Tax Planning

Tax Planning - TTU Personal Finance Concentration PFP 4361...

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TTU – Personal Finance Concentration TTU Personal Finance Concentration PFP 4361 Personal Finance: Advanced Topics and Case Studies Module 2 – Tax Planning
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TTU – Personal Finance Concentration Understanding Personal Finance Module 2: Tax Planning Learning Objectives: Use the building blocks to achieve financial success Understand how the economy affects your personal financial success. Apply economic principles when making financial decisions. Perform time value of money calculations in personal financial decision making. Make smart decisions about your employee benefits. Identify the professional qualifications of providers of financial advice.
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TTU – Personal Finance Concentration Tax Planning Tax Planning Strategy is the ability of an individual to effectively reduce, defer, or eliminate some taxes. Tax planning can influence an individual’s spending, savings, borrowing, and investment decisions. An understanding of the tax laws and maintenance of appropriate records can assist an individual to take advantage of some tax shelters.
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TTU – Personal Finance Concentration Tax Planning (continued) Administration and Classification of Taxes - Taxes are compulsory charges imposed by the Federal, State, and Local governments on citizens. Taxes are major sources of revenue for the government and as such are mandatory and affect one’s personal finance decision. There are four distinct types of taxes: Taxes on Purchase Taxes on Property Taxes on Wealth Taxes on Earnings -
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TTU – Personal Finance Concentration Tax Rate Table Rate on Single Married Head of Household Taxable Income Taxpayer Taxpayers Taxpayers 10 $0 - $8,350 $0 - $16,700 $0 - $11,950 15 $8,351 - $33,950 $16,700 - $67,900 $11,950 - $45,500 25 $33,951 - $82,250 $67,900 - $137,050 $45,500 - $117,450 28 $82,251 - $171,550 $137,050 - $208,850 $117,450 - $190,200 33 $171,551 - $372,950 $208,850 - $372,950 $190,200 - $372,950 35 $372,950 or more $372,950 or more $372,950 or more Source: 2010 Tax Tables of the Internal Review Service
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TTU – Personal Finance Concentration Marginal and Average Tax Rates The concepts of marginal and average tax rates explain why some individuals choose to maximize income, whereas others choose to remain in lower tax brackets to minimize their overall tax liabilities. The marginal tax rate is the tax paid on additional income earned and it is used to ensure the progressive nature of the income tax. The average tax rate is the total tax liability as a percentage of income. As a rule, the marginal tax rate will be greater than the average tax rate.
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TTU – Personal Finance Concentration The Ways Taxes Are Paid Taxes are paid through payroll withholding and estimated taxes. The most common is the payroll withholding method which is where the employee authorizes the employer to withhold a portion of the employee’s income for tax purposes.
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TTU – Personal Finance Concentration Calculating Adjusted Income
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Tax Planning - TTU Personal Finance Concentration PFP 4361...

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