HDF 322 1st Edition Exam 2 Study Guide I Overpay and Underpay as a country we overpay our taxes that is not viewed as good financial planning bc you are giving govt access to your funds that could be earning a small return II Pay as you go We have started pay as you go system we would have you send 20 40 bucks in before 40s After WWII people struggling so did pay as you go That means out of every pay check you will have WITHHOLDING if you are self employed or income not subject to withholding then you do ESTIMATION The employer self employed do ESTIMATION III W 4 Forms Not penalty if taxed owed is less than 1 000 due to no withholding for estimation of taxes these dates aren t quarterly though because we want you to get all of your statements interest capital gains back so you can estimate the final quarter of that prior year correctly IV Estimation Withholding You have to withhold or quarterly tax pay at the end of every year at least 90 of TAX LIABILITY TAXES OWED WHAT YOU PAY V Underpayment Penalty a Pay at least 90 of your tax liability for the current year You have to withhold or quarterly tax pay at the end of every year at least 90 of TAX LIABILITY TAXES VI Filing Status we are always on the LAST day of the year Dec 31 day of the calendar year as to what your filing status is VII Dependent Tests These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute a Qualifying Child or Qualifying Relative must qualify for all requirements VIII Minimum Filing Requirements a How much taxable income can you have and not pay any income tax IX Dependent Standard Deduction a Dependents are entitled to either basic 1 000 for unearned income OR the amount of earned income SD I Indexing of Taxes diff tax brackets and SD go up every year sometimes personal exemptions may stay for a whle bc IRS round DOWN to the nearest 50 we have certain things that are indexed good bc allows you to get increase in income without going up in next tax bracket for margins more taxes so NOW you have indexes II Not Taxable Income a Gifts that you get but the gift GIVERS are taxed any work benefits or child support and loans III Taxable Income a Disability income benefits it all depends on WHO pays the premium if YOU pay premium those dollars were already paid taxes on from income so benefits aren t taxed but if a 3rd party pays or buys disability income then that employer 3rd party wrote that off as deduction on business so the quote never had taxes so you have to pay taxes on disability payments so disability income payments the QUESTION IS WHO PAYS IF YOU DO NO TAX IF 3RD PARTY PAYS THEN BENEFITS TAXED IV Scholarships and Fellowships this law cam in early 90s if you receive money you MAY have to report for taxable income you are allowed to deduct DIRECT expenses from income see above if computer was required you can write it off but if you have buy a certain clicker calc you take scholarship income subtract from tuition book supplies you cant go home to visit unless you travel for field trip LINE 7 that s where you put it after you deduct all of the expenses and you write SCHLOR V Completing Federal Tax Return a A 9 step process outlined in the TEXTBOOK VI Capital Gains Losses CAPITAL GAIN LOSS profit loss received from sale after costs to buy and sell a where you make profit purchase price is less than selling HOLDING PERIOD b SHORT TERM held 1 year or less taxed at the MTR of taxpayer c LONG TERM Held over 1 year you don t get to use it you lose it anytime you take a loss they will give you a loss of 3 000 ever year but no more than that in any 1 year so if you have 10 000 you may ride off 3 000 in LINE 13 use to show losses VII Selling Your Home in 1997 gave us a law called it a universal exclusion gave married couples up to a half a million dollars exemption on a profit on a house and gave singles of a million allowed you to sell principal residence needed to live in at least 2 of aggregate of 5 years and then you go to exclude this amount IN CAPITAL GAINS aggregate of 5 bc maybe you move away and come back and sell ityou can use it over and over can be used every 2 years if that s how you move if you take a beating you CANNOT deduct a loss it s a personal asset not personal assets can be deducted only INVESTMENTS can be capital gain losses VIII Deductions All done on the income sheet explained more in next lecture I IRA s 401K is retirement plan provided by employer you can contribute up to 15 Thomas has 15 financial planners recommend you participate in your employer s 401K BECAUSE that reduces dollars you take it out of slaray and bonus 401K comes out in W 2 and is already subtracted out of taxable income 401K allows you to set aside money for when you retire IF your employer matches 1 dollar for 1 dollar most common is 50 cents for every dollar you contribute up to 5 if you contribute 1 000 they will contribute 500 ITS FREE MONEYwe encourage you to do 401K especially with a match don t go over percent for the match BECAUSE employer decides how you will invest that money they select mutual funds their own stock II Roth IRA not deductible ROTH taxes are exempt on all returns you pay takes on that 5 500 bc you weren t able to deduct but all earnings for next 20 30 years wont be taxed you can leave it there and die and your parents inherits it and don t pay taxes all earnings are exempt from taxes AND you don t have to take it out by 70 and you can keep it forever and your children can get it III Traditional IRA Deductible if you are eligible for an employer s health plan then you have to fill you worksheet but if you say No employer retirement plan then you automatically get 5 500 contribution IV Single Filing Status a if your AGI is at the bottom of the 1st page and it was 53 063 then his 53 000 is definitely below 59 000 so he would be able to deduct all 5 500 dollars what is the value of that adjustment So whatever his rate is in 2 is what you multiply 5 500 with and that s his tax savings cause he gets to deduct it V Student Loan Interest if you have student loan you pay interest …