Week 10 - Taxes Flashcards
What are excise taxes?
additional taxes on certain items like alcohol, gas, and cigarettes (not for food or medicine)
What are the different tax filing statuses?
- single
- married filing jointly
- married & filing separately
- head of household
- qualifying widow(er) w/ dependent child
What are FICA taxes?
Federal Insurances Contribution Act, levied on salary.
Social security (6.2%, up to certain salary) and medicare (1.45%, no salary limit)
If you have a job then you pay these three taxes
Income, social security, and medicare
What is the concept of progressivity?
Higher income is taxed at a higher rate
How do you know your tax bracket?
It is the tax rate on your last dollar of income
Do FICA taxes apply to salary in tax-deferred account (like 401(k))?
Yes
Capital Gains taxes
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
Property Taxes
in CA, you pay 1% of assessed value of home every year. Assessed value can increase 2% per year.
What are estate taxes?
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.
(T/F) The top half of earners are paying 97% of all taxes raised
True; they are also making about 89% of the income
How to determine your taxable income
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
What is included in your taxable income?
- 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
What are adjustments when calculating non-taxable income?
- contributions to tax-deferred retirement accounts
- interest paid on student loans
- tuition and fees deduction
- moving expenses
- unreimbursed K-12 educator expenses
How to calculate adjusted gross income?
Total income - adjustments
What are examples of deductions?
- interest portion of home loan
- state and local income taxes
- property taxes
- charitable contributions
- medical and dental
OR
standard
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)
Not taxable:
standard deduction = $12,400 ($6,200 x 2)
4 exemptions = $15,800 (4 x $3,950)
TOTAL: $28,200
What are tax credits?
Reduce tax bill dollar for dollar by the amount of the credit
When should you file your tax return by?
April 15th
How is ESPP taxed?
On purchase date, then will be taxed as ordinary income.
What did the tax cuts and job act of 2017 accomplish?
- lowered top corporate income tax rate from 35% to 21%
- lowered top individual income tax rate from 39.6% to 37%
- increased standard deduction
(T/F) In a 30 year fixed mortgage, all your payments are the same amount
True
(T/F) In a fixed mortgage, each payment has the same amount going towards principal and interest
False, the allocation changes over time
What does it mean to “build equity” in your house?
Equity = ____ + _____ +/- ______
Equity = ____ - ____
Your down payment + how much mortgage you’ve paid down +/- appreciation
Market value - what you owe the mortgage company
What situation would students need to file?
- If your gross income was at least $14,000 in 2024, you are required to file yourself
What is the focus order for retirement?
- Savings rate
- stock bond split
- portfolio allocation
- fees
- taxes
- cash drag
What are the types of federal taxes you will (most likely) pay?
- income tax
- social security tax and medicare
- capital gains tax
- excise tax (vs. sales tax)
Where does the federal gov’t get money?
50% income tax, 36% payroll tax
What do you need to file taxes?
- W-2 from your employer
- income from banks
- investment income / dividends
- childcare expenses
What is your W-2?
issued by your employer, lists income and witholding
What is a W-4?
You fill this out and give back to your employer, adjusts your withholding via allowances
What is the 1040 form?
main tax return
What is payroll tax?
FICA = Social security + medicare
7.65% = 6.2% + 1.45%
What is the marginal rate?
The highest bracket you reach
What is the effective rate?
The total amount of tax you pay divided by your taxable income (line 16 / line 15)
