Personal Finance Taxes

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Presentation transcript:

Personal Finance Taxes Bill Klinger

Personal Finance Review Cash flow Balance sheet Net worth Time value of money PV FV Annuity Payment Non-annual payments

Taxes FICA Sales tax Estate / Inheritance tax Income tax Federal Insurance Contributions Act Paid by both employer and employee Social Security 6.2% of income up to $110,000 in income Medicare 1.45% of income Sales tax 6.875% in NJ Not on unprepared food, paper products, medicine, clothing Estate / Inheritance tax Income tax

Income Tax Gross income Adjusted gross income (AGI) = earned income + interest + dividends + capital gains (short and long-term) Adjusted gross income (AGI) = Gross income - Alimony - Interest on student loans - IRA - Tuition

Income Tax Deductions Exemptions Taxable Income Interest expense (e.g. mortage) State income tax Real estate tax Charitable contributions Other Exemptions Deductions for dependants Taxable Income = Adjusted gross income (AGI) - Deductions - Exemptions

Income Taxes Calculating Tax brackets “Progressive” Tax on ‘base’ + percentage over ‘base’ Marginal vs. average tax rate Example Text p. 108-109

Income Tax Credits Full amount subtracted from tax due Credits for Children College expenses Contributions to fund for education expenses Cloverdale 529

In Class In groups of two Calculate the tax due if the taxable income is $75,000 for a married couple. What is the marginal tax rate? What is the average tax rate? Calculate the tax due if the taxable income is $45,000 for a married couple. Calculate the tax due if the taxable income is $200,000 for a married couple.