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75ifthetaxpayer withheld942875ontheirpaycheckthenthe

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Unformatted text preview: edicare tax 3.8% net investment income tax + 0.9% Pease: Limits itemized deductions on Sch. A above limit, up to 80% PEP: Personal Exemption Phaseout 39 Marginal vs. Average Tax Rates Marginal vs. Average Tax Rates Average tax rates are interesting, but meaningless (except for politicians) Marginal tax rates reflect how the next dollar of income will be taxed, or the worth a $1 more of deduction MARGINAL NOT AVERAGE TAX RATES DRIVE ALL PERSONAL FINANCIAL DECISIONS A tax credit is an amount subtracted directly from the amount of taxes owed 40 Tax Credits vs. Deductions Tax Credits vs. Deductions $100 Tax Credit Reduces Your Taxes by $100 $100 Tax Deduction Amount Your Taxes are Reduced is Based on Your Tax Bracket 41 Completing Your Completing Your Federal Income Tax Return Determine if you are due a refund or owe tax Send refunds directly to your bank Sign & date your return 42 Tax Refunds/Tax Due Tax Refunds/Tax Due In the previous example, the tax liability on $50,000 of TI was $8,428.75. If the taxpayer withheld $9,428.75 on their paycheck, then the refund would be $1,000. Your W­4 tells the employer how much to withhold, and you can change your withholdings at any time What’s better? Getting a big refund check or Owing money on April 15 43 Assume Identical Taxpayers: Assume Identical Taxpayers: “A”...
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