Personal Finance
 Nobody
enjoys paying taxes; however,
taxes help pay for:
• Roads
• Military
• Fire/Police Services
• Schools
• Libraries
• Parks, Zoos, etc…
 So, how
does the
government GET our
money?
 Income Tax: tax
on earned (employment)
and unearned (investments/savings)
income
 Payroll Tax: tax on earned income that
supports Social Security and Medicare
(a.k.a. FICA)
 Property Tax: tax on property, such as
land, buildings (including homes), and
motor vehicles
 Sales Tax: tax
on items purchased in retail
stores
 Excise Tax: tax charged on certain
consumption items (gas, cigarettes,
alcohol)
 W4: Form
you fill out when you gain
employment that helps the government
estimate how much money should be
withheld from your paycheck for taxes
 You
will receive a W4 from your employer
when you are hired.
 This
document will help estimate how
much should be withheld from your
paycheck for taxes.
 Every
paycheck a certain amount of money
is withheld as an “estimate” of how much
taxes you will owe.
A
Form W4 will help the government
determine how much to withhold from your
paychecks to cover your taxes.
 The
amount of income tax withheld
depends on your wages, marital status, and
number of dependents.
 W2: Form
received at the end of the year
detailing how much money you earned
throughout the course of the year from a
particular employer
 At
the end of every year, you will receive
a W2 from your employers.
 This
document will tell you how much you
made the previous year.
 This
document also tells you how much
was taken out of your paycheck for taxes
 1040/1040EZ: Form
you fill out at the end
of the year to determine the difference
between what you’ve paid the
government for taxes and the amount you
actually owe in taxes
Form
1040 is the beginning
document when filing taxes.
This
is the document you send to the
IRS that will determine if you will
receive a refund, or if you owe
money in taxes.
 Pay
the government or refund?
 Electronically
or by hand
 Use TurboTax
or other sites to help
2012 Income Tax Rate Schedule (Single)
Over
But Not Over
Marginal Tax Rate
$0
$8,700
10%
$8,700
$35,350
15%
$35,350
$85,650
25%
$85,650
$178,650
28%
$178,650
$388,350
33%
$388,350
And Over
35%
2012 Income Tax Rate Schedule (Married)
Over
But Not Over
Marginal Tax Rate
$0
$17,400
10%
$17,400
$70,700
15%
$70,700
$142,700
25%
$142,700
$217,450
28%
$217,450
$388,350
33%
$388,350
And Over
35%
 John
is single. His taxable income last year
was $7,500. How much is John’s tax bill?
 $7,500 x 10% = $750
2012 Income Tax Rate Schedule (Single)
Over
But Not Over
Marginal Tax Rate
$0
$8,700
10%
$8,700
$35,350
15%
$35,350
$85,650
25%
$85,650
$178,650
28%
$178,650
$388,350
33%
$388,350
And Over
35%
 Pat
and Christina are married. Last year their
taxable income was $16,750 between the two
of them. How much will they owe in taxes this
year?
 $16,750 x 10% = $1,675
2012 Income Tax Rate Schedule (Married)
Over
But Not Over
Marginal Tax Rate
$0
$17,400
10%
$17,400
$70,700
15%
$70,700
$142,700
25%
$142,700
$217,450
28%
$217,450
$388,350
33%
$388,350
And Over
35%
 Harvey
is single. His taxable income last year
was $24,000. How much is Harvey’s tax bill?
 $8,700 x 10% =
$870.00
 $15,300 x 15% =
$2,295.00
 Total Tax Bill
$3165.00
2012 Income Tax Rate Schedule (Single)
Over
But Not Over
Marginal Tax Rate
$0
$8,700
10%
$8,700
$35,350
15%
$35,350
$85,650
25%
$85,650
$178,650
28%
$178,650
$388,350
33%
$388,350
And Over
35%
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Anthony and Jamie are married. Last year they made
$500,000 between the two of them. How much will they owe
in taxes this year?
17,400 x 10%=
$1,740.00
$53,300 x 15% =
$7,995.00
$72,000 x 25% =
$18,000.00
$74,750 x 28% =
$20,930.00
$170,900 x 33%=
$56,397.00
$111,650 x 35% =
$39,077.50
$500,000
$144,139.50
2012 Income Tax Rate Schedule (Married)
Over
But Not Over
Marginal Tax Rate
$0
$17,400
10%
$17,400
$70,700
15%
$70,700
$142,700
25%
$142,700
$217,450
28%
$217,450
$388,350
33%
$388,350
And Over
35%
Jack is a single accountant. When he was
hired, he filled out at W4 form. The
government then looked at his W4 form, his
marital status, and his number of
dependents to determine that Jack will have
$300 taken from his paycheck each month.
Over the course of the next year, Jack will
pay $3600 in taxes.
(12 months x $300/mo.=$3600)
***Remember: This is only an ESTIMATE of
how much Jack will owe in taxes!***
After completing his taxes, the government
determines that Jack should pay $4000
for taxes.
Since Jack has only paid $3600 throughout
the year, John must pay $400 at tax time!
Jill is a nurse. She is married and has one
child. When she was hired, she filled out at
W4 form. The government then looked at
her W4 form, her marital status, and her
number of dependents to determine that Jill
will have $250 taken from her paycheck
each month. Over the course of the next
year, Jill will pay $3000 in taxes.
(12 months x $250/mo.=$3000)
***Remember: This is only an ESTIMATE of
how much Jill will owe in taxes!***
After completing her taxes, the
government determines that Jill should
pay $2300 for taxes.
