Group D – FIN 234
Module #19
Regina Antolick, Theo Barbour, Alex Crutchfield,
Chandler Davis, Matt Ingersoll, Stephanie Wallin
Taxes and Financial Planning Team Assignment
“It is not what you earn, it is what you keep.”
Federal Income Taxes
1. Review the most current 1040 Federal Income Tax Return. Find the line on page two that states,
“Tax”. This is the amount of Federal Income Taxes that a person or couple pay. This is based on
“Taxable Income”. Please calculate the “Tax” for each of the following individuals using the following
tax table.
Schedule X: Use if your 20XX filing status is Single
Over
But Not Over
Tax is
$0
$12,000
$46,700
$112,850
$171,950
$307,050
$12,000
$46,700
$112,850
$171,950
$307,050
$-
$0 + 10%
$1,200 + 15%
$6,405 + 27.0%
$24,266 + 30.0%
$41,996 + 35.0%
$89,281 + 38.6%
Of the amount
over
$0
$12,000
$46,700
$112,850
$171,950
$307,050
Taxable Income
a.
Example: $100,000-- $6,405 + (.27*($100,000 - $46,700)) = $6,405 + $14,391 = $20,796 tax paid
Interpretation: The first $46,700 is taxed in the amount of $6,405. The amount over
$46,700 is $53,300. This amount is taxed at 27% for a total of $29,796.
b.
$200,000-- $41,996 + (.35*(200,000 - 171,950)) = $41,996 + $9,817.50 = $51,813.50 tax paid
c. $120,000-- $24,266 + (.30*(120,000 – 112,850)) = $24,266 + $2,145 = $26,411 tax paid
d. $75,000-- $6,405 + (.27*(75,000 – 46,700)) = $6,405 + $7,641 = $14,046 tax paid
2. George Smith, single, has taxable income of $70,000. Is all of George’s taxable income taxed
at the same rate? Explain.
No. The first $12,000 of income is taxed at 10%. The next $34,700 is taxed at 15%. The
remaining $23,300 will be taxed at 27%.
3. Currently, John (single) expects taxable income of $60,000. John is thinking of working
overtime so he can make an additional $3,000 in salary. If John does, how much additional
federal income tax will John pay?
$6,405 + (.27*(60,000 – 46,700)) = $6,405 + $3,591
Group D – FIN 234
Module #19
Regina Antolick, Theo Barbour, Alex Crutchfield,
Chandler Davis, Matt Ingersoll, Stephanie Wallin
$6,405 + (.27*(63,000 – 46,700)) = $6,405 + $4,401
$4,401 – $3,591 = $810 additional income tax
4. Taxable Income is affected by many factors; however, itemized deductions can be where
some of the greatest deductions occur. Review federal income tax form “Schedule A”. What
two real estate related items are possible deductions on Schedule A?
Real Estate Taxes Paid and Home Mortgage Interest Paid
5. Equation: Adjusted Gross Income - Itemized deductions - Exemption Deduction = Taxable
Income. Therefore, if the goal is to lower the amount paid in income taxes, it is good to have
(high or low) itemized deductions? Note: This formula assumes the individual itemizes
deductions rather than taking the standard deduction.
The higher your itemized deductions the better because this will reduce your taxable income.
6. Fred is in the 30% top tax bracket (30% marginal tax bracket). Sam is in the 15 percent
bracket. If Fred and Sam are both considering donating $100 to a charity, will they both benefit
equally? Explain. Note: They both itemize deductions—Schedule A.
Fred will benefit more from the itemized deduction because he will save $30 in taxes ($100*.30),
while Sam will only save $15 in taxes ($100*.15).
7. Taxable income is also reduced by contributions to a traditional 401K. For example, if an
individual has wages of $100,000 and makes a contribution of $10,000 to a traditional 401K
plan, the wages for federal income tax purposes will equal $90,000. Therefore, the 401K
contribution will reduce taxable income by $10,000. Assume taxable income equals $80,000.
