# Taxes. What are Good Taxes? According to Adam Smith: Simple to understand Dont provide negative incentives Avoid loopholes IRS manual – 2,500,000 pages.

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Taxes

What are Good Taxes? According to Adam Smith: Simple to understand Dont provide negative incentives Avoid loopholes IRS manual – 2,500,000 pages –(4 X size of the Bible)

Income Tax in USA IRS – tax collection agency in USA Taxes are deducted throughout year Every citizen must file every year by: If you paid more during the year then you need to: you get a refund If you paid less during the year then you need to: you must pay the difference

Almost 45% of Americans paid no federal taxes last year The lowest tax bracket is 10% for \$8,500 for a single person; \$17,000 for married filing jointly The highest tax bracket is 35% for those earning over \$379,151 In 2011 Romney earned \$1.95m on \$13.7 income (no salary) for a rate of 14.1%

True Flat Tax – One tax rate for every person regardless of circumstances Marginal Flat Tax – (allows deductions) is a form of flat tax. It is progressive Progressive – Tax rate increases with increases in taxable base Regressive – Opposite of progressive because it penalizes those with less income – sales taxes are regressive Proportional – Fixed rate that is proportional to the amount subject to taxation – flat tax

\$100,000 per year – single person First \$8,500 taxed at 10% = \$850 \$8,500 - \$33950 taxed at 15% = \$33,950- \$82,250 taxed at 25% = \$82,250-\$100,000 taxed at 28% = = \$21,720 A \$10,000 interest on mortgage deduction reduces the \$100,000 to \$90,000 First \$8,500 taxed at 10% = \$850 \$8,500 - \$33950 taxed at 15% = \$33,950- \$82,250 taxed at 25% = \$82,250-\$90,000 taxed at 28% = = \$18,920

Income Tax: This tax is based on your wage and could be as high as 35% A tax deduction is taken of the declared income A tax credit comes of the tax paid Alternative Minimum Tax: First \$47,450 is exempt, but over is taxed at 26% (+\$175k @ 27%, +\$300k @ 28% plus lose exemption) You pay the higher of the two tax options In our example you paid \$21,720 on \$100k, the AMT would be \$13,663

Corporate Taxes: Taxes on the profit from business – can deduct necessary expenses Property Taxes: Usually based on a house but could be other items like a boat – based on ownership Payroll Taxes: (15.3% FICA) Deducted from wages paid to employees, usually matched by the employer – pays for Medicare etc Social Security is 12.4% (6.2%/6.2%) of gross salary Medicare - 2.9% (1.45%/1.45%) gross salary

You earn \$100,000 SS> Employer pays 6.2% = \$6,200 Employee pays 6.2% = \$6,200 Medicare> Employer pays 1.45% = \$1,450 Employee pays 1.45% = \$1,450 Both pay \$7,650 Total the employer has to pay = \$107,650 Total employee gets is \$93,350 FICA (15.3%) is regressive because only paid on first \$113,700 (2013)

Estate/Inheritance Tax: (Death Tax) imposed on the transfer of an asset after death. This is the value of assets after your death First \$5,250,000 m is exempt In 2013 the rate was 35% over the exemption Capital Gains Taxes: Collected from the profits from the sale of an asset, usually stocks or property – 15% if you are in the 25% or higher bracket Can be deferred with charitable trusts and annuities

Estate tax Tax on inheritance Sometimes called death tax 55% rate (additional 5% surtax on some estates) on all assets above \$1 million A) Personal property – home, cars, artwork B) Business assets – property, machinery C) Investments – real estate, stocks, bonds \$5,250,000 is exempt

Excise Tax (sin tax): Based on the value of the product being sold. Include gasoline, alcohol, and cigarettes - regressive Sales Taxes: (Consumption Tax) levied at the point of purchase – varies by state - regressive

Gift tax Tax on the transfer gifts or rewards for nothing in return Games shows, gambling, lottery Not included: Tuition/medical expenses, gifts to spouse, charities and political parties Annual exclusion is \$14,000 Incentive?

Tolls: Taxes to gain access to a specific location, usually a road or a bridge Tariffs: Taxes paid to move products across international borders, aimed to make the import more expensive A child under 17 is a \$1,000 tax credit A dependent child at the end of the tax year is \$3,800 (2012) tax credit! For 3 or fewer qualifying children it is 15% of taxable income earned over \$3000 2011 is schedule to the last year for a tax deduction on college – max is \$4000 for incomes up to \$65,000

The tax year ends at midnight Dec 31. Filing deadline is midnight, April 15. W-2 form – federal form sent by the employer to the employee stating how much was earned 1099 is for other forms of income that have to be declared: 1099-B: from securities 1099-Div: from dividends and capital gains 1099-Misc: self-employment, tips, royalties, rent

If you are curious… US estate taxes over the years GW Bush worked to repeal in 2001 Came back in 2011 when law expired President Obama supports estate tax

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