1. Mr. Sullivan Building Wealth
Taxes
Mr. Sullivan
Building Wealth

2. Taxes Nobody enjoys paying taxes; however, taxes help pay for: Roads
Fire/Police Services
Schools
Hospitals
Parks, Zoos, Ect…
There are legal ways to reduce your tax bill.
Taxes

3. Tax Table - Single Over But Not Over Marginal Tax Rate $0 $8,375 10%
Taxable Income
Over
But Not Over
Marginal Tax Rate $0
$8,375
10%
$34,000
15%
$82,400
25%
$171,850
28%
$373,650
33%
And Over
35%
Tax Table - Single

4. Tax Table Married Taxable Income Over But Not Over Marginal Tax Rate$0
$16,750
10%
$68,000
15%
$137,300
25%
$209,250
28%
$373,650
33%
And Over
35%
Tax Table Married

5. Taxable Income
Over
But Not Over
Marginal Tax Rate $0
$8,375
10%
$34,000
15%
$82,400
25%
$171,850
28%
$373,650
33%
And Over
35%
John is single. His taxable income last year was $7,500. How much is John’s tax bill?
$7,500 x 10% = $750
Example

6. Taxable Income
Over
But Not Over
Marginal Rate $0
$16,750
10%
$68,000
15%
$137,300
25%
$209,250
28%
$373,650
33%
And Over
35%
Pat and Christina are married. Last year their taxable income was $16,750 between the two of them. How much will they owe in taxes this year?
$16,750 x 10% = $1,675
Example

7. Taxable Income
Over
But Not Over
Marginal Tax Rate $0
$8,375
10%
$34,000
15%
$82,400
25%
$171,850
28%
$373,650
33%
And Over
35%
Harvey is single. His taxable income last year was $24,000. How much is Harvey’s tax bill?
$8,375 x 10% = $837.50
$15,625 x 15% = $2,343.75
Total Tax Bill $

8. Taxable Income
Over
But Not Over
Marginal Rate $0
$16,750
10%
$68,000
15%
$137,300
25%
$209,250
28%
$373,650
33%
And Over
35%
Anthony and Jamie are married. Last year they made $500,000 between the two of them. How much will they owe in taxes this year?
Example

9. Taxable Income
Over
But Not Over
Marginal Rate $0
$16,750
10%
$68,000
15%
$137,300
25%
$209,250
28%
$373,650
33%
And Over
35%
$16,750 x 10%= $1,675.00
$51,250 x 15% = $7,687.50
$69,300 x 25% = $17,325.00
$71,950 x 28% = $20,146.00
$164,400 x 33%= $54,252.00
$126,350 x 35% = $44,222.50
$500, $145,308.00

10. Progressive Tax System
The more money you make, the higher percentage of taxes you pay…
They call this a progressive tax system.
Most countries have this system.
Progressive Tax System

11. At the end of every year, you will receive a W2 from your employers.
This document will tell you how much you made the previous year.
This document also tells you how much was taken out of your paycheck for taxes
Tax Basics

12. Every paycheck a certain amount of money is withheld as an “estimate” of how much taxes you will owe.
A Form W4 will help the government determine how much to withhold from your paychecks to cover your taxes.
The amount of income tax withheld depends on your wages, marital status, and number of dependents.
Tax Withholdings

13. Example Every month John makes $2,000.
After looking at John’s marital status, and number of dependants, the government decides to take out $300 for taxes.
Over the course of the year, John has paid $3,600 in taxes.
($300/month x 12 months)
Example

14. Remember, this is only an estimate of how much John roughly owes.
After completing his taxes, the government determines that John should pay $4,000 in taxes.
Because he has only paid $3,600 throughout the year, John must pay $400 at tax time.
Example

15. Example Throughout the year, Tim has paid $5,000 in estimated taxes.
At the end of the year, the government determines that Tim only owes $3,900.
Therefore, Tim is entitled to a $1,100 refund.
Example

16. Form 1040 is the beginning document when filing taxes.
This is the document you send to the IRS that will determine if you will receive a refund, or if you owe money in taxes.
Filing Your Taxes

18. For each person in your household, you are allowed to “write off” a personal exemption.
If there are four people in your house, you may claim four personal exemptions.
A personal exemption lowers your taxes by $3,650.
Personal Exemption

19. You may claim yourself, your spouse, and your dependents.
A family of four makes $40,000
Four exemptions ($3,650) $14,600
Taxable Income $25,400
Personal Exemption

20. In addition to person exemptions, you are allowed a standard deduction.
The standard deduction is an "automatic" deduction you may claim regardless of your actual expenses.
This lowers your taxable income by:
Married- $10,900
Single- $5,450
Standard Deduction

21. Standard Deduction A family of four making $40,000
Four Exemptions ($3,650) $14,600
Taxable Income $14,500
$14,500 x 10% = $1,450 Owed in Taxes
Standard Deduction

22. Final Step We now know that this family owes $1,450 in taxes.
At the end of the year, the family receives a W2 from their employer that states $2,000 was withheld in taxes.
Therefore, they are entitled a refund of $550.
Final Step

23. Standard Deduction vs. Itemized Deductions
Instead of claiming the standard deduction of $10,900 (married) or $5,450 (single), you may decide to itemize your deductions. Thing you may “write off” include:
Health Care
Interest Paid on Mortgage
Childcare Expenses
Ect…
Standard Deduction vs. Itemized Deductions

24. Adjusted Gross Income -Standard Deduction -Personal Exemptions
Taxable Income
General Tax Formula

25. Tax Worksheet Answer Key
1. $0
2. T Income $15, T Bill $1,580
3. T Income $7, T Bill $790
4. T Income $39, T Bill $5,087.50
5. T Income $47, T Bill $6,302.50
Tax Worksheet Answer Key

26. Tax Worksheet Answer Key
6. T Income $37,250.00
T Bill $5,493.75
Owes $2,493.75
T Income $0.00
T Bill $0.00
Refund $1,000.00
T Income $50,900.00
T Bill $8,906.25
Owes $8,406.25
9. T Income $367,200.00
T Bill $98,957.00
Owes $78,957.00
10. T Income $140,900.00
T Bill $33,161.25
Owes $33,161.25
Tax Worksheet Answer Key

27. Capital gains and losses happen when you buy and sell stocks.
If you buy $1,000 of GOOG and sell it for $1,200, you have made a $200 capital gain.
Capital Gains

28. Capital gains are separated into short term and long term categories.
Short term gains are any investment held under one year.
Long term gains are any investment held over one year.
Capital Gains

29. Short term capital gains are taxed at your ordinary income bracket.
Long term capital gains are taxed at:
0% for people in low tax brackets
10% or 15% for people in higher tax brackets
Capital Gains

30. Capital Gains and Losses
Capital gains can be “offset” by capital losses.
If you make $1,000 on PEP, but lose $700 on GE, your capital gain for the year is:
$300
Capital Gains and Losses

31. One reason rich people stay rich is because they earn most of their income from stocks, which are taxed at 15%.
One of the reasons poor people stay poor is because they earn most of their money from wages, which can be taxed at 35%!
Keep more of your money by being taxed at 15%, rather than 35%!
Tax Tip

32. Dividends Most dividends are taxed at 15%.
Income earned from wages can be taxed at 35%!
Keep most of your money by investing in stocks that pay dividends!
Dividends

33. Warren Buffett’s Secret
Warren Buffett is the third richest person in the world.
Every year he makes billions of dollars.
Yet he pays a lower tax rate than his secretary, who makes $70,000. How?
Warren Buffett’s Secret

34. Warren Buffett’s Secret
Warren does not pay himself a salary from his company because it would be taxed at 35%.
Instead, Warren makes all his money from dividends and capital gains. The most he pays in taxes is 15%!
His secretary makes $70,000, which is taxed at 25%!
Warren Buffett’s Secret

35. Many Republicans favor lower taxes for some of the wealthiest Americans.
“Trickle Down Economics”
Under President Reagan, the top tax bracket went from 70% to 28%. This lowered taxes for the richest Americans.
The Political Debate

36. At the same time, the bottom tax bracket was raised from 10% to 15%, which increased the taxes on the lowest Americans
Under President George W. Bush, the top tax bracket was lowered from 38% to 35%.
The Political Debate

37. The Trickle Down Effect
If we give money to the richest Americans, they will buy yachts and expensive luxury items.
People will have to make those yachts and luxury items which will provide jobs “middle-class” Americans.
If the rich are doing well, everyone will do well.
The Trickle Down Effect

38. Many Democrats believe in giving tax breaks middle-class families, making less than $250,000 a year.
Raise taxes on the wealthiest Americans to help the poorest Americans.
The Political Debate

39. If you give money to the middle class, they will be able to buy food, pay their utility bills, and provide for their family.
This is thought to help stimulate the economy.
If the middle class does well, everyone does well.
The Political Debate

40. Under President Obama, tax rates have stayed the same for 95% of Americans.
Only the wealthiest 5% of Americans have seen a tax increase.
The Political Debate

41. The Political Debate Many republicans believe in small government.
Many democrats believe in bigger government.
The Political Debate

42. Being respectful to your classmates, what are your thoughts???
The Political Debate