HACE 3200 1st Edition Lecture 10 Outline of Last Lecture I Cash or Liquid Asset Management II On Line Banking and Net banks III Money Market Mutual Funds Outline of Current Lecture I Income tax structure II Social Security III State and Income Taxes IV Standard Deductions Chapter 4 Tax Planning and Strategies Importance of Tax Planning o In 1913 the 16th Amendment gave Congress the right to impose the first income tax o The average American Works more than 4 months just to pay his her taxes Income Tax Structure o Income Tax progressive tax meaning that the more you earn the more you pay o Tax brackets income ranges for which the same marginal tax rate applies 10 39 5 Income Tax Structure cont d o Average Tax rate average amount of every dollar you earned that was paid for federal income taxes o Effective Marginal tax rate average amount of every dollar you earned that paid for all local state federal income taxes largest has more in it Paying Your Income Taxes o Withholdings tax payment from each paycheck determined on the basis of income and W 4 form o Quarterly estimated payments 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 o Payments with the tax return the dreaded April 15th o Withholdings from stock retirement funds and prize or gambling winnings Social Security OASDI Federal Insurance Contributions Act FICA o Old Age Survivors and Disability Insurance OASID tax aka Social Security o Social Security a mandatory insurance program administered by the federal government that provides support in the event of death disability health problems or retirement o Tax rate of 6 20 of gross salary up to 117 000 in 2014 there is NO social security taken out after this maximum Social Security of FICA cont d o Medicare a health care insurance program for elderly and disabled o Tax rate of 1 45 of gross salary with no annual cap State and Local Income Taxes o Most states impose an income tax however some like Texas do not o Local income taxes are uncommon but some larger cities for example New York City impose such a tax Other Non Income Based Taxes That You Face o Excise sin taxes and state sales taxes imposed when goods are purchased o Real estate and property taxes imposed annually or semi annually on assets owned o Gift and Estate Taxes imposed when assets are transferred from one owner or another 1 Who has to file an Income Tax Return in 2014 o Single 10 000 o Head of Household single person who has a dependent child or foster child or even parent Someone that is financially dependent on you 12 850 o Married Filing Jointly 20 000 o Married Filing Separately 3 900 o Qualifying Widower with dependent child 16 100 Filing Status Classifications o Single o Married Filing Jointly o Married filing separately o Head of Household 2 Sources of Taxable Gross Income o Wages salaries and tips o Capital gains dividends and interest o Alimony o Pension funds and IRA distributions o Business and Farm Income o Rental and Royalty income o Social Security and unemployment benefits Sources of Tax Exempt Income o Roth IRA earnings o State and local municipal bond interest o Gifts and inheritances o Child support payments o Federal income tax refunds o Veterans and welfare benefits 3 Gross Income minus adjustments adjusted gross income AGI o Alimony payments o Selected IRA and other retirement contributions o 50 for Social Security and Medicare self employed only o Student loan interest with limitations 4 Subtracting Deductions from Adjusted Gross Income AGI o Two Methods Itemized deductions Standard deductions IRS Limits on Itemized Deductions o Medical and dental expenses must exceed 7 5 of AGI o Home Mortgage and investment interest payments o Gifts to charity keep good records but must have receipt if the gift is more than 250 Other Gifting o You can gift another person 14 000 per year tax deductible Standard Deductions 2013 2014 o Single 6 100 2013 6 200 2014 o Married filing jointly 12 200 12 400 o Head of Household 8 950 9 100 o Widow Widower 12 200 12 400 5 Claiming Your Exemptions o Exemptions are meant to provide everyone with some untaxed income provided you don t earn too much o 3 900 2013 3 950 2014 o Personal Exemptions blind over 65 o Dependency Exemptions 6 Calculating Your Base Income Tax on Taxable Income o Tax tables in the booklet o Tax rate schedules must be used if income exceeds 100 000 7 Determining Your Credits o Child credit o American Opportunity Tax Credit your first 2 yrs in college o Lifetime Learning credit each year after first 2 o Child and dependent care credit o Earned income credit EIC check this one out EIC o Can be up to 6 044 2013 o 6 143 2014 for qualifying family with children 8 Determine final tax liability o 1 Total source of income o 2 Adjustments off Gross income o 3 Deductions off Adjusted Gross Income 1 itemized or standard 1 here is worth your tax bracket percentage 15 28 35 8 Determine final tax liability cont d o 4 Exemptions elderly blind o 5 Arrive at taxable income figure tax owed o 6 Deduct credits off tax amount 1 credit 1 off tax o Final Amount you owe IRS
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