Title : Government Revenues and Expenses Reading: Chapter 7 Videos
individual income taxes : 46%
social security / medicare taxes : 34%
corporate income taxes : 11%
excise and other taxes/fees : 8%
estate taxes : 1%
all required forms are offered for free at irs.gov
federal income tax is a pay as you go system; 1. employer witholds a tax based on filing status and payroll amount.
there may be an additional quarterly estimated based on un-taxed income (commisions, dividends, capital gains, etc)
penalties galore… do research
W-4 formi is what you fill out when you start a job: lets an employer ikow how much do deduct/withold from each paycheck for personal income taxes (federal and state)
employers can take more –> easies to not spend and increares cushion if taxes are off (+ worst case tax refund)
April 15th!
Tax Basics #
- remember that changes literally and in intreptation can happen at any time
Filing Status #
- single, married filing jointly, married filing seperately, head of household, and widower with dependent child
Earned Income #
- wages, salary, bonuses, royalties, etc
- evidenced by W-2 form
- self-employed instructions differ
Total Income #
- earned + unearned (taxable interest, dividends, capital gains, etc)
- qualifed stock dividends are currently taxed at a max rate of 20% (s: $425k m: $479k) if stock is of a certain amount and held for 61 days+ , max of 15% below those amts , 0% for less than $38k for s and 72k for m
- non-qualified dividends are those from stocks held less than 61 days and "ordinary divideds" , reported on Form 1040 and are taxed as ordinary income at indiv. tax rate
- taxes on interest recevied is reported on appropriate schedule and taxed as ordinary income
Adjusted Gross Income #
- total income minus specific deductions (see modified adjusted gross income)
Capital Gains Tax #
- capital gains tax is reported on the 1040 form schedule
- 2 types: 1. short term capital gains: assets owned less than 1 year (profit added to income and taxed at indiv tax rate) 2. long term capital gains: for an assest owned more than 1 year, almost identical as qualified stock dividends
- capital losses can usually be used to offsest capital gains for tax purposes (first short term, then long term), excess loss can be applied to either type
Wash Sale Rule #
- cannot declare a loss on a security if you purchase the identical security within 30 days before or after, it remains a loss but is not tax deductible
Tax Deductions #
- standard dedution are a no questions asked deduction to income before calculating your tax (no proof or records needed) : single ($12,000) married and filing jointly ($24,000)
- itemized deductions: if you believe that your eligible deductions are more than the standard deductions, itemize them on 1040
- eligible deductions: medical expenses, state and local taxes, mortages, charity, etc ...
Quarterly Estimated Taxes #
- if you cannot pay your taxes; always file a return, consider borowwing or using a credit card, see IRS First Time Abate