Week 10 - Taxes

Question 1

What are excise taxes?

Answer 1

additional taxes on certain items like alcohol, gas, and cigarettes (not for food or medicine)

Question 2

What are the different tax filing statuses?

Answer 2

• single
• married filing jointly
• married & filing separately
• head of household
• qualifying widow(er) w/ dependent child

Question 3

What are FICA taxes?

Answer 3

Federal Insurances Contribution Act, levied on salary.
Social security (6.2%, up to certain salary) and medicare (1.45%, no salary limit)

Question 4

If you have a job then you pay these three taxes

Answer 4

Income, social security, and medicare

Question 5

What is the concept of progressivity?

Answer 5

Higher income is taxed at a higher rate

Question 6

How do you know your tax bracket?

Answer 6

It is the tax rate on your last dollar of income

Question 7

Do FICA taxes apply to salary in tax-deferred account (like 401(k))?

Answer 7

Yes

Question 8

Capital Gains taxes

Answer 8

Money you earn from holding an asset and making a profit. If holding asset for longer than a year, you pay less tax on your capital gains

Question 9

Property Taxes

Answer 9

in CA, you pay 1% of assessed value of home every year. Assessed value can increase 2% per year.

Question 10

What are estate taxes?

Answer 10

Also known as death tax. These are taxes you pay on the value of your net assets once you die. 40% and only applies to estates exceeding a certain net worth.

Question 11

(T/F) The top half of earners are paying 97% of all taxes raised

Answer 11

True; they are also making about 89% of the income

Question 12

How to determine your taxable income

Answer 12

1) Determine total income
2) Subtract 3 things from total income (adjustments, deductions, exemptions)
3) look up tax in tax table
4) apply any tax credits

Question 13

What is included in your taxable income?

Answer 13

• wages, salaries, tips
• consulting income from own business
• some interest and some dividends
• some scholarship and fellowship funds
• rental income
• some retirement income
• unemployment compensation
• gambling winnings
• short-term capital gains

Question 14

What are adjustments when calculating non-taxable income?

Answer 14

• contributions to tax-deferred retirement accounts
• interest paid on student loans
• tuition and fees deduction
• moving expenses
• unreimbursed K-12 educator expenses

Question 15

How to calculate adjusted gross income?

Answer 15

Total income - adjustments

Question 16

What are examples of deductions?

Answer 16

• interest portion of home loan
• state and local income taxes
• property taxes
• charitable contributions
• medical and dental

OR

standard

Question 17

If you are married, filing jointly, and have 2 children, how much money do you have to earn before nay of it is taxable? (Assume no adjustments; standard deduction of $12,400; exemptions $3,950 per person)

Answer 17

Not taxable:
standard deduction = $12,400 ($6,200 x 2)
4 exemptions = $15,800 (4 x $3,950)
TOTAL: $28,200

Question 18

What are tax credits?

Answer 18

Reduce tax bill dollar for dollar by the amount of the credit

Question 19

When should you file your tax return by?

Answer 19

April 15th

Question 20

How is ESPP taxed?

Answer 20

On purchase date, then will be taxed as ordinary income.

Question 21

What did the tax cuts and job act of 2017 accomplish?

Answer 21

• lowered top corporate income tax rate from 35% to 21%
• lowered top individual income tax rate from 39.6% to 37%
• increased standard deduction

Question 22

(T/F) In a 30 year fixed mortgage, all your payments are the same amount

Answer 22

True

Question 23

(T/F) In a fixed mortgage, each payment has the same amount going towards principal and interest

Answer 23

False, the allocation changes over time

Question 24

What does it mean to “build equity” in your house?
Equity = ____ + _____ +/- ______

Equity = ____ - ____

Answer 24

Your down payment + how much mortgage you’ve paid down +/- appreciation

Market value - what you owe the mortgage company

Question 25

What situation would students need to file?

Answer 25

• If your gross income was at least $14,000 in 2024, you are required to file yourself

Question 26

What is the focus order for retirement?

Answer 26

• Savings rate
• stock bond split
• portfolio allocation
• fees
• taxes
• cash drag

Question 27

What are the types of federal taxes you will (most likely) pay?

Answer 27

• income tax
• social security tax and medicare
• capital gains tax
• excise tax (vs. sales tax)

Question 28

Where does the federal gov’t get money?

Answer 28

50% income tax, 36% payroll tax

Question 29

What do you need to file taxes?

Answer 29

• W-2 from your employer
• income from banks
• investment income / dividends
• childcare expenses

Question 30

What is your W-2?

Answer 30

issued by your employer, lists income and witholding

Question 31

What is a W-4?

Answer 31

You fill this out and give back to your employer, adjusts your withholding via allowances

Question 32

What is the 1040 form?

Answer 32

main tax return

Question 33

What is payroll tax?

Answer 33

FICA = Social security + medicare
7.65% = 6.2% + 1.45%

Question 34

What is the marginal rate?

Answer 34

The highest bracket you reach

Question 35

What is the effective rate?

Answer 35

The total amount of tax you pay divided by your taxable income (line 16 / line 15)