Don Trumpette and his wife Sabrina are beginning to take the necessary steps to reach their financial
In an effort to identify weak areas of their financial portfolio, they have provided their personal
and financial information for evaluation by the MoneyTree program.
The results of the evaluation can be
found in the Easy Money report that the software produced, which has been analyzed by Team 4 in the
sections to follow.
During our analysis, four key problem areas were identified along with recommended
Income Tax Problems
The Trumpette’s currently earn $65,469 in taxable income, which means that their marginal tax rate is
15% based on the 2011 tax rates.
However, they are just $3,531 away from earning enough to push them
into the next tax bracket of 25% (if taxable income becomes greater than $69,000).
As such, the
Trumpette’s should do what they can to reduce their taxable income through investments and retirement
Based on their taxable income and their income tax due and payable (excluding FICA) of
$7,935, we find their average tax rate is 12.12%.
To reduce the amount of taxes they pay in each given
year, the Trumpette’s should try to get their marginal rate as close to their average tax rate as possible by
lowering their marginal rate as much as legally allowable.
However, it is important to note that in this
case, for the Trumpette’s to lower their marginal tax rate to 10% (the next lowest tax bracket), they would
need to have taxable income of $17,000 or less, which is not a realistic goal.
At the moment, the Trumpette’s are already making use of several deductions that can help decrease their
taxable income, including mortgage interest, charitable donations, medical expenses, property taxes, and
However, they could be doing more to build their portfolio and reduce taxable
Based on the Easy Money report, it is evident that the Trumpettes have not diversified their
accounts as much as they should and that they have not taken advantage of tax-deferred, tax-free, or tax-
deductible accounts which would allow them to decrease their taxable income.
For instance, Don has
$22,699 set aside in a tax-deductible 401K retirement account, but is not currently contributing to the
We recommend Don make the maximum contribution to this retirement account each year so
that he can reduce his taxable income and continue to prepare for retirement.
Additionally, Sabrina needs
to open a SEP-IRA or a Keogh Plan that will allow her to save on her taxes and save for retirement at the
Both plans are tax-deductible, however the SEP-IRA may be the better option for Sabrina