Individual Income Tax Rate(1 pages)
Previewing page 1
Could not display document, please try refreshing this page a few times.
Please contact support if you are unable to view this document.
Individual Income Tax Rate
- Lecture number:
- Lecture Note
- University of Texas at Austin
- Fin 320f - Foundations of Finance
Unformatted text preview:
Lecture 10 Outline of Current Lecture -Individual Income tax rates -Progressive vs. regressive taxation -Ordinary income vs. capital gains -Deductions and exemptions -Marginal vs. avg tax rate -Tax deduction vs tax credit Current Lecture Notice that the rates progress (get larger) as taxable income gets larger In other words, the US has a progressive tax system Regressive taxation applies higher rates to lower incomes The tax tables apply to ordinary income: Wages, salaries and tips Interest income Non-qualified dividend income (holding period ≤ 60 days) Short-term capital gains (holding period ≤ one year) A maximum of 20% is charged on: Qualified dividend income (holding period ≥ 60 days) Long-term capital gains (holding period ≥ one year) All taxpayers deduct certain expenses from gross income Companies deduct business-related expenses Individuals deduct a personal exemption for each person on the tax return, plus: An itemized list of living expenses, or The “standard deduction” determined by Congress The marginal rate is applied to the last (highest) dollar of taxable income The average tax rate is applied to every dollar of taxable income Average tax rate = Tax expense ÷ Taxable Income Tuula’s average tax rate: = $15,818.75 ÷ $79,850.00= 19.8% A tax deduction reduces taxable income The personal exemptions, plus the itemized or standard deductions for individuals, plus any other special deductions All business-related expenses for corporations As taxable income declines, the total tax liability declines as well FIN 320F
View Full Document