1. Taxes

2. What are Good Taxes? According to Adam Smith: Simple to understand Dont provide negative incentives Avoid loopholes IRS manual – 2,500,000 pages –(4 X size of the Bible)

3. Income Tax in USA IRS – tax collection agency in USA Taxes are deducted throughout year Every citizen must file every year by: If you paid more during the year then you need to: you get a refund If you paid less during the year then you need to: you must pay the difference

4. Almost 45% of Americans paid no federal taxes last year The lowest tax bracket is 10% for $8,500 for a single person; $17,000 for married filing jointly The highest tax bracket is 35% for those earning over $379,151 In 2011 Romney earned $1.95m on $13.7 income (no salary) for a rate of 14.1%

5. True Flat Tax – One tax rate for every person regardless of circumstances Marginal Flat Tax – (allows deductions) is a form of flat tax. It is progressive Progressive – Tax rate increases with increases in taxable base Regressive – Opposite of progressive because it penalizes those with less income – sales taxes are regressive Proportional – Fixed rate that is proportional to the amount subject to taxation – flat tax

6. $100,000 per year – single person First $8,500 taxed at 10% = $850 $8,500 - $33950 taxed at 15% = $33,950- $82,250 taxed at 25% = $82,250-$100,000 taxed at 28% = = $21,720 A $10,000 interest on mortgage deduction reduces the $100,000 to $90,000 First $8,500 taxed at 10% = $850 $8,500 - $33950 taxed at 15% = $33,950- $82,250 taxed at 25% = $82,250-$90,000 taxed at 28% = = $18,920

7. Income Tax: This tax is based on your wage and could be as high as 35% A tax deduction is taken of the declared income A tax credit comes of the tax paid Alternative Minimum Tax: First $47,450 is exempt, but over is taxed at 26% (+$175k @ 27%, +$300k @ 28% plus lose exemption) You pay the higher of the two tax options In our example you paid $21,720 on $100k, the AMT would be $13,663

8. Corporate Taxes: Taxes on the profit from business – can deduct necessary expenses Property Taxes: Usually based on a house but could be other items like a boat – based on ownership Payroll Taxes: (15.3% FICA) Deducted from wages paid to employees, usually matched by the employer – pays for Medicare etc Social Security is 12.4% (6.2%/6.2%) of gross salary Medicare - 2.9% (1.45%/1.45%) gross salary

9. You earn $100,000 SS> Employer pays 6.2% = $6,200 Employee pays 6.2% = $6,200 Medicare> Employer pays 1.45% = $1,450 Employee pays 1.45% = $1,450 Both pay $7,650 Total the employer has to pay = $107,650 Total employee gets is $93,350 FICA (15.3%) is regressive because only paid on first $113,700 (2013)

10. Estate/Inheritance Tax: (Death Tax) imposed on the transfer of an asset after death. This is the value of assets after your death First $5,250,000 m is exempt In 2013 the rate was 35% over the exemption Capital Gains Taxes: Collected from the profits from the sale of an asset, usually stocks or property – 15% if you are in the 25% or higher bracket Can be deferred with charitable trusts and annuities

11. Estate tax Tax on inheritance Sometimes called death tax 55% rate (additional 5% surtax on some estates) on all assets above $1 million A) Personal property – home, cars, artwork B) Business assets – property, machinery C) Investments – real estate, stocks, bonds $5,250,000 is exempt

12. Excise Tax (sin tax): Based on the value of the product being sold. Include gasoline, alcohol, and cigarettes - regressive Sales Taxes: (Consumption Tax) levied at the point of purchase – varies by state - regressive

13. Gift tax Tax on the transfer gifts or rewards for nothing in return Games shows, gambling, lottery Not included: Tuition/medical expenses, gifts to spouse, charities and political parties Annual exclusion is $14,000 Incentive?

14. Tolls: Taxes to gain access to a specific location, usually a road or a bridge Tariffs: Taxes paid to move products across international borders, aimed to make the import more expensive A child under 17 is a $1,000 tax credit A dependent child at the end of the tax year is $3,800 (2012) tax credit! For 3 or fewer qualifying children it is 15% of taxable income earned over $3000 2011 is schedule to the last year for a tax deduction on college – max is $4000 for incomes up to $65,000

15. The tax year ends at midnight Dec 31. Filing deadline is midnight, April 15. W-2 form – federal form sent by the employer to the employee stating how much was earned 1099 is for other forms of income that have to be declared: 1099-B: from securities 1099-Div: from dividends and capital gains 1099-Misc: self-employment, tips, royalties, rent

16. If you are curious… US estate taxes over the years GW Bush worked to repeal in 2001 Came back in 2011 when law expired President Obama supports estate tax