MANAGING

INCOME TAXES
CHASTY x RAPHELE x JUSTY
Adopt a TAX PLANNING
perspective designed to
reduce, defer, or
climinate some income
taxes.
Taxes- compulsory
charges imposed by a
government on its
citizens and their
property.
HE PROGRESSIVE NATURE OF
FEDERAL INCOME TAX
2 CLASSIFICATION OF TAXES
 2 CLASSIFICATION OF TAXES:
Progressive Tax Regressive Tax
■ - itis federal personal ■ - operates in an
income tax oposite way.
■ - tax progressively ■ - as the income rises,
increases as the the tax demands
taxpayer’s taxable decreasing proportion
income increases of a person's income.
 THE MARGINAL TAX RATE IS
APPLIED TO THE LAST DOLLAR
EARNED
Marginal Tax Bracket (MTB)
or Marginal Tax Rate Indexing
■- one of the six ■- yearly
income adjustments to tax
■- range segments brackets that
is taxed at reduce inflation's
increasing rates as effects on tax
income goes up. brackets.
USE YOUR MARGINAL TAX
RATE TO HELP MAKE
FINANCIAL DECISIONS
Marginal Tax Rate
can affect many
financial decisions
that you make.
YOUR EFFECTIVE MARGINAL
TAX RATE IS HIGHER
Effective Marginal Tax Rate - total marginal rate
reflects all taxes on a person's income including
federal, state, and local income taxes as well as
Social Security and Medicare taxes.
YOUR AVERAGE TAX RATE IS MUCH
LOWER THAN YOUR MARGINAL RATE
TAXES.

Average Tax Rate- proportion of total

income paid in income
 STEPS ON
CALCULATING YOUR
INCOME TAXES
DETERMINE YOUR TOTAL
INCOME
• Making Tax Payments
1
• Income to include
• Capital Gains and Losses are Taxed
• Dividend Income is Taxed at Special Low
Rates
DETERMINE AND REPORT YOUR 2
GROSS INCOME AFTER
SUBTRACTING EXCLUSIONS
•Income to Exclude
SUBTRACT 3
ADJUSTMENTS TO
INCOME
SUBTRACT EITHER THE IR’S
4
STANDARD DEDUCTION FOR
YOUR TAX STATUS OR YOUR
ITEMIZED DEDUCTIONS
THE TAX FORM LISTS THE FOLLOWING SIX
CLASSIFICATION OF ITEMIZED DEDUCTIONS
• Medical and Dental Expenses
4
• Taxes you paid
• Interest you paid
• Gifts to Charity
• Casualty and Theft Losses
• Job Expenses and Most other Miscellaneous
Deductions
 5
SUBTRACT THE VALUE OF
YOUR PERSONAL
EXEMPTIONS
DETERMINE YOUR
6
PRELIMINARY TAX
LIABILITY
 7
SUBTRACT TAX CREDITS
FOR WHICH YOU
QUALIFY
• American Opportunity Tax Credit 7
• Lifetime Learning Credit
• Earned Income Credit
• Child And Dependent Core Credit
• Child Tax Credit
•
•
Adoption Credit
Mortage Interest Credit
7
• Retirement Savings Contribution Credit
• Elderly or Disabled Tax Credit
• Energy-Saving Vehicle Credit
• Energy-Saving Home Improvements
Credit
CALCULATE THE BALANCE
8
DUE THE IR’S OR THE
AMOUNT OF YOUR
REFUND
STRATEGIES TO
REDUCE YOUR
INCOME TAXES
PRACTICE LEGAL TAX
AVOIDANCE,
NOT TAX EVASION
TAX EVASION TAX AVOIDANCE
Involves deliberately Means reducing tax
and willfully hiding liability through legal
income, falsely techniques. It involves
claiming deductions, applying knowledge of
or otherwise cheating the tax code and
the government out of regulations to personal
taxes owed. It is illegal income tax planning
REALIZE THAT A DOLLAR
SAVED FROM TAXES

IS REALLY TWO
DOLLARS- OR MORE
1. The Opportunity Cost
2. Earning another dollar to
replace one given to the IRS
3. Earnings on a dollar not
given to the IRS
REDUCE TAXABLE
INCOME VIA YOUR
EMPLOYER
• Premium-only Plan
• Transportation Reimbursement
Plan
• Flexible Spending Account
• Defined-Contribution Retirement
Plan
PRUNE TAXABLE
INVESTMENTS
MAKE TAX-
SHELTERED
INVESTMENTS
• Invest with Pretax
Income
• Make Your Investments
Grow Tax Deferred
EXAMPLES OF TAX
SHELTERED
INVESTMENTS
 INDIVIDUAL
RETIREMENT
ACCOUNTS
 BOTH IRA
ACCOUNTS
 COVERDELL
EDUCATION SAVINGS
ACCOUNTS
 QUALIFIED
TUITION
PROGRAMS
 GOVERNMENT
SAVINGS BONDS
TAX-EXEMPT
MUNICIPAL
BONDS
CAPITAL GAINS IN
HOUSING
DEFER INCOME
ACCELERATE
DEDUCTIONS
TAKE ALL OF YOUR
LEGAL TAX
DEDUCTIONS
SHIFT INCOME TO
CHILD
BUY AND
MANAGE A REAL
ESTATE
INVESTMENT