1. Managing Taxes

2. 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.

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

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

5. The Progressive Nature of the Federal Income Tax
If your filing status is Single
If your taxable income is:
Over:
But not
over --
The tax is:
Of the
amount
over-- $0
$7,825 %
7,825
31,850
$ %
77,100
4, %
160,850
15, %
349,700
39, %
No limit
101, %
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.

6. How Your Income is Really Taxed
Assumes a single individual with gross income of $57,700
$3,500 personal exemption is not taxed.
$5,450 standard deduction is not taxed.
First $7,825 of income is taxed at 10%.
Income
$15,075 taxed at 15%.
$25,850 taxed at 25%.
= $57,700
Tax owed
$ $ $ $2, $6, = $9,507
This individual’s marginal tax rate is 25%
This individual’s average tax rate is 16.5% (9,507/57,700)

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