Since Jill has paid $3000 throughout the
year, Jill is entitled to a refund of $700 at
the end of the year!
 Standard
Deduction: an “automatic”
deduction you may claim regardless of
your actual expenses
• This lowers your taxable income by…
 Single: $5,950
 Married: $11,900
 Personal
Exemption: a “write-off” for
each person in your household
• This lowers your taxable income by…
 $3800 per person
Adjusted
Gross Income
-Standard Deduction
-Personal Exemptions
Taxable Income
Pam & Jim work at Dunder Mifflin paper
company. They have two children.
Combined, they made $80,000 last year.
What is their taxable income?
Adjusted Gross Income
-Standard Deduction
-Personal Exemptions (4)
Taxable Income
$80,000
-$11,900
-$15,200
$52,900
***Then, using the tax tables, use $52,900 to
determine how much they owe.***
 Every
month John makes $2,000.
 After
looking at John’s marital status, and
number of dependants, the government
decides to take out $300 for taxes.
 Over
the course of the year, John has paid
$3,600 in taxes.
• ($300/month x 12 months)
 Remember, this
is only an estimate of
how much John roughly owes.
 After
completing his taxes, the
government determines that John should
pay $4,000 in taxes.
 Because
he has only paid $3,600
throughout the year, John must pay $400
at tax time.
 Throughout
the year, Tim has paid $5,000
in estimated taxes.
 At
the end of the year, the government
determines that Tim only owes $3,900.
 Therefore, Tim
refund.
is entitled to a $1,100
 For
each person in your household, you
are allowed to “write off” a personal
exemption.
 If
there are four people in your house,
you may claim four personal exemptions.
A
personal exemption lowers your taxes
by $3,650.
 You
may claim yourself, your spouse, and
your dependents.
A
family of four makes
 Four
exemptions ($3,650)
 Taxable
Income
$40,000
$14,600
$25,400
 In
addition to person exemptions, you are
allowed a standard deduction.
 The
standard deduction is an "automatic"
deduction you may claim regardless of your
actual expenses.
 This
lowers your taxable income by:
 Married Single-
$10,900
$5,450
A
family of four making
 Standard Deduction
 Four Exemptions ($3,650)
 Taxable Income
 $14,500
$40,000
-$10,900
-$14,600
$14,500
x 10% = $1,450 Owed in Taxes
 We
now know that this family owes
$1,450 in taxes.
 At
the end of the year, the family receives
a W2 from their employer that states
$2,000 was withheld in taxes.
 Therefore, they
$550.
are entitled a refund of
 Instead
of claiming the standard
deduction of $10,900 (married) or $5,450
(single), you may decide to itemize your
deductions. Thing you may “write off”
include:
• Health Care
• Interest Paid on Mortgage
• Childcare Expenses
• Etc…
 Capital
gains and losses happen when
you buy and sell stocks.
 If
you buy $1,000 of GOOG and sell it for
$1,200, you have made a $200 capital
gain.
 Capital
gains are separated into short
term and long term categories.
 Short
term gains are any investment held
under one year.
 Long
term gains are any investment held
over one year.
 Short
term capital gains are taxed at your
ordinary income bracket.
• 10%, 15%, 25%, 28%, 33%, or 35%
 Long
term capital gains are taxed at:
• 0% for people in low tax brackets
• 10% or 15% for people in higher tax brackets
 Capital
gains can be “offset” by capital
losses.
 If
you make $1,000 on PEP, but lose $700
on GE, your capital gain for the year is:
 $300
 One
reason rich people stay rich is
because they earn most of their income
from stocks, which are taxed at 15%.
 One
of the reasons poor people stay poor
is because they earn most of their money
from wages, which can be taxed at 35%!
 Keep
more of your money by being taxed
at 15%, rather than 35%!
 Most
dividends are taxed at 15%.
 Income
earned from wages can be taxed
at 35%!
 Keep
most of your money by investing in
stocks that pay dividends!
 Warren
Buffett is the third richest person
in the world.
 Every
 Yet
year he makes billions of dollars.
he pays a lower tax rate than his
secretary, who makes $70,000. How?
 Warren
does not pay himself a salary
from his company because it would be
taxed at 35%.
 Instead, Warren
makes all his money from
dividends and capital gains. The most he
pays in taxes is 15%!
 His
secretary makes $70,000, which is
taxed at 25%!
 Many
Republicans favor lower taxes for
some of the wealthiest Americans.
 Under
President Reagan, the top tax
bracket went from 70% to 28%. This
lowered taxes for the richest Americans.
 At
the same time, the bottom tax bracket
was raised from 10% to 15%, which
increased the taxes on the lowest
Americans
 Under
President George W. Bush, the top
tax bracket was lowered from 38% to
35%.
 If
we give money to the richest Americans,
they will buy yachts and expensive luxury
items.
 People
will have to make those yachts and
luxury items which will provide jobs
“middle-class” Americans.
 If
the rich are doing well, everyone will do
well.
 Trickle
Down Economics
 Many
Democrats believe in giving tax
breaks middle-class families, making
less than $250,000 a year.
 Raise
taxes on the wealthiest Americans
to help the poorest Americans.
 If
you give money to the middle class,
they will be able to buy food, pay their
utility bills, and provide for their family.
 This
is thought to help stimulate the
economy.
 If
the middle class does well, everyone
does well.
 Under
President Obama, tax rates have
stayed the same for 95% of Americans.
 Only
the wealthiest 5% of Americans
have seen a tax increase.
 Many
republicans believe in small
government.
 Many
democrats believe in bigger
government.
Being
respectful to your
classmates, what are your
thoughts???