Financial Planning for Women
Garman/Forgue Personal Finance 9th ed.
Presented by Danielle Walker
Objectives - be able to:
• Calculate your marginal tax rate &
apply in tax planning
• Reduce your taxable income
• Differentiate between adjustments,
deductions, & credits
• Recognize taxable income < gross
• Adjust W-4 withholding
• Avoid instant refund schemes
• Know Utah has 2 tax systems 2
• Tax Planning: Seeking legal ways to
reduce, eliminate, or defer income
• Taxable Income: the income upon
which income taxes are levied
Progressive vs. Regressive
• Progressive tax- tax rate increases as
taxable income increases.
– U.S. income tax
• Regressive tax- as income rises, the
tax demands a decreasing proportion of
a person’s income.
– State sales tax
Marginal Tax Bracket and
• Marginal Tax Bracket (MTB)- one of the
6 income ranges that are taxed at
increasing rates as income goes up
• Marginal Tax Rate- the rate at which
one is taxed in each bracket
* Tax brackets are adjusted each year for inflation
• Use IRS tables or
• On tax table find:
– Taxable income & tax due
– Add $100 to taxable income and find tax
– The $ difference = MTB
• 10%, 15%, 25%, 28%, 33% or 35%
• Most taxpayers are in 10% or 15% MTB
Progressive Nature of
Segment of Taxable Income Marginal Tax
(Marginal Tax Bracket) Rate
First $7,825 10%
Over $7,825 but not over $31,850 15%
Over $31,850 but not over $77,100 25%
Over $77,100 but not over $160,850 28%
Over $160,850 but not over $349,700 33%
Over $349,700 35%
*Single filers 7
Marginal Tax Rate and
• Need to know MTB for investment
• Other financial decisions affect taxes
• 25% MTB
• Give $100 to charity (tax-deductible)
• Essentially you give $75 to charity and the
government gives $25!!
• Only if itemized deductions> standard deduction
Filing Status & Tax Rates
• IRS 2007 tax rate schedules
– Married, filing jointly or qualifying widower
– Married, filing separately
– Head of household
8 Steps in Calculating Your
1. Determine your total income
2. Determine and report your gross
income after subtracting exclusions
3. Subtract adjustments to income
4. Subtract either the standard
deduction or itemized deductions
5. Subtract the value of your personal
8 Steps to Calculating Your
6. Determine your preliminary tax liability
7. Subtract tax credits for which you
8. Calculate the balance due the IRS or
the amount of your refund
Adjusted Gross Income
• Income (just a few) • Exclusions/Adjustments
– Wages and Salaries – Gifts
– Commissions – Inherited money or
– Tips Earned property
– Gambling and Lottery – Income from a carpool
Winnings – Federal income tax
– Capital Gains and refunds
Losses – Child support payments
*AGI- gross income less any exclusions
Personal Exemptions and
• Personal Exemptions- $3400 x number of
people that taxpayer’s income supports
• Standard Deduction- amount that all tax
payers may subtract from their AGI
– Amount depends on filing status
– Deduct itemized deductions if > SD
• You only pay fed. taxes on income > your
personal exemption(s) + standard or
itemized deductions. (taxable income)
• Based on the number of people
supported by the taxpayer’s income
– Spouse, children, parents, etc.
– Must provide more than half of financial
• For 2007 each exemption reduces
taxable income by $3,400
– Adjusted yearly for inflation
Filing status Standard
Single or married filing separately $5,350
Married filing jointly or qualifying $10,700
widow(er) with dependant child
Head of household $7,850
**Do not use this chart if you are over 65. 15
1. Medical and Dental Expenses
2. Taxes You Paid
3. Mortgage Interest You Paid
4. Gifts to Charity
5. Casualty and Theft Losses
6. Job Expenses and Most Other Misc.
• After PE and SD you determine your
• Subtract tax credits
– Tax Credit- dollar-for-dollar decrease in
– Refundable or Nonrefundable
• Refundable- can get paid even if you do not
owe income taxes! Must file to collect!
Reduce Taxes Through
• Practice legal tax avoidance, not tax
• A dollar saved from taxes is really two
dollars - or more
– Opportunity cost
– Earning another dollar to replace one paid
to the IRS
– Earnings on a dollar not paid to the IRS
Reduce Taxable Income Via
• Premium only Plan
• Transportation reimbursement plan
• Flexible Spending Accounts (FSA)
• Defined-Contribution Retirement Plan
– 401(k) Retirement Plan
– Matching Employer Contributions
Tax Sheltered Investments
• Investments that yield returns that are
– IRAs, Traditional and Roth
– Coverdell Education Savings Account
– 529 College Savings Plans
– Government Savings Bonds
– Municipal Bonds
– Capital Gains on Housing
• Because of tax-exempt status of some
investments they may provide lower
than average returns
• Determine the after-tax yield to see if it
is worth it.
– After-tax yield = taxable yield x (1- federal
marginal tax rate)
– 35% combined federal and sate marginal
– Municipal bond 3.5% yield
– Taxable corporate bond 5.7% yield
– 5.7 x (1- 0.35) = 3.71
• The 5.7% taxable bond is the way to go!
• When employees have their employers
withhold more in estimated taxes than the tax
liability ultimately due.
• A poor strategy of forced savings
• Opportunity cost- what could have been
done/earned with that money???
• File a new W4 to decrease your
withholding and automatically invest or
Top 3 Financial Missteps
1. Turn all your income tax planning over
to someone else
2. Overwithhold too much income to
receive a refund next year
3. Ignore the impact of income taxes in
your personal financial planning
Hiring a Tax Preparer
• Anyone can be a tax preparer!!
• Make sure to do your research
– What qualifications do they have?
– How qualified do I need them to be?
– What do they charge?
– Do I want tax advise all year round?
– Make sure to check out agencies as well
Hiring a Tax Preparer
• Free file - AGI needs to be $54,000 or less
• USU Accounting students provide VITA
assistance in basement of USU Business
– Open Wednesdays 5-9 pm & Saturdays 9 am-1
pm February 13th - April 5th.
• For more info: Joe Fail [firstname.lastname@example.org]
– The VITA lab will not be open March 8th, 12th,
15th, or 29th
Tax Changes for 2007
• Deduction for mortgage insurance premiums
is phased out for taxpayers with adjusted
gross incomes exceeding $100,000 ($50,000,
if married filing separately).
• To deduct any charitable donation, taxpayers
must have a bank record or a written
communication from the recipient showing
the name of the organization and the date
and amount of the contribution.
Utah Changes for 2007
• What's New for 2007 Tax Year
– Dual Income Tax System: The Utah
individual tax law was changed for 2007 to
allow you to calculate your Utah tax liability
two ways and then pay the lower amount.
– Utah Educational Savings Plan (529)
Deduction Expanded: The deduction for
an investment in a Utah Educational
Savings Plan has been increased for 2007.
Utah Changes for 2007
– Utah Educational Savings Plan Credit: An
investment in a 529 may be taken as a deduction
(Part 3 of TC-40S) under the traditional tax
system. It may also be used as a credit under the
single rate tax system when calculating the tax on
line 13 of TC-40.
– Nonrefundable Residential Energy System Tax
Credit: a new credit is available for a system
installed on a residential unit that supplies all or
part of the energy required.
Utah Changes for 2007
– Refundable Commercial Energy System Tax
Credit: A new refundable credit is available for a
commercial energy system.
• For more information -
Receiving Your