Presentation on theme: "Planning Your Tax Strategy Personal Financial Planning Name_____________________."— Presentation transcript:
Planning Your Tax Strategy Personal Financial Planning Name_____________________
Taxes and You Why are taxes so important? Taxes are an everyday expense of life that allow your local, state, and federal government to provide important services. Taxes pay the bills for those services such as: Medicare Medicaid Military National debt Police and fire protection Public schools Road maintenance Parks, libraries, safety inspection of foods/drugs
Types of Taxes You pay some type of tax every time you get a paycheck, buy a pair of shoes, or fill up your tank. Taxes on Purchases Sales Tax – added to price of product by state/local governments Some states do not tax food and medicine Excise Tax – tax on specific goods/services collected by federal/state government Gasoline Air travel Telephone service
Taxes on Wealth Estate Tax – federal tax collected on the value of a person’s property at the time of their death Inheritance Tax – state tax collected on the property left by a person in their will Gift Tax – money or property valued at more than $11,000 given by one person to another in a single year. Educational and medical expenses are not subject to gift tax.
Types of Taxes Taxes on Property - real estate property tax Major source of income for local governments Covers cost of local schools City expenses
Taxes on Earnings Income Tax – tax on wages, salaries, and self- employed earnings. Federal government main source of revenue. Social Security funds are also collected as a tax. The Internal Revenue Service (IRS) Primary purpose is to collect federal income taxes and to enforce the nation’s tax laws. Complete your federal income tax return, you determine if you have paid too much or too little income tax. At that time you either pay more or receive a refund from the IRS.
A Form W-2 Provides much of the information that you need to file your yearly federal income tax
Understanding Income Taxes Income tax return 1040 or 1040EZ Reports how much money you received from work and other sources and the exact taxes that are owed Are you entitled to a refund or do you owe more?
Gross and Adjusted Gross Income Gross Income Earned Income Interest Income Dividend Income Adjusted Gross Income Gross income after calculating reductions Contributions to a Retirement saving plan (IRA) Student loan interest
Your Taxable Income Adjusted gross income less any allowable tax deductions Your income tax is calculated based on your taxable income
Tax Deductions An expense that you can subtract from your adjusted gross income Standard Deduction – amount of money set by gov’t that isn’t taxed (2014) Filing StatusStandard Deduction Single$6,200 Married Filing Jointly$12,400 Married Filing Separately$6,200 Head of Household$9,100
Itemized Deductions (further reduces tax liability) Medical and Dental Expenses Taxes State and Local Taxes Real Estate Property Tax Interest Home Mortgage interest Home Equity Loan interest Contributions Cash and property to qualified charities *Use standard deduction unless itemized is more*
Exemptions Deduction from adjusted gross income Dependent – someone you support financially, such as a child. Tax exemption amounts: 2014$3,950 2015$4,000 Tax Credit – subtracted directly off your taxes you owe EIC – Earned Income Credit – Low income workers
Making Tax Payments Payroll Withholding W-4 Form
2014 Tax Year Brackets (Filing Status) Tax Rate Single Married/Joint & Widow(er) Married/SeparateHead of Household 10% $1 - $9,075$1 - $18,150$1 - $9,075$1 - $12,950 15% $9,076-$36,900$18,151 to $73,800$9,076 to $36,900$12,951 to $49,400 25% $36,901 to $89,350$73,801 to $148,850$36,901 to $74,425$49,401 to $127,550 28% $89,351 to $186,350 $148,851 to $226,850 $74,426 to $113,425 $127,551 to $206,600 33% $186,351 to $405,100 $226,851 to $405,100 $113,426 to $202,550 $206,601 to $405,100 35% $405,101 to $406,750 $405,101 to $457,600 $202,551 to $228,800 $405,101 to $432,200 39.6% over $406,750over $457,600over $228,800over $432,200
The Federal Income Tax Return Deadline – April 15 th
Completing the Federal Income Tax Return 1040EZ, 1040A, 1040 ??? Gathering Information and Documents Tax forms and instruction booklets Copies of your tax returns Your W-2 Form Interest and Dividend forms Save copies and supporting documents for at least six (6) years
Completing State Income Tax Returns States with no income tax: Alaska Florida Nevada South Dakota Texas Washington Wyoming States with nearly no income tax: Tennessee New Hampshire
NJ State Income Tax Rates Tax Withholding Table Single or Married/Civil Union Couple- Filing Separately (Rate Table A) If the Amount of Taxable Income Is: The Amount of New Jersey Tax Withholding Should Be: Over: But Not Over: Of Excess Over: $ 0$ 20,000$ 0plus1.5%$ 0 20,000 35,000 300plus2.0% 20,000 35,000 40,000 600plus3.9% 35,000 40,000 75,000 795plus6.1% 40,000 75,000 > 500,000 < 2,930plus7.0% 75,000 > 500,000 and over 32,680plus9.9% 500,000 <
The most common payroll tax withholdings are: FICA - Federal Insurance Contribution Act (Social Security) MEDICARE FICA - Part A FED W/H - Federal Withholding Tax NJ W/H - NJ Withholding Tax NJ TDI - NJ Temporary Disability Insurance NJ UIC - NJ Unemployment Insurance Compensation NJ HCS - NJ Health Care Subsidy (Portion of Disability Insurance) NJ WFD - NJ Work Force Development (Portion of Unemployment Insurance)