Bài giảng Personal Financial - Chapter 3: Taxes in Your Financial Plan

Start planning for taxes . Know current tax laws as they affect you Maintain complete and appropriate tax records Make purchase and investment decisions that reduce tax liability Goal: Paying your fair share but still taking advantage of available tax benefits

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Start planning for taxes . Know current tax laws as they affect you Maintain complete and appropriate tax records Make purchase and investment decisions that reduce tax liabilityGoal: Paying your fair share but still taking advantage of available tax benefits 3 Taxes in Your Financial Plan Planning Your Tax Strategy3-* Objective 1 Identify the Major Taxes Paid by People in Our Society Taxes on PurchasesSales tax and excise tax (e.g., gas, cigarettes)Taxes on PropertyReal estate property taxPersonal property taxTaxes on WealthFederal estate taxState inheritance taxTaxes on EarningsIncome tax and Social Security tax3-*The Progressive Nature of the Federal Income TaxProgressive tax – takes a larger percentage of income from high-income taxpayers than low-income taxpayers. Federal income taxRegressive tax – as income rises, the tax demands a decreasing proportion of a person’s income as income increases.State sales taxObjective 2 Calculate Taxable Income and the Amount Owed for Federal Income TaxStep 1: Determine AGIGross income:Earned income (wages, salary, tips, bonuses)Investment income (dividends, interest)Passive Income (business limited partnerships) AGI = Adjusted Gross Income Gross income minus adjustments 3-*Objective 2 Calculate Taxable IncomeStep 2: Computing Taxable IncomeTax deduction = amount subtracted from adjusted gross income (AGI) to arrive at taxable incomeStandard deductionItemized deductions 3-*Calculate Taxable Income Exemptions Exemptions  also subtracted from AGI An exemption = a deduction for yourself, your spouse, and qualified dependents (increases annually for inflation)After deducting deductions and exemptions from AGI, you have taxable income 3-*Objective 2 Calculate Taxes OwedStep 3: Calculating Taxes OwedTax table rates = marginal rates The tax rate paid on the last (or next) dollar of taxable income. Example:After deductions and exemptions, a person in the 35% tax bracket pays 35 cents in taxes for every dollar of taxable income in that bracket. 3-*Objective 2 Calculate Taxes Owed The average tax rate = the total tax due divided by taxable income Average tax rate $1,500 interest)1040A- (IRA and child care credit, <$100k income, no itemizing)1040- (“long form;” all income, credits, itemized deductions) Which form to use? It dependsType of incomeAmount of incomeNumber of deductionsComplexity of tax situation 3-*Completing the Federal Income Tax ReturnFiling status and exemptionsIncomeAdjustments to incomeTax computationTax creditsOther taxes (such as from self-employment)Payments (total withholding and other payments)Refund or amount you oweRefunds can be directly deposited to your bank account.Payments may be directly debited from your bank account.Your signature = Most common filing error 3-*Types of Tax Preparation ServicesOne-person, local offices to large firms such as H & R Block“Enrolled agents” = Government-approved tax experts CPA Tax AccountantsAttorneys3-*Also tax preparation software, Free File Alliance (online filing), IRS services and VITA volunteersEvaluating Tax ServicesFactors to consider:Training and experience of tax professional?Fee for preparing taxes and how determined?Questionable deductions suggested?If return is audited will the preparer represent the client?Is tax preparation the main business activity or is it a front for other financial products?3-*Tax Service WarningsUltimately you are responsible for providing complete and accurate informationIf your professional tax preparer makes a mistake, you are still responsible for paying the correct amount, plus any interest and penalties.Hiring a tax preparer does not guarantee that you will pay the correct amountBeware of tax preparers that offer refunds in advance“Refund anticipation loans” can charge interest rates in excess of 300%3-*What if Your Return is Audited?≈ 0.6% of all returns are auditedIf you claim large or unusual deductions you are more likely to be audited.Three types of audits:Correspondence audit for minor questionsOffice audit takes place at an IRS officeField audit is the most complex, with an IRS agent visiting you at your home, your business, or your accountant’s office 3-*Objective 4 Select Appropriate Tax Strategies Tax Planning StrategiesPractice Tax AvoidanceLegitimate methods to reduce your tax obligation to your fair share but no more (e.g., deductions & credits, HSAs, tax-deferred/tax-free investing)Financial decisions related to purchasing, investing, and retirement planning are the most heavily affected by tax laws (e.g., home, IRAs)Keep good tax records (W-2s, 1099s, receipts, copies) Tax EvasionIllegally not paying all the taxes you owe, such as not reporting all income 3-*Tax Planning Strategies Minimizing TaxesIf you expectThen you shouldBecauseThe same or a lower tax rate next yearAccelerate deductions into this yearGreater benefit to higher rateThe same tax rate next yearDelay income into next yearDelay paying taxesA higher tax rate next yearDelay deductionsGreater benefitAccelerate incomeTaxed at lower rate3-*Wrap UpChapter QuizConcept Check 3-1: Which Type of Tax?Is it Taxable? Is it Deductible?Concept Check 3-2- Tax Deduction or Tax Credit? Concept Check 3-3- Which Tax Form?Concept Check 3-4- Tax-Exempt or Tax-Deferred?
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