UNDERSTANDING TAXES AND
MORTGAGES
Agenda
 Recap of Last Week
 Understanding Taxes
 Federal Income Tax Examples
 Types of Mortgages
Taxes: School House Rock Edition
 https://www.youtube.com/watch?v=6Q3NPgHZzDo
 “There’s nothing certain in life but death and taxes.”
Key Tax Terms
 Progressive Tax Structure: people with higher




taxable income levels pay higher marginal tax rates.
Promotes equality of taxpayers’ ability to pay
Pay-as-you-go: Taxes will be withheld from your
paycheck and paid to the state or federal government
Tax Liability: the amount of tax owed
Tax Refund: the return of excess amounts of income
tax that a taxpayer has paid throughout the past year
Tax Deductible: an item or expense for adjusted
gross income to reduce amount of taxed owed
Types of Taxes
1.
Income Taxes
1.
2.
3.
Federal
State
Municipal (City, Local)
2. Social Security and Medicare
1.
Taken out from your paycheck. (7.25% in 2014)
3. Sales
1.
Differs by state.
2.
Excise Taxes: an indirect tax charged on the sale of a
particular good. Examples include cigarettes, gasoline,
alcohol, cell phones, etc.
Calculating Taxable Income
 Gross Income
 Less: Deductions for AGI
 Adjusted Gross Income
 Less: Deductions from AGI
 Taxable Income
Tax Liability cont.
 Gross income—total income earned
 Deductions for AGI (“above line” deductions)
 Trade/business expenses and production of income expenses
 AGI (Adjusted Gross Income)
 Deductions from AGI
 Expenses that Congress allows taxpayers to reduce the amount
they are taxed on
 Standard deduction and personal dependency
 Taxable income
Deductions from AGI
 1. Greater of Itemized Deductions or Standard
Deduction

1a. Itemized Deductions

Certain expenditures you are allowed to deduct
OR……
 1b. Standard Deduction

$6,200 per person ($12,400 married file jointly)
 2. Personal and Dependency Deduction
 $3,950 per person claimed on tax return (2014)
Types of Itemized Deductions
 Medical Expenses
 State and local income taxes, and property taxes
 Mortgage interest and investment interest
 Charitable contributions
 Casualty and theft losses
 Miscellaneous expenses
 Gambling loss, hobby expenses, etc.
Tax Liability Formula
How to File Taxes
 Online Options
 eFiling taxes on IRS.GOV
 TurboTax
Types of Mortgages
 Fixed-Interest Mortgage: interest rate remains the
same for the life of the loan and the payment is split
into equal monthly payments for the duration.


Interest payments are front-loaded so that during the first few
years of the loan term, only a small portion of the payment
pays off the principal.
Most common duration is 30 years, but can differ
 Adjustable-Interest Mortgage: interest rate
changes after a “fixed period” at the beginning of the
loan.


Initial interest rate during fixed period will be lower than
fixed-interest mortgage interest rate
Considered riskier because the payment can change from year
to year in significant amounts.
Works Cited
 Murphy, Kevin E., and Mark Higgins. Concepts in
Federal Taxation 2015. United States: Cengage
Learning, 2015. Print.
 http://www.homebuyinginstitute.com/mortgagetype
s.php