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Income Taxes


... 15th, or 29th. 30. Tax Changes for 2007 ... Paper check through the mail. ... filed returns in as little as 10 days but paper refunds will take 4-6 weeks. ... – PowerPoint PPT presentation

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Title: Income Taxes

Income Taxes
  • Financial Planning for Women
  • February 2008
  • Garman/Forgue Personal Finance 9th ed.
  • Presented by Danielle Walker

Objectives - be able to
  • Calculate your marginal tax rate apply in tax
  • Reduce your taxable income
  • Differentiate between adjustments, deductions,
  • Recognize taxable income lt gross
  • Adjust W-4 withholding
  • Avoid instant refund schemes
  • Know Utah has 2 tax systems

  • Tax Planning Seeking legal ways to reduce,
    eliminate, or defer income taxes.
  • Taxable Income the income upon which income
    taxes are levied

Progressive vs. Regressive
  • Progressive tax- tax rate increases as taxable
    income increases.
  • U.S. income tax
  • Regressive tax- as income rises, the tax demands
    a decreasing proportion of a persons income.
  • State sales tax

Marginal Tax Bracket and Rate
  • Marginal Tax Bracket (MTB)- one of the 6 income
    ranges that are taxed at increasing rates as
    income goes up
  • Marginal Tax Rate- the rate at which one is taxed
    in each bracket
  • Tax brackets are adjusted each year for inflation

Find MTB
  • Use IRS tables or
  • On tax table find
  • Taxable income tax due
  • Add 100 to taxable income and find tax due
  • The difference MTB
  • 10, 15, 25, 28, 33 or 35
  • Most taxpayers are in 10 or 15 MTB

Progressive Nature of Income Tax
Single filers
Marginal Tax Rate and Financial Decisions
  • Need to know MTB for investment decisions
  • Other financial decisions affect taxes
  • Example-
  • 25 MTB
  • Give 100 to charity (tax-deductible)
  • Essentially you give 75 to charity and the
    government gives 25!!
  • Only if itemized deductionsgt standard deduction

Filing Status Tax Rates
  • IRS 2007 tax rate schedules
  • http//,,id164272,
  • Single
  • Married, filing jointly or qualifying widower
  • Married, filing separately
  • Head of household

8 Steps in Calculating Your Income Taxes
  • Determine your total income
  • Determine and report your gross income after
    subtracting exclusions
  • Subtract adjustments to income
  • Subtract either the standard deduction or
    itemized deductions
  • Subtract the value of your personal exemptions

8 Steps to Calculating Your Income Taxes
  • 6. Determine your preliminary tax liability
  • 7. Subtract tax credits for which you qualify
  • 8. Calculate the balance due the IRS or the
    amount of your refund

Adjusted Gross Income (AGI)
  • Income (just a few)
  • Wages and Salaries
  • Commissions
  • Tips Earned
  • Gambling and Lottery Winnings
  • Capital Gains and Losses
  • Exclusions/Adjustments
  • Gifts
  • Inherited money or property
  • Income from a carpool
  • Federal income tax refunds
  • Child support payments

AGI- gross income less any exclusions and
Personal Exemptions and Standard Deductions
  • Personal Exemptions- 3400 x number of people
    that taxpayers income supports
  • Standard Deduction- amount that all tax payers
    may subtract from their AGI
  • Amount depends on filing status
  • Deduct itemized deductions if gt SD
  • You only pay fed. taxes on income gt your personal
    exemption(s) standard or itemized deductions.
    (taxable income)

Personal Exemptions
  • Based on the number of people supported by the
    taxpayers income
  • Spouse, children, parents, etc.
  • Must provide more than half of financial support
  • For 2007 each exemption reduces taxable income by
  • Adjusted yearly for inflation

Standard Deductions
Itemized Deductions
  • Medical and Dental Expenses
  • Taxes You Paid
  • Mortgage Interest You Paid
  • Gifts to Charity
  • Casualty and Theft Losses
  • Job Expenses and Most Other Misc. Deductions

Tax Credits
  • After PE and SD you determine your Tax Liability
  • Subtract tax credits
  • Tax Credit- dollar-for-dollar decrease in tax
  • Refundable or Nonrefundable
  • Refundable- can get paid even if you do not owe
    income taxes! Must file to collect!

Tax Credits
  • Hope Scholarship Credit
  • Lifetime Learning Credit
  • Earned Income Credit
  • Child Tax Credit
  • Child and Dependant Care Credit
  • Adoption Credit
  • Mortgage Interest Credit
  • Retirement Savings Contribution Credit
  • Elderly or Disabled Tax Credit
  • Energy-Savings Tax Credit

Retirement Savings Tax Credit
  • 50 (1,000 credit for 2,000 savings)
  • AGI Singles 15,000 MFJ 30,000
  • 20 (400 credit for 2,000 savings)
  • AGI Singles 16,250 MFJ 32,500
  • 10 (200 credit for 2,000 savings)
  • AGI Singles 25,000 MFJ-50,000

Reduce Taxes Through Proper Planning
  • Practice legal tax avoidance, not tax evasion.
  • A dollar saved from taxes is really two dollars -
    or more
  • Opportunity cost
  • Earning another dollar to replace one paid to the
  • Earnings on a dollar not paid to the IRS

