1. Taxes and Financial Planning
Common goals related to tax planning:
Know current tax laws
Maintain complete records
Make financial decisions that can reduce tax liability
Principal purpose of taxes is to finance government activities.
About 1/3 of your earnings go to pay taxes.

2. Taxes on Purchases
State and local taxes are added to the purchase price of goods.
Excise tax is imposed on specific goods and services
Gasoline
Cigarettes
Alcohol
Tires
Air travel
Telephone service

3. Taxes on Property
Real estate property tax is based on the value of land and buildings.
Personal property taxes on the value of automobiles, boats, furniture, and farm equipment are imposed in some areas.

4. Taxes on Wealth
Estate tax-imposed on the value of an individual’s property at the time of death.
Inheritance tax-levied on the value of property bequeathed by a deceased individual.
Gift amount greater than $13,000 are subject to federal tax.

5. Taxes on Earnings Social Security Income Tax Federal tax
State tax in all but 7 states
Alaska
Florida
Nevada
South Dakota
Texas
Washington
Wyoming

6. Determining Adjusted Gross Income (AGI)
Taxable income-net income after deductions, on which income tax is computed
Types of income subject to taxation:
Earned income-wages, salaries, commissions, fees, tips, bonuses
Investment income-dividends, interest, rent
Passive income-business activities that you do not direectly participate-limited partnership
Alimony, awards, lottery winnings, prizes

7. Taxable Income Total income is affected by exclusions
Exclusions are amounts not included in gross income
Exclusions can also be tax-exempt income
Total income is affected by tax deferred income

8. Computing Taxable Income
Adjusted Gross Income-income after certain deductions including:
Contributions to a traditional IRA or Keogh
Alimony payments
Student loan interest, tuition and fee deductions
Tax-deferred retirement plans

9. Taxable Income
Deduction-an amount subtracted from AGI to arrive at taxable income.
Standard deduction
Itemized deduction
Exemption-a deduction from AGI for yourself, your spouse, and qualified dependents.

10. Taxes Owed
Use your taxable income in conjunction with the appropriate tax table or tax schedule.
Marginal tax rate-the tax on the last dollar of income.
Average tax rate-total tax due divided ty your taxable income.
Tax credit-amounts subtracted from the amount of tax owed.

11. Tax Payments
Payroll deductions-pay-as-you-go (W-4)

12. Tax Credit Versus Tax Deduction
$100 tax credit reduces your taxes by $100
$100 tax deduction reduces taxes by your tax bracket. For instance, if a person is in the 25% tax bracket it would reduce your taxes by 25%

16. New tax deductions for 2010 Haiti relief Cash for clunkers
First-time buyer
Residential energy credits