Taxes! Taxes! Taxes!
Presented by:
[Company Name]
[Company Address]
[Date]
Class One: How Taxes Work
[Date]
Class Two: Competing Objectives
[Date]
Class Three: Tax Planning
Your Instructor
[Instructor Name]
– Descriptor Points
– About Instructor
Instructor
Photo
Tonight’s Objective
HOW TAXES WORK
Like any game, you need to know the
rules to win, let’s learn the rules!
Overview
Income
Tax
̶ Adjustments
̶ Credits
= AGI
+ Additional Taxes
______________ (the line)
=Total Taxes
Deductions
̶ Exemptions
= Taxable
Income
̶ Payments and
Additional Credits
= Refund (Due)
INCOME
“Everything is
Income Unless
Excluded”
Net Portfolio Income
(Interest & Dividends)
Banks
Bonds
Stocks
Mutual Funds
Alimony (not child support)
Net Earnings/Profits from
Self Employment/Tips
+ Income
̶ Expenses
̶ Depreciation
= Net Profit
Net Capital Gain Income
+ What you sold it for
̶ What you paid for it
= Profit (Taxable)
Retirement Income
Pensions
IRA Distributions
Etc.
Net Rents & Royalties
(Passive Income)
+ Rents
̶ Expenses
̶ Depreciation
= Net Rents
(same for Royalties)
SS Income
Unemployment Comp
PFL
Line 21: Other Income
Jury Duty
Cancellation of Debt
Prizes
Gambling Winnings
B of D Comp
Trustee Fees Rec’d
Settlements
Excluded Income
Child Support
Loan Proceeds
Inheritance
Gifts
Property Distributions from
Divorce
ADJUSTMENTS
Military Reservist Expense
Deduction
Performing Artist
Expense Deduction
Health Savings Account
High deductible Health Insurance
(can accumulate balance)
Not Taxable if spent on
qualified medical costs
Self-employment Related
Self Employment Tax Deduction
Self Employed Pension
Self Employed Health
Insurance Deduction
Early Withdrawal Penalty
Close a CD (certificate of deposit)
early and you pay a penalty
Alimony Paid (Not Child Support)
Paid as part of MSA
Not Tied to kids
Retirement Plan Contributions
IRA (not ROTH)
HRIO - KEOGH
Education Related
Student Loan Interest
Tuition & Fees
+TOTAL INCOME
̶ ADJUSTMENTS
= ADJUSTED
GROSS
INCOME
AGI is used in
MANY other
calculations
AGI is Used to calculate:
•
•
•
•
•
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Passive Loss Limitations
Medical Deductions
Employee Business Deductions
Casualty Loss Deduction
Student Loan Interest Deduction
IRA Deductibility
Child Tax Credit
Taxability of Social Security Income
Alternate Minimum Tax Calculation
AKA: “The Line”
Above the Line
VS
Below the Line
STANDARD
DEDUCTION VS
ITEMIZED
DEDUCTIONS
Standard Deduction
Or
Total of Itemized Deduction
(You get the Larger of)
Medical Expenses
+ Out of pocket costs
̶ 10% of AGI
= Medical Deduction
Taxes Paid
State & Local Income Taxes
Real Estate Taxes
Personal Property Taxes (DMV)
Etc.
(Mortgage) Interest Paid
On debt <$1,100,000 on
(residence & 1 vacation
property)
Interest Paid
Investment Interest
(except interest paid on
purchase of tax free assets)
Charity
Everything given to qualified
charitable organization
Document what you give:
Prove it or Lose it!
Casualty Theft Loss
+ Documented loss (in excess of
insurance reimbursement)
̶ 10% of AGI + $100
= C/T Loss Deduction
Miscellaneous
(Incl. Employee Business Deductions)
+ Net out of Pocket
̶ 2 % of AGI
= EBE Deduction
(Subject to Alternate
Minimum Tax)
Limitation if AGI > 150K
If AGI exceeds thresholds
You could lose up to
___% of your Itemized Deductions
PERSONAL
EXEMPTIONS
Fixed Deduction for Every
Dependent in your Household
Number of Dependents (line 6)
× $3900
= Exemption Deduction
(Subject to Alternative
Minimum Tax)
Limited if AGI >$150K
If AGI exceeds thresholds
You could lose up to
___% of your Personal
Exemptions
TAXABLE
INCOME
AGI
- Standard/Itemized Deductions
- Personal Exemptions
= Taxable Income
Taxable Income
to the Tax Table/
Tax Rate Schedule
to Get Tax
Effective Tax Rate =
Rate Last Dollar is Taxed at
MFJ Tax Rates Schedule:
Income up to $18,150
At least $18,151 but not over $73,800
At least $73,801 but not over $148,850
Over $148,851 but not over $226,850
Over $226,851 but not over $405,100
Over $405,101 but not over $457,600
Over $457,601
x 10% (.10)
× 15% (.15)
× 25% (.25)
× 28% (.28)
× 33% (.33)
× 35% (.35)
× 39.6% (.396)
Effective Tax Rate
Tax deduction of $100
x Effective Tax Rate of 28%
= Tax Savings of $28
(and vice versa)
CREDITS
$ For $ Reduction in Tax
Tax of $100
-Credit of $100
=Net Tax of $0
Much More Valuable than Deduction
In the 10% Bracket a $1 Credit
= $10 Deduction
In the 25% Bracket a $1 Credit
= $4 Deduction
In the 33% Bracket a $1 Credit
= $3 Deduction
Child Care Credit
Credit for expenses paid to care for your <13 year
old child while you work.
$3000 in expense per child / 2 children
maximum
Credit = 20%-35% of expense
depending on AGI
(higher the income lower the %)
Education Credit
Maximum credit
American Opportunity Credit
Up to $2,500 per eligible student
Lifetime Learning Credit
Up to $2,000 per return
Modified Adjusted Gross
Income (MAGI)
Refundable or nonrefundable
$180,000 if MFJ;
$90,000 if Single, HOH, or QW
40% of credit may be refundable
$127,000 if MFJ;
$63,000 if Single, HOH, or QW
Credit limited to tax owed
Number of years
Limited to first 4 years of post HS
Available for all years of post HS
education and all courses
Number of tax years credit available Available ONLY for 4 tax years
Unlimited number of years
Type of program required
Student must be pursuing degree
or other education credential
Any program
Qualified expenses
Only certain expenses apply – tuition, required enrollment fees, etc.
Payments for academic periods
Payments made in 2013 for academic periods beginning in 2013 or
beginning in the first 3 months of 2014
Child Tax Credit
$1000 refundable credit for every dependent
child under the age of 17.
Credit reduces when income exceeds
$75K Single / $110K MFJ
If reduces tax to $0 could create a
refund
Residential Energy Credits
Solar Energy Property – credit equal to 30% of
cost of purchase and installation!
Energy efficiency expenses – 10% of cost of
purchase up to $500 (not active at this time)
Electric Car/Alternative Fuels Credit
$7500 non-refundable credit to buy (not lease)
a plug-in automobile (not income or AMT
restricted)
Lesser credits available for hybrids and
alternative fuel autos (income and AMT
restricted)
Non-Refundable vs Refundable
Non-refundable = you need to owe tax to
use any portion of this credit and it ends
when tax reaches $0
Portion or all of the credit is paid to you
over and above any tax due
ADDITIONAL
TAXES
Taxes Due to Certain Actions that
“Add-on” to your Income Tax
There are certain other taxes – not “income”
taxes that are added to your income tax.
Your annual income tax return is the
reporting and collection mechanism for
these taxes.
Alternate Minimum Tax
“AMT” introduced into the law in 1972 by
Congress under Nixon to make sure everyone
paid taxes
Unintentionally now applies to many
working Americans by way of “tax
preferences” like State tax deductions
and Employment related expense
deductions
Self Employment Tax
The way that self-employed people pay into
Social Security and Medicare system
Pay both halves (employer and
employee)
Deduct ½ of this tax as
Adjustment to Income
Social Security Tax on Tip Income
Equivalent to SE tax on people who receive tips
Large employers now required to report
and withhold on tip income
Early Withdrawal from
Retirement Account
10% Federal penalty if you take money out of
retirement account before 59.5
Also applies to non-qualified HSA or 529
plan withdrawal
Accompanying State penalties
*NEW* Additional Medicare
Tax (8959)
*NEW* Tax on Net Investment
Income (8960)
PAYMENTS AND
REFUNDABLE
CREDITS
Money Paid-in Against
Potential Taxes
Withholding
Taxes withheld from paycheck
Taxes withheld from retirement
Taxes withheld Social Security
Taxes withheld on 1099s
Estimated Tax Payments
Quarterly tax payments
Paid in with Extension
Last Year’s Refund left on
deposit
Earned Income Credit
Credit to subsidize low income working
taxpayers.
Dependent children increases credit.
Higher income reduces /
eliminates credit.
Excess FICA Paid
Overpayment of FICA tax is refundable
Requires multiple employers withheld
FICA taxes from wages
No limit on Medicare taxes
REFUND /
TAX DUE
[Date]
Class Two: Competing Objectives
[Date]
Class Three: Tax Planning