Reduce Taxable Income Via Your Employer
  • Premium only Plan
  • Transportation reimbursement plan
  • Flexible Spending Accounts (FSA)
  • Defined-Contribution Retirement Plan
  • 401(k) Retirement Plan
  • Matching Employer Contributions

Tax Terminology
  • Taxable
  • Tax-deferred
  • Tax-free (tax-exempt)
  • Tax Sheltered

Tax Sheltered Investments
  • Investments that yield returns that are tax
  • IRAs, Traditional and Roth
  • Coverdell Education Savings Account
  • 529 College Savings Plans
  • Government Savings Bonds
  • Municipal Bonds
  • Capital Gains on Housing

After-Tax Yield
  • Because of tax-exempt status of some investments
    they may provide lower than average returns
  • Determine the after-tax yield to see if it is
    worth it.
  • After-tax yield taxable yield x (1- federal
    marginal tax rate)

After-Tax Yield
  • Example-
  • 35 combined federal and sate marginal tax rate
  • Municipal bond 3.5 yield
  • Taxable corporate bond 5.7 yield
  • 5.7 x (1- 0.35) 3.71
  • The 5.7 taxable bond is the way to go!

  • When employees have their employers withhold more
    in estimated taxes than the tax liability
    ultimately due.
  • A poor strategy of forced savings
  • Opportunity cost- what could have been
    done/earned with that money???
  • File a new W4 to decrease your withholding and
    automatically invest or payoff debt
  • http//,,id96196

Top 3 Financial Missteps
  • Turn all your income tax planning over to someone
  • Overwithhold too much income to receive a refund
    next year
  • Ignore the impact of income taxes in your
    personal financial planning

Hiring a Tax Preparer
  • Anyone can be a tax preparer!!
  • Make sure to do your research
  • What qualifications do they have?
  • How qualified do I need them to be?
  • What do they charge?
  • Do I want tax advise all year round?
  • Make sure to check out agencies as well as

Hiring a Tax Preparer
  • Free file - AGI needs to be 54,000 or less
  • http//,,id118986,00.h
  • USU Accounting students provide VITA assistance
    in basement of USU Business building
  • Open Wednesdays 5-9 pm Saturdays 9 am-1 pm
    February 13th - April 5th.
  • For more info Joe Fail
  • The VITA lab will not be open March 8th, 12th,
    15th, or 29th

Tax Changes for 2007
  • Deduction for mortgage insurance premiums is
    phased out for taxpayers with adjusted gross
    incomes exceeding 100,000 (50,000, if married
    filing separately).
  • To deduct any charitable donation, taxpayers must
    have a bank record or a written communication
    from the recipient showing the name of the
    organization and the date and amount of the

Utah Changes for 2007
  • What's New for 2007 Tax Year
  • Dual Income Tax System The Utah individual tax
    law was changed for 2007 to allow you to
    calculate your Utah tax liability two ways and
    then pay the lower amount.
  • Utah Educational Savings Plan (529) Deduction
    Expanded The deduction for an investment in a
    Utah Educational Savings Plan has been increased
    for 2007.

Utah Changes for 2007
  • Utah Educational Savings Plan Credit An
    investment in a 529 may be taken as a deduction
    (Part 3 of TC-40S) under the traditional tax
    system. It may also be used as a credit under the
    single rate tax system when calculating the tax
    on line 13 of TC-40.
  • Nonrefundable Residential Energy System Tax
    Credit a new credit is available for a system
    installed on a residential unit that supplies all
    or part of the energy required.

Utah Changes for 2007
  • Refundable Commercial Energy System Tax Credit A
    new refundable credit is available for a
    commercial energy system.
  • For more information - http//

Receiving Your Refund
  • Split refunds among up to three accounts
  • banks, mutual funds, brokerage firms or credit
  • To encourage savings
  • Direct deposit to one account
  • Paper check through the mail.
  • IRS will process electronically filed returns in
    as little as 10 days but paper refunds will take
    4-6 weeks.

A Word of Caution
  • Beware of Tax Refund Anticipation Loans (aka
    rapid refund)
  • Very costly
  • Similar to a payday loan!!
  • File electronically and it is almost as fast

A Word of Caution
  • Rapid Access Loan (1-2 Day Refund)Get a loan in
    the amount of your refund in as little as 1-2
    business days after IRS acknowledgment. Loan must
    be approved and fees will be deducted from the
    loan. Available again in January, 2008. 29.99
  • See below for additional fees charged by SBBT
  • Refund Amount SBBT Fee
  • 300 - 3500 3
  • 3501 - 4500 105
  • In addition to the fees stated above,there is an
    account handling fee of 30.95.

On a Lighter Note
  • The guy who said that truth never hurts never had
    to fill out a Form 1040.
  • Another difference between death and taxes is
    that death is frequently painless.
  • Children may be deductible, but they are still
  • Tax Humor (page 1)?From Tom Antion Associates -

March 5, 2007!!
  • Investment Planning
  • Note that it is the FIRST Wednesday due to Spring
  • Remember to bring a friend!
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