11/30/2023

Final Grades
❑ Be reviewing your final grades; make sure all grades are
accounted for
❑Look at Connect Assignments (part one) - make sure
grades are accurate and were submitted appropriately
❑After your exam score is in – add up your total points –
and use the grading rubric in the syllabus (no rounding of
grades)
❑If you are not interested in taking the final exam, you do Taxes
not need to come to class next Thursday for the review or
the final exam session
❑Questions – please contact Dr. Tobe – [email protected]

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Philosophy: “Pay as You Go”

What are taxes? Payroll withholding – employer withholds income as a prepayment of
an individuals tax liability for the year
Taxes are compulsory charges imposed by government on its citizens. Self Employed Individuals – estimate taxes in advance and submit pay
The progressive nature of the federal income tax. quarterly – April, June, September, January
◦ A Progressive Tax is one that requires a higher tax rate as income increases.

Types of taxes include sales tax, real estate taxes, estate taxes, taxed on
earnings
Tax planning should be an ongoing process throughout the year.
• Tax planning starts with knowing current tax laws, maintaining complete and
appropriate tax records, then making purchase and investment decisions that
can reduce your tax liability.

Primary goal: Pay your fair share of taxes and take advantage of tax benefits.

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Wealth is not what we make... it’s what we KEEP! Taxes in their simplest form...
Goal of Tax We only pay taxes on our Taxable Income.
• Gross Income
Step One: Personal Information
Planning… • Adjusted Gross Income (minus
exclusions/adjustments)
reduce, Let's review a tax form! Go to D2L –
defer or Content- Unit 3 – Taxes – Lecture Outlines –
click on the 1040 2022 tax form that is
eliminate posted

some
income
taxes…

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Single
Dependents:
◦ Single on the last day of the year and do not qualify for
another filing status Dependents can have own tax returns, and even be
married, but they must not have filed a joint tax return
Married Filing Jointly for the year unless it’s just to claim a refund.
◦ Married and agree to file jointly US Citizen, US National or Resident Alien; Must have
Married Filing Separately Taxpayer ID Number
◦ Married however, want to be responsible for your own The child:
Filing status? tax or if it results in less tax than filing a joint return Lived with you for at least half of the year and be related.
-Based on Head of Household Dependent? 18 or younger, or under 24 if a student (attended school
your status ◦ You are unmarried or “considered unmarried” on the last
Who full time at least five months of year); younger than you
day of the year. or spouse (unless disabled)
at the last ◦ You paid more than half the cost of keeping up a home Qualifies? Other Relatives or Non-Related Persons
day of the for the year.
Can’t have a gross yearly income over a certain amount
year! ◦ A “qualifying person” lived with you in the home for
Can’t be a qualifying child dependent of you or another
more than half the year
person. That means you can't claim the person if
Qualifying Widow(er) With Dependent Child someone else could.
◦ 2 years after spouses dies, tax benefits greater than Head The person must be either related to you or must have
of Household lived with you all year as a member of your household.
Source: Source: https://www.1040.com/tax-guide/taxes-for-
families/who-can-you-claim/

http://www.irs.gov/publications/p501/ar02.html#en_US_2011_publink10002
20721

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Personal Information: It’s Your Turn

Chad Jones (345-09-0987)
Taxes in their simplest form...
Step Two: Determine Income
Jen Jones (456-12-3456)
Married (and filing MFJ); born after 1958; not blind
Try a 1040 EZ
Live at:123 Spartan Way, East Lansing 48823
Form...
Will not be donating to presidential campaign; not
self-employed
Have a full health coverage
No dependents
No digital assets Goal is to determine taxable income – which is what your
income is based on!
No child tax credit

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Is it Federal Taxable Income?

Class Poll
Municipal Bond Interest Capital Gains on Investments
Earnings (not in “retirement accounts”)
◦ A) Taxable Income A) Taxable Income
◦ B) Not Taxable Income
B) Not Taxable Income

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Example: Capital Gains

Erik who is in the 33% tax bracket
Short term gain/loss
$1000 Capital Gain
• Sell Asset Owned for < one year
Another type • Taxed as INCOME Short Term (held the asset for < one Long Term Capital Gain (hold the
of income Long term gain/loss
year)
Capital gains tax rate = 33%
asset for > one year)
Capital Gains tax rate= 15%
(Investments) Capital gains tax = _________ Capital gains tax = _________
• Sell Asset Owned for > 1 yr (12 mos)
Schedule D: • Key = Taxed at a lower rate
Capital Gains • New for 2013:
and Losses • Lowest tax brackets = 0%;
• Highest tax bracket = 20%
• Rest is 15%; reduces your tax liability
Note: Record Keeping is Needed

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Income:
Gross Salaries: Now Your Turn
◦ Chad: $45,600 Step Three: Determine Taxable
◦ Jen: $44,800 Income… Lines 8 through 10
Taxable Interest:
◦ Credit Union Account: $400
◦ Bank Account: $361

Goal is to determine taxable income – which is what your

income is based on!

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It’s Your Choice…

Take the Standard OR Itemized Deduction
When should you choose a Standard Deduction
vs. Itemized Deduction?
◼Which option will benefit you!
◼Both stays with the filer

The Standard Deduction amounts are…

$12,950 (2022 ty); $13,850 (2023 ty) - Single
$25,900 (2022 ty); $27,700 (2023 ty) - Married Filing Jointly

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Step Four: Taxes and Credits How do you

calculate the amount
of tax you pay?
Marginal Tax Rate
◦ Tax Rate at which
your last dollar
earned is taxed
◦ As income goes up,
you pay a higher tax
rate

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How your Income is REALLY

taxed in 2023 for Single earning
individual making $50,000?

Standard Next up to
Next up to
Deduction $44,725 (or
11,000 is taxed at Totals $50,000
$25,150) is taxed
$13,850 10% Tax= $4,118
at 12%
Tax = 0 Tax = $1100
Tax = $3,018

Filing Status: Single

Gross Income: $50,000
Deduction: $13,850

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Table 4.3: Tax Table Refundable

Example Tax Credits

Dollar for dollar
Can reduce your taxes to below
zero and the extra will be returned
subtraction from your
to the taxpayer
tax liability Non-Refundable
At Less
Reduces your tax liability to zero, if the
Least Than Single Married credit is more than the tax, the extra is
NOT refunded to you
23,550 23,600 3119 2701
23,600 23,650 3126 2709 If Taxable Income is = ◼ Tax credit is a deduction from your TAX BILL.
26,050 26,100 3494 3076 $26,325
◼ For example:
26,100 26,150 3501 3084 And Single, then...
$5,000 owed to IRS for taxes
26,300 26,350 3531 3114 Preliminary Tax =
$3,531 - $5,000 credit for EIC
26,350 26,400 3539 3121
$0 you have to pay to IRS

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Step Four: Computing Payments, Credits, and

Taxes: Step Five: Calculate
If Estimated Tax Payments If you Estimated Tax
Federal Income Tax Withheld: are greater than your final Payments are Less than your
◦Chad: $4000; Jen: $3800 tax liability… REFUND Final Tax Liability… Owe
Try a 1040 EZ
Other Important info:
◦Both have health insurance
Form...
◦Do not qualify for the EITC
◦No nontaxable combat pay election
It’s Your Turn Again…
Visit IRS Tax Table 2022
https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

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Tax Day!!!

What if I need to amend a previous return? (ex: find

income not reported OR find additional deductions) What’s New!
• You can file a 1040X (for the past three years)

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There’s even volunteer Your Next Five

opportunities for YOU! Years…
Volunteer Income Tax Assistance Program 1. Sign-up for tax-advantaged employee
◦ Informational Sessions typically held in the fall benefits
through service learning… but if you are
interested contact: 2. Contribute to your employer-sponsored
◦ http://www.servicelearning.msu.edu/ 401(k) retirement plan at least up to the
◦ http://www.vita.msu.edu/ matching contribution.
◦ http://aicmidmichigan.org/
3. Buy a home to reduce income taxes.
International Students!! - 4. Do your own tax return and learn how
http://oiss.isp.msu.edu/students/employ/tax.htm
to reduce your income tax liability.
5. Maintain good tax records.

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