Monday Morning Quarter-Buck 3-18-2019: Tax Bracketology by Matt Fizell

Top O’the mornin’ to you all!  We hope you had a wonderful St. Patrick's day!  We hope you enjoy this weeks fun tax facts by Rooted Planning Group’s Financial Planner Matt Fizell.

Tax-Bracketology

by Matt Fizell


As the calendar flips to March many people find their focus shifting to two very different things, taxes and basketball.  It is March Madness for the NCAA Basketball teams lucky enough to find themselves fighting for a National Championship, and also March Madness for those frantically hoping to file their taxes before the April 15th deadline.  These two categories will also be hot topics for breakroom chatter at your place of work, so here are a few handy tips to sound smart in those conversations, or maybe even boost your chances of having the bragging rights of the best bracket!

Let’s start with the fun stuff first... taxes obviously!

1) A bigger refund does not mean less taxes paid!

  • It simply means you paid in more taxes than you owed to Uncle Sam.  That means you essentially provided them with extra money, and you didn’t even earn interest!

  • H&R Block estimates only 1 in 5 people accurately adjusted their W-4, which is what your employer uses to estimate the correct amount of tax withholding from your income. If you find yourself owing money this year, feel free to schedule a complimentary appointment (click here)  with a member of our team to help walk you through your paystub and W-4 to make sure everything is squared away before it is too late in 2019.

2) My raise put me in a higher tax bracket this year, so now I have to pay more taxes on my income...

  • This co-worker of yours is partially correct, but it is important to understand the difference between marginal tax and effective tax rates.

  • For this example, we will assume a single filer, with $85,000 of income.

When tax is applied to income, we need to take a bucket approach to thinking about how it is being taxed in each bracket.  When one bucket overflows, the income goes to the next bucket and is taxed at the appropriate rate.

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As you can see, your co-worker’s income is barely trickling into the 24% marginal tax rate, the rate at which his next dollar of income is taxed at.  His effective (or average tax paid per dollar) rate is only 17.28%


Now for the real reason you are here... you want to have a better bracket than all of your friends, coworkers, or die-hard basketball fans you associate with. For those of you who didn’t quite understand my “Bracketology” pun above... Bracketology is “the activity of predicting the participants in and outcomes of the games in a sports tournament, especially the NCAA college basketball tournament.” (Dictionary.com) and it is safe to say Bracketologists are about as accurate as your favorite local meteorologist, tarot card reader, or stock-picker, so proceed with caution!

1) In 2018, the unthinkable happened... The University of Maryland, Baltimore County (UMBC) upset the Virginia Cavaliers by a landslide score of 74-54 to become the first #16 seed to upset a #1 seed team in the NCAA Tournament’s history.  Before this, #16 seeds were 0-135 against #1 seeds. Maybe history will repeat itself this year? It is a bold pick, but losing a #1 seed in the first round could mean a lot of heartbreak if you chose them as the National Champion in your bracket.

2) If you are looking to separate yourself early in the bracket challenge, look at the #5 Seed vs. #12 Seed matchups.  The #12 seed teams perform quite well in first round games, better than any other double digit seed, with a win/loss record of 47-89 against #5 seeds.  Those #12 seeds who have completed the first upset have approximately a 33% chance of making it to the Sweet 16. So pick one #12/#5 upset, and stick with them... chances are others in your pool won’t do the same, and you can pick up some valuable points!

3)  No team in NCAA History has ever had an unbeaten season.  The most recent team to come close was the Kentucky Wildcats in 2015, when they were defeated in the Final Four by whom else... but my beloved Wisconsin Badgers. While the Badgers ultimately lost to Duke in the National Championship, the numbers “38-1” will always mean something special to me and my fellow Badgers out there. Needless to say, State Street here in Madison, WI was a little crowded that night.

If you want to have a friendly conversation about your bracket, your taxes, or your personal financial life check out some of our resources and go ahead and schedule some one-on-one time with us.  While we can’t promise our bracket tips will help, we can promise to answer any questions you may have about our services, our fees, and how we can help before you sign any paperwork, so that you can take control of your finances on your own terms.

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