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Deposit products offered by U.S. Bank National Association. Member FDIC 2025 U.S. Bank. I recently snuck off to Cabo with my husband for a quick beach reset. We sat in the sun, drank margaritas, and did absolutely nothing. For the first time in almost a year, my shoulders dropped and my jaw unclenched. I'd love to do it again. Of course, the reasons not to pile up fast. My daughter, my jaw, my dog. But you'll notice there's one reason that's not on that list. Money. That's because I have a cost-cutting secret. I know that hosting my home on Airbnb can help offset the cost of travel, making that dream vacation less of a dream and more of a reality. But it's not just me. While you're away, you could host your home on Airbnb. And now hosting is easier than ever with Airbnb's co-host network. You can hire a local co to take care of the hosting for you A co can create your listing manage reservations message guests and provide on support so the stay runs smoothly even when you away You get to share your space with someone traveling to your area while you're off making memories somewhere else. If you've considered hosting but need a little help, find a co-host at airbnb.com slash host. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. You know that feeling when you look at your paycheck and you think, where the heck did all my money go? Well, the answer is healthcare, benefits, and a really big one, taxes. Everybody hates taxes. I'm not going to pretend that I don't as well. And OG money rehabbers will know that my biggest fear or one of them is getting audited. IRS, I love you so much. I see people avoid tax talk all the time because it feels beyond their control or just super, super boring. But today I'm going to show you a different side because the biggest tax mistake people make isn't about some loophole that they're missing or some deduction that they've never heard of. It's much, much more simple and it's much more powerful as well. The biggest tax mistake most people make is not understanding how their tax bracket actually works. And when you don't understand how the system works, you end up losing money, sometimes thousands of dollars without even realizing it. So today we're going to fix that. And by the end of this episode, you'll know exactly how to stop overpaying the IRS, how to shrink your taxable income legally, and how to essentially give yourself a raise. And that is not hyperbole. A couple smart tax positioning tweaks can feel like you just negotiated a better salary for yourself. So let's clear something up. People will tell me, Nicole, I don't want to take on more hours or I don't want to get a raise because I don't want to get bumped up into the next tax bracket and lose money. Slow down. This is not how tax brackets actually work. Here's the most important thing to know. Only the dollars above the bracket threshold get taxed more. This means you never go backward by earning more money ever. Let me give you an example because this is where things really start to click. In 2025, there's a tax bracket with an upper limit of $100,525. That is a real number. I do not make the rules. If you make $100,525 a year, your federal tax rate is 22%. If you get a raise and are now making $101,525, you go up to the 24% tax bracket. That does not mean you suddenly pay 24% on all the $101,525. you pay 24% only on that last thousand bucks. That's the magic and the misconception. This is where people leave money on the table They say no to opportunities They keep their income artificially low because they scared of the higher taxes monster Brackets only apply to the income within them It's a little bit like a nesting doll. If you're in the third tax bracket, part of your income is also taxed in the second tax bracket and the first tax bracket. If you're watching this episode on Spotify or on YouTube, I'm putting up the 2025 tax bracket, so it's super, super easy to see. The visuals are really helpful, so I would highly recommend watching this episode instead of just listening to it. But the main idea to digest here is if you move into a higher tax bracket, only the income above that line is taxed at the higher rate, not your entire salary. In order to fully understand what your tax bracket means for you, we need to tackle the difference between your marginal and effective tax rates. Your marginal tax rate is the rate applied to your last dollar of income, the bracket you're in. Your effective tax rate is the average rate you pay on all your income. That's essentially the average of all the tax brackets that you're in. Remember, it's like a nesting doll. Here's a story that will really paint this picture. A listener once DM'd me completely panicked because she saw she was now in the 32% tax bracket and thought it meant she was losing a third of her income to taxes. She had built this whole negative narrative around being in a financial disaster, and it simply was not true. We ran the numbers for her. Her marginal rate was 32%, yes, but her effective rate was just under 18%. She was losing way less than she thought, but because she didn't understand these numbers, she was making budgeting decisions based on fear instead of reality. So if you're asking yourself, what bracket am I in? Your answer will be your marginal rate. But if you're asking yourself, what percentage of my income do I actually pay on taxes? That's your effective rate. Knowing both lets you plan smarter, save smarter, and most importantly, not freak out every April. Been there. It is not a fun time. The next big mistake, and it is such a sneaky one, is withholding too much. You know when you get that huge tax refund and everybody celebrates like they just won the lottery? That is cuckoo crazy to me. I hate to break it to you, but that refund is not a gift, a present from Uncle Sam. It is not a bonus. It is not free money. That is your money just coming back to you. It is literally your own money that you loan the IRS interest-free. I want you to think of that refund as a forced saving plan that you did not volunteer for. If you got a $2,000 refund, that's $166 per month that you could have spent or invested. You got a $5,000 refund, that's $416 per month that could have been working for you. And don get me wrong I understand the emotional appeal of a refund It feels really good to get a big old check But your goal shouldn be getting a big refund The goal should be accuracy owing a tiny bit or getting a tiny bit back So how do you fix your withholding? The form you want is W-4. You can update it at any time, not just when you start a job. If you're overpaying on taxes and getting a big refund, you can update your W-4 by increasing your allowances, removing extra withholding, or adjusting dependence so that less tax comes out of each paycheck. If you're underpaying and end up owing money at tax time, you can add extra withholding, reduce your allowances, or remove dependents so that more tax is withheld. These small tweaks really help you dial in your paycheck so that it matches what you actually owe. Okay, here's my last tip. I'm sure you know about tax deductions and tax credits. They both kind of sound like the same thing, but one is way, way more powerful. A deduction lowers the amount of income that gets taxed. A credit lowers the amount of tax you owe dollar for dollar. Credits are MVPs. Deductions are second string. Both are good. One is extremely powerful. If you get a $1,000 deduction and you're in the 22% tax bracket, your tax bill drops 220 bucks. That's fine. If you owe $5,000 in taxes and you get a $1,000 credit, now you owe $4,000. That's a full $1,000 in savings. And that is a big, big deal. So when you're planning your year, charitable giving, child care decisions, appliances, energy upgrades, it is worth knowing which of those options leads to credits, not just deductions. A lot of people overpay the government simply because they don't know the difference. These are not loopholes. These are the rules just used correctly. And when you use them correctly, you can often end up with more money in your pocket immediately. That's the closest thing to a financial superpower most people will ever get. So those are my big tax secrets. And here's the big takeaway. Most people overpay in taxes not because of some complicated issue, but because they don't understand how the system works. But now you do. You know what your tax bracket actually means. The difference between marginal and effective rates. Why big refunds are not your friend and how to fix your withholding. You don't need to be a CPA. You just need to speak this language. And the more fluent you become, the more money you keep. For today's tip, you can take straight to the bank. take a look at whether you're actually using the tax advantaged accounts available to you. These are the places where the IRS literally rewards you for saving and investing, yet most people leave them untouched. A 401k, a Roth IRA, an HSA or FSA all reduce your taxable income in different ways, and each one helps you keep more of every dollar you earn. If you're trying to lower your tax bill and build wealth faster, channel as much as you reasonably can into these accounts first, because every contribution is basically a legal tax discount on your future.
