IRS’ 1040 instructions.

Credits are additional discounts that the government offers to certain groups of people.  For example, you may be qualified to take credits for education expenses, child care expenses, the cost of purchasing a new home, or other credits for military personnel.  After calculating your income tax, these credits are applied so that you can get off the hook for that portion of your income tax.

Other Taxes aside from standard personal income are added here.  This includes taxes on self-employment, social security and Medicare, IRAs, and other qualified retirement plans.

This is the final step.  Throughout the year, your employer probably took out a portion of your paycheck and sent it to the IRS to pay some of your income tax in advance on your behalf.  Those Payments were an estimate of how much tax you would eventually owe at the end of the year.

The purpose of completing the tax return, and this step in particular, is to compare how much tax you already paid to the government to how much your tax return says that you owe after doing all of the calculations based on your unique financial situation.

If the estimated tax taken from your pay was too much, you will get a refund.  If the tax paid through the year wasn’t enough, then you’ll have to make an additional payment to cover your total taxes for the year.

It’s finally over!

The end result is that Medicare, Social Security, Federal tax, and State tax add up to about 25% of your income, and the other 75% is what you get to keep for yourself.   Spend it wisely!

This is an info-comic graphic produced for Mint.com.


When using credit cards, it is can be very dangerous to pay the minimum payment displayed on your statement. The minimum payment typically represents a very small percentage of your full balance due, sometimes as low as 1.5%. You could end up paying enormous total interest charges over the course of several decades to pay a card off by only paying the minimum.


With the passage of the CARD Act in 2009, all credit card statements are now required to display how long it would take the account holder to pay off the balance paying only the minimum payment. Below is a sample of the new information on an actual Chase card statement. Notice that the minimum payment is a tiny 1.9% of the full balance due ($16 divided by $824.84). You can significantly reduce your interest charges by making a small increase in your monthly payments. As seen in the comic, making monthly payments of 3% instead of 2% reduces the total interest charges by $35,000!


Be warned! Only use credit cards when you know that you can pay the full balance when it is due. Credit cards should be used for convenience–not for spending money that you don’t have and likely still won’t have next month.

Fun Fact: You typically can’t get extended warranties on cars that have more than 75,000 miles or are more than 7 years old.

This article is a response to the following request submitted on Mint Answers.

“Advice for buying my first car as a college student”

If you’re looking for a cheap, reliable car and don’t care too much about being unique, then you’ll want to get a Honda Civic or Accord. When I shop for a car, I aim for a one-owner car with less than 70,000 miles. A college student with a slightly more limited budget may have to settle for a two-owner car. $5,000 or $6,000 can get you a GREAT used car. If you have a sharp eye, you might find some good cars around $4,000, and I personally would not go lower than that, or else you can expect a seriously old car or some serious problems.

I used to lease new vehicles every two years, but I’ve bought two used cars in the past couple years instead. One was a 2001 Saab Viggen Convertible for $9,000, and the other a 1998 Chevy Blazer ZR2 for $4,000. I found both of those cars on Autotrader.com, and then searched the entire internet (including ebay) for their VINs to find more info. I also considered BMW, Audi, VW (beware particular models!), and Honda.

Car-specific online forums are extremely useful! Once you know what year and model you’ll be buying, as an example, search the web for “1998 Blazer common problems” and you might find a thread like this (50,000 views!) which lists all common issues. You will know what to expect, and you will likely return to that thread find out how to fix something when it does break (or at least be armed with some information when you take it to a mechanic).

Avoid cars that tend to attractive abusive drivers, like the BMW 3 Series, which is often driven aggressively by young male drivers. Try to find a car that was driven by a mild-mannered older person. You should ask the seller to give you a free independent mechanic inspection report, and after you buy the vehicle, immediately take it to the manufacturer’s dealership and see if they will give you a free inspection (Saab gave me a free inspection on a 7 year old, out-of-warranty car).

If you want to know how much you can expect to sell your car for when you’re done with it, search for the car you want to buy, but add 24,000 miles and a few years. Generally speaking, domestic pick-up trucks and entry-level Japanese cars hold their value the best (Honda Accord, Toyota Camry). Domestic family cars (Ford Taurus, Chevy Malibu) lose value the quickest. Check out this chart–notice that the Taurus lost 80% of its value over 7 years, while the Camry only lost 60%.

This website is ugly, but has some good advice: www.carbuyingtips.com

Remember, there are a lot of used cars out there! Don’t be afraid to make firm offers on cars and walk away when you are turned down. Let them call you back. And, you can always sell the car if it gives you trouble–you’re not stuck with it.

If you are seeking professional help with your debt troubles, there are three primary types of help you can get. This comic produced for Mint.com provides an overview of the debt help available.

Throughout the year, a variety of things that affect your income taxes can happen. In the United States, a personal income tax return is a set of forms provided by the Internal Revenue Service (IRS) which most residents are required to complete every year. Most financial transactions and important life events will be entered into your tax return so that you can calculate exactly how much income tax you owe to the federal government.

Typically, you pay some amount of income tax through withholdings (see What is: Withholding) throughout the year, but your withholding amounts are only estimates. After you complete your tax return, you’ll find out how close the total withholding is to your actual tax owed.

Typically, each of your paychecks shows deductions for Social Security, Medicare, federal tax, and state tax. These items amount to your withholding–the portion of your pay that is withheld. These amounts are sent by your employer to the Internal Revenue Service (IRS), an agency of the U.S. government.

At the end of the year, you’ll receive a form that shows the total amounts withheld from you throughout the year. The information on this form will help you complete your tax form, which will determine the size of your tax refund or balance due.

The depreciation of new cars:

On average, the prices of vehicles dropped 11.7% each year for the first three years, and only 7.6% each year for the following four years. You can find the best value by buying vehicles that are three to seven years old. It is more difficult to obtain extended maintenance plans for used cars older than seven years or with more than 70,000 miles.

UPDATE: November numbers are now available. The SAAR for November 2009 was 10.93 million vehicles.

General Motors entered bankruptcy and..
Sold: Hummer (to Sichuan Tengzhong Heavy Industry Machine Co), and Saab (to Spyker Cars N.V.)
Discontinued: Pontiac and Saturn

Chrysler entered bankruptcy.

Ford did not enter bankruptcy, but…
Sold: Aston Martin, Land Rover, Jaguar, and Mazda.

The only brand showing positive sales growth (for which stats were available) from 2005 to 2008 was Mazda, with a +0.5% CAGR. Cash for Clunkers clearly had a fleeting impact on sales, essentially shoring up some demand at the expense of near-future sales.

The two best selling domestic vehicles are Ford F-150 (#1), and Chevy Silverado (#4). The remaining top 5 are Japanese mid-size or compact sedans.

The Total U.S. Light Vehicle Sales chart shows that domestic brands visibly lost market share to all other brands over the past decade.