How much have federal income taxes been reduced due to the 401K contribution?
Taxable Income before Contribution: $90,000
Taxes before Contribution: $6,405 + (.27*(90,000 – 46,700)) = $6,405 + $11,691 = $18,096
taxes
Taxable Income with Contribution: $80,000
Taxes with Contribution: $6,405 + (.27*(80,000 – 46,700)) = $6,405 + $8,991 = $15,396
Difference: $2,700
8. Print and submit the current year tax rate schedules from Form 1040ES. What is the highest
and lowest tax rate? 35% and 10%
Group D – FIN 234
Module #19
Regina Antolick, Theo Barbour, Alex Crutchfield,
Chandler Davis, Matt Ingersoll, Stephanie Wallin
Social Security Taxes (OASDI: Old age, survivors, and disability insurance) and Medicare
Assume for these problems the following
Employee Contribution – Social
Security
Employer Contribution – Social Security
Employee Contribution – Medicare
Employer Contribution – Medicare
Per individual, not per tax return or couple
Rate
(% of earnings, wages)
6.20%
6.2%
1.45%
1.45%
Maximum Cap or Limit
$110,000 of earnings or
wages (not taxable income)
$110,000 of earnings or
wages (not taxable income)
No limit
No limit
1. Sam and Chris, a married couple, earn $80,000 and $120,000, respectably. How much does
the couple as a whole pay in Social Security and Medicare?
Total Earnings $200,000
6.2%*2 = 12.4% for Social Security
1.45%*2 = 2.9% for Medicare
$190,000*.124 = $23,560
$200,000*.029 = $5,800
Total: $29,360
2. If an individual contributes to a 401K or IRA retirement account, Social Security and
Medicare taxes must still be paid on these contributions. If an individual earns $100,000 and
contributes $10,000 to a 401K and $5,000 to a IRA, how much will they pay Social Security and
Medicare?
$100,000*7.65% = $7,650
Group D – FIN 234
Module #19
Regina Antolick, Theo Barbour, Alex Crutchfield,
Chandler Davis, Matt Ingersoll, Stephanie Wallin
3. Complete the following table using the current year’s data from the social security website.
Employee Contribution – Social Security
Employer Contribution – Social Security
Employee Contribution – Medicare
Employer Contribution – Medicare
Rate
(% of earnings, wages)
6.20%
6.20%
1.45%
1.45%
Maximum Cap or Limit
$106,800
$106,800
No Limit
No Limit
Taxes, Summary
1. Individuals pay a variety of taxes: Federal Income Taxes, State Income Taxes, Social
Security and Medicare Taxes, Sales Taxes. List other taxes that individuals pay. On
average, guesstimate (no research necessary, just think) what percentage of earnings do you
think an average or middle class person pays in taxes?
Property Taxes, Sales Taxes, Inheritance Taxes
50% or more
2. Chris and Sam, a married couple, earn $30,000 and $120,000, respectively. They each
contribute $10,000 to a 401K. Their taxable income equals $120,000.
a. Of the $150,000 in salary, how much spendable cash do they have after paying
federal income taxes, Social Security/Medicare taxes, and contributing to their
401K? Assume they live in a state where there are no state income taxes.
$140,000*12.40% = $17,360 to Social Security
$150,000*2.9% = $4,350 to Medicare
$24,266 + (.30*(120,000 – 112,850)) = $24,266 + 2,145 = $26,411 taxes
$20,000 to 401K
Total = $17,360 + 4,350 + 26,411 + 20,000 = $68,121
$150,000 – 68,121 = $81,879 spendable cash
b. What is the percentage—(spendable cash + 401K contributions)/wages? Interpret
this percentage.
$81,879/150,000 = 54.59% is the amount of wages kept after taxes and social
security/Medicare is paid.
What else would you like to know about this subject?