Chapter 4: Managing Taxes

Objectives Explain how taxes are administered and classified. Describe the concept of the marginal tax rate. Determine who should file an income tax return.

Objectives Describe the two ways of paying taxes: payroll withholding and estimated taxes. Identify the eight planning steps involved in calculating federal income taxes. Understand planning strategies to legally avoid overpayment of income taxes. Explain the basics of IRS audits.

What is Tax Management? ATTENTION! A PLANNING PROCESS FOR TAX: Reduction Deferment Elimination

Administration/Classification of Income Taxes Federal tax laws Progressive nature of income tax Regressive Marginal tax rate Effective marginal tax rate Average tax rate

The Progressive Nature of the Federal Income Tax-2009 If your filing status is Single If your taxable income is: Over: But not over -- The tax is: Of the amount over-- $0 $8,350 ------------ 10% 8,350 33,950 $835.00 + 15% 82,250 4,675 + 25% 171,550 16,750.00 + 28% 372,950 41,754.00 + 33% ---------- 108,216.00 + 35% The Tax Rate Schedule is shown so you can see the tax rate that applies to all levels of taxable income. It is not used to figure ones’ taxes.

The Progressive Nature of the Federal Income Tax-2009 If your filing status is Married filing jointly If your taxable income is: Over: But not over -- The tax is: Of the amount over-- $0 $16,700 ------------ 10% 16,700 67,900 $1,670.00 + 15% 137,050 9,350 + 25% 208,850 26,637.50 + 28% 372,950 46,741.50 + 33% ---------- 108,894.50 + 35% The Tax Rate Schedule is shown so you can see the tax rate that applies to all levels of taxable income. It is not used to figure ones’ taxes.

Who Should File a Tax Return? STUDENTS WITH: Earned income Unearned income Transfer payments