PLANNING YOUR CAREER
0 Job – work that you do mainly to earn money
0 Career – commitment to work in a field that you find
interesting and fulfilling
0 Must fulfill personal goals
0 Must also fulfill financial goals
Career Decisions
0 Will affect:
0 Money you make
0 People you meet
0 Spare time you have
0 Career should reflect:
0 Interests, values, goals (money and personal fulfillment)
Career Decisions
0 Standard of Living – a measure of quality of life
based on amounts and kinds of goods and services
that you enjoy
0 A career will involve opportunity costs
0 Time vs Money
Career Decisions
0 Potential Earning Power - Amount of money you
may earn over time
0 Education
0 Field of Study
0 Working well with others
0 Creative
0 Communication skills
Personal Factors
0 Aptitudes – natural abilities that people possess
0 Interest Inventories – tests that help you identify the
activities you enjoy the most.
0 Your personality
Stages of Career Planning
0 Assess personal goals, abilities and interests -
research careers
0 Identify job opportunities in chosen field
0 Develop resume and cover letter—apply
0 Interview for positions—improve skills
0 Consider job offers-accept a job
0 Plan and implement a program for career
development
Social Influences
0 Demographic trends – tendencies of people that are
grouped by age, gender, ethnicity, education or income
0 Geographic trends – cost of living vs salaries earned
in big cities or smaller towns
Economic Factors
0 Interest rates
0 Price increases
0 Demand for certain goods and services
Trends in Industry and Technology
0 Manufacturing industry:
0 Increased competition by other countries
0 Automation in the factories
0 Service industry:
0 Provide service for a fee
0 Fastest growing area in our economy
Why are taxes so important?
Why are taxes so important?
Fund public goods and services
0 Medicare and Medicaid
0 National Defense / Military
0 Police & fire protection
0 Public schools and libraries
0 Road Maintenance
0 Parks and recreation
0 Health and food inspections for our safety
Effective Tax Planning
Helps you have more money left over after paying taxes
and living expenses
0 Research how current laws and regulations affect you
0 Maintain complete and accurate tax records
0 Minimize your tax liability
0 Tax Liability: total amount of taxes owed
Types of Taxes
0 Taxes on Purchases
0 Sales tax: everyday consumer products
0 Excise tax: collected on specific goods and services
(gasoline, air travel, telephone service)
0 Taxes on Property
0 Real estate tax: based on value of land and buildings –
primary source of income for local governments
0 Personal property tax: based on the value of items
such as cars and boats
Types of Taxes (cont.)
0 Taxes on Wealth
0 Estate tax: federal tax collected on the value of a
person’s property at the time of his death
0 Inheritance tax: state tax collected on the value of the
property left by a person to his heirs in a will
0 Gift tax: collected on any money or property valued at
over $14,000 given from one person to another in one
year
Types of Taxes (cont.)
0 Taxes on Earnings (Income Taxes)
0 Federal Income Tax: paid to federal government on any
earned income (wages, salaries, commissions, tips,
bonuses), interest income, dividend income, or capital
gains
Largest amount of taxes paid by an individual
Collected by the Internal Revenue Service (IRS)
• Federal agency that collects income taxes and enforces nation’s tax laws
• “pay as you earn” basis – taxes taken out of your paycheck by your
employer and sent to IRS each pay period
Types of Taxes (cont.)
0 Income Taxes (continued)
0 State Income Tax: paid to the individual state (laws
governing what is taxed differ from state to state)
0 City Income Tax: collected by about 2000 cities
0 Social Security Tax: pays for retirement, disability and
survivor benefits
0 Also called FICA – Federal Insurance Contributions Act
0 Medicare Tax: health insurance program for people 65
and older
Types of Income (cont’d)
0 Gross Pay: total amount of money an employee earns
in a pay period
0 Net Pay: the amount of money an employee actually
receives in a pay period after deductions
0 Gross Income: includes earned income, interest
income, and dividend income minus tax-exempt
income
Income Types (cont’d)
0 Adjusted Gross Income: gross income after adjustments
(reductions such as student loan interest or contribution
to 401K) used for tax calculations
0 Taxable Income: adjusted gross income less any tax
deductions and exemptions and used to determine income
tax
0 Tax-exempt income: income not subject to taxes
(municipal bonds)
0 Tax-deferred income: income taxed at a later date (401k
contributions)
So…What has to come out of your paycheck??
0 Average person pays over 30% of paycheck to taxes
0 Employers required by Federal Law to deduct:
0 Social security (FICA)
0 Medicare tax
0 Federal income tax
0 State and/or city tax (where required)
Taxes & Starting a New Job
0 To receive a paycheck, an employee must complete:
0 W-4 Form (Employee’s Withholding Allowance
Certificate)
0 Determines percentage of gross pay withheld for taxes
0 I-9 Form (Employment Eligibility Verification)
0 Confirms citizenship status
W-4 Form
0 Employer uses to withhold (deduct) money to send to the
Internal Revenue Service
0 Amount withheld is based on number of allowances
0 Allowance: adjustment to the tax withheld from
paycheck based marital status and number of
dependents
0 A person may claim a personal allowance if no one else claims the
person as a dependent
0 Dependent: a person who relies on the taxpayer for financial support
0 Reduces amount of income taxes an employer withholds and
sends to IRS
0 Puts more money in your pocket now but may mean you owe
taxes when filing tax return
Completing a W-4 Form
0 Legal Name and address
0 Social Security number
0 Marital status
0 Number of Allowances (yourself, spouse, dependents)
0 Any additional money you want withheld
0 If you are exempt from income tax
0 Sign and date form
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nal-finance-101-chats/personal-finance-101-chat-w-4/
I-9 Form
0 Used to verify the eligibility of individuals to avoid
hiring undocumented workers or others who are not
eligible to work in the United States
0 Must provide documentation which establishes
identity and employment eligibility
0 driver’s license, passport, Social Security card, or birth
certificate
Reading a Paycheck Stub
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
0 A document included with paycheck each pay
period which outlines paycheck deductions
Reading a Paycheck– Personal Information
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
0 States the employee’s full name, address, and
Social Security or Employee Identification
number
0 Always check to ensure this information is
correct
Reading a Paycheck – Pay Period
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
0 Length of time for which an employee’s wages are
calculated; most are weekly, bi-weekly, twice a
month, or monthly
0 Last day of the pay period is not always payday to
allow a business to accurately compute wages
Reading a Paycheck – Gross Pay
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
0 Total amount of money earned during a pay period before
deductions
0 Calculated by multiplying number of hours worked by hourly
rate
0 If employee is on salary - total salary amount divided by the
specified number of pay periods
Reading a Paycheck – Net Pay
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Amount of money left after all deductions have been
withheld from the gross pay earned in the pay period.
Reading a Paycheck – Deductions
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Amount of money subtracted from the gross pay for
mandatory taxes, employee-sponsored medical benefits,
and/or retirement benefits
Reading a Paycheck– Federal Withholding Tax
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– Amount required by law for employers to withhold from earned
wages to pay taxes
– Amount of money deducted depends on amount earned and
information provided on Form W-4
– Largest deduction withheld from an employee’s gross income
Reading a Paycheck– State Withholding Tax
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
– Percentage deducted from an individual’s paycheck to
assist in funding government agencies within the state
– Amount deducted depends on amount of gross pay earned
Reading a Paycheck – FICA
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Federal Insurance Contribution Act
– Includes two separate taxes: Social Security and
Medicare
– These two taxes can be combined as one line item or
itemized separately on a paycheck stub
Reading a Paycheck – Year to Date
On-The-Go
Employee
Employee Identification
Check #
Beakens, Joe
201-92-4856
164
Check Amount
$1,102.98
Employee Address
293 Michael Grove
Billings, MT 59102
Pay TypeGross Pay
Deductions
Current
Year-to-date
$1,353.33
Federal Withholding
State Withholding
Fed OASDI/EE or Social Security
Fed MED/EE or Medicare
Medical
401K
$106.00
$40.82
$83.91
$19.62
$0.00
$0.00
$503.46
$117.72
$636.00
$244.92
$0.00
$0.00
Totals
$250.35
$1,502.10
Pay Period 6/11/2004-7/11/2004
Total of all of the deductions which have been withheld
from an employees paycheck from January 1 to the last
day of the pay period indicated on the paycheck stub.
Taxes Paid by Employer
0 Employers must pay social security and Medicare
taxes equal to the amount the employee pays
0 Self-employed individuals pay taxes at a higher rate
Tax Evasion vs Tax Avoidance
0 Tax Evasion: Failure to pay legally due taxes
0 Tax Avoidance: Legal means of decreasing your tax
bill
Tax Avoidance
0 Tax Deduction: expense that can be subtracted
from adjusted gross income to reduce taxable
income
0 Standard deduction (changes every year)
0 Itemized deductions
Medical or dental expenses (7.5% AGI)
Interest on mortgages
Real estate taxes paid
Charitable contributions
Unreimbursed employment expenses
0 Exemption: deduction for a dependent or someone
that you support financially (spouse or child)
Preparing an Income Tax Return
Income Tax Return: form on which a taxpayer reports
how much money he/she has received from working and
other sources and the exact taxes owed
0 US citizens required to file (voluntary compliance)
0 Deadlines and Penalties
0 April 15
0 Extension to October 15
0 Standard Tax Forms
0 1040EZ
0 1040A
0 1040
W-2 Form
0 Employer sends each employee and the IRS a W-2
Form
0 Annual earnings
0 Amount withheld
0 Federal income taxes
0 Social Security
0 State and/or local income taxes
0 Must be sent to employees by January 31 each year
Taxpayer Rights
0 Information on taxpayer’s return is private
0 Taxpayers have the right to appeal an IRS decision
“The income tax law is a lot of bunk.
The government can’t collect legal
taxes from illegal money.”
- Al Capone
Filing a 1040EZ Return
0
0
0
0
0
0
0
Taxable income less than $100,000
Single or married
Under age 65
No dependents
Wages, tips, salaries
No itemized deductions
Can be filed by mail or electronically
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Tax Assistance
0 IRS Web Site (www.irs.gov)
0 Software (Quicken, TurboTax)
0 Professionals (H & R Block)
0 Books