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Lecture 5

CDAE 158 Lecture Notes - Lecture 5: Filing Status, Alimony, Federal Insurance Contributions Act TaxPremium

5 pages86 viewsFall 2018

Department
Cmty Dev & Apld Econ
Course Code
CDAE 158
Professor
Fritz
Lecture
5

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Planning your tax strategy
- About ⅓ of each dollar you earn goes to pay taxes
- Tax freedom day is in late April and represents the portion of the year that people
had to work to pay their taxes for the year
- Know the current tax laws and regulations that affect you
- Maintain complete and appropriate tax records
- Make purchase and investment decisions that can reduce your tax liability
- Target your tax planning efforts toward paying your fair share of taxes while
taking advantage of tax benefits
4 types of Taxes
1. Taxes on Purchases: sales tax & excise tax
2. Taxes on Property: Real Estate Property tax & Personal Property tax
3. Taxes on Wealth: Federal Estate tax & State Inheritance tax
4. Taxes on Earnings: Income tax & Social Security tax
Earned Income Includes wages, salary, commissions, fees, tips or bonuses
Investment income money from dividends, interest, or rent from investments
Passive income from business activities in which you do not actively participate, such as
a limited partnership
- Other income includes alimony, awards, lottery, winnings
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Types of income excluded from gross income
Exclusions: amounts not included in gross income, for example, a portion of foreign
earned income. Exclusions can also be tax-exempt income, which is income not subject
to federal income tax, for example, interest earned on most state and city bonds.
Types of income taxed later
Total income is also affected by tax-deferred income, which is income that will be taxed
at a later date; for example, earnings on a individual retirement accounts.
Adjusted gross income is gross income after certain reductions have been made. These
reductions are called adjustments to income and include contributions to an IRA,
penalties for early withdrawals of savings, alimony payments, etc.
Deductions
- A tax deduction is an amount subtracted from adjusted gross income to arrive at
taxable income
- Each taxpayer can subtract the standard deduction, a set amount on which no
taxes or paid,or they can subtract total itemized deductions from AGI
Itemized deductions includes items such as:
- Medical, dental expenses greater than 10% of AGI
- Taxes (state and local income tax, real estate property tax, or local personal
property tax)
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