Planning Your Tax Strategy Personal Financial Planning Name_____________________

Taxes and You Why are taxes so important?  Taxes are an everyday expense of life that allow your local, state, and federal government to provide important services.  Taxes pay the bills for those services such as:  Medicare  Medicaid  Military  National debt  Police and fire protection  Public schools  Road maintenance  Parks, libraries, safety inspection of foods/drugs

Types of Taxes  You pay some type of tax every time you get a paycheck, buy a pair of shoes, or fill up your tank.  Taxes on Purchases  Sales Tax – added to price of product by state/local governments  Some states do not tax food and medicine  Excise Tax – tax on specific goods/services collected by federal/state government  Gasoline  Air travel  Telephone service

Taxes on Wealth  Estate Tax – federal tax collected on the value of a person’s property at the time of their death  Inheritance Tax – state tax collected on the property left by a person in their will  Gift Tax – money or property valued at more than $11,000 given by one person to another in a single year.  Educational and medical expenses are not subject to gift tax.

Types of Taxes  Taxes on Property - real estate property tax  Major source of income for local governments  Covers cost of local schools  City expenses

Taxes on Earnings  Income Tax – tax on wages, salaries, and self- employed earnings.  Federal government main source of revenue.  Social Security funds are also collected as a tax.  The Internal Revenue Service (IRS)  Primary purpose is to collect federal income taxes and to enforce the nation’s tax laws.  Complete your federal income tax return, you determine if you have paid too much or too little income tax.  At that time you either pay more or receive a refund from the IRS.

A Form W-2 Provides much of the information that you need to file your yearly federal income tax

Understanding Income Taxes  Income tax return  1040 or 1040EZ  Reports how much money you received from work and other sources and the exact taxes that are owed  Are you entitled to a refund or do you owe more?

Form 1040

Gross and Adjusted Gross Income  Gross Income  Earned Income  Interest Income  Dividend Income  Adjusted Gross Income  Gross income after calculating reductions  Contributions to a Retirement saving plan (IRA)  Student loan interest

Your Taxable Income  Adjusted gross income less any allowable tax deductions  Your income tax is calculated based on your taxable income

Tax Deductions  An expense that you can subtract from your adjusted gross income  Standard Deduction – amount of money set by gov’t that isn’t taxed (2014) Filing StatusStandard Deduction Single$6,200 Married Filing Jointly$12,400 Married Filing Separately$6,200 Head of Household$9,100

Itemized Deductions (further reduces tax liability)  Medical and Dental Expenses  Taxes  State and Local Taxes  Real Estate Property Tax  Interest  Home Mortgage interest  Home Equity Loan interest  Contributions  Cash and property to qualified charities *Use standard deduction unless itemized is more*

Exemptions  Deduction from adjusted gross income  Dependent – someone you support financially, such as a child.  Tax exemption amounts: 2014$3, $4,000  Tax Credit – subtracted directly off your taxes you owe  EIC – Earned Income Credit – Low income workers

Making Tax Payments  Payroll Withholding  W-4 Form

2014 Tax Year Brackets (Filing Status) Tax Rate Single Married/Joint & Widow(er) Married/SeparateHead of Household 10% $1 - $9,075$1 - $18,150$1 - $9,075$1 - $12,950 15% $9,076-$36,900$18,151 to $73,800$9,076 to $36,900$12,951 to $49,400 25% $36,901 to $89,350$73,801 to $148,850$36,901 to $74,425$49,401 to $127,550 28% $89,351 to $186,350 $148,851 to $226,850 $74,426 to $113,425 $127,551 to $206,600 33% $186,351 to $405,100 $226,851 to $405,100 $113,426 to $202,550 $206,601 to $405,100 35% $405,101 to $406,750 $405,101 to $457,600 $202,551 to $228,800 $405,101 to $432, % over $406,750over $457,600over $228,800over $432,200

The W-2 Form

The Federal Income Tax Return  Deadline – April 15 th

Completing the Federal Income Tax Return  1040EZ, 1040A, 1040 ???  Gathering Information and Documents  Tax forms and instruction booklets  Copies of your tax returns  Your W-2 Form  Interest and Dividend forms  Save copies and supporting documents for at least six (6) years

Completing State Income Tax Returns  States with no income tax: Alaska Florida Nevada South Dakota Texas Washington Wyoming  States with nearly no income tax: Tennessee New Hampshire

NJ State Income Tax Rates Tax Withholding Table Single or Married/Civil Union Couple- Filing Separately (Rate Table A) If the Amount of Taxable Income Is: The Amount of New Jersey Tax Withholding Should Be: Over: But Not Over: Of Excess Over: $ 0$ 20,000$ 0plus1.5%$ 0 20,000 35, plus2.0% 20,000 35,000 40, plus3.9% 35,000 40,000 75, plus6.1% 40,000 75,000 > 500,000 < 2,930plus7.0% 75,000 > 500,000 and over 32,680plus9.9% 500,000 <

Tax Assistance and Strategies  Tax Assistance  IRS Website  Books  Software  TurboTax  Professionals  H&R Block  Tax Audit

The most common payroll tax withholdings are:  FICA - Federal Insurance Contribution Act (Social Security)  MEDICARE FICA - Part A  FED W/H - Federal Withholding Tax  NJ W/H - NJ Withholding Tax  NJ TDI - NJ Temporary Disability Insurance  NJ UIC - NJ Unemployment Insurance Compensation  NJ HCS - NJ Health Care Subsidy (Portion of Disability Insurance)  NJ WFD - NJ Work Force Development (Portion of Unemployment Insurance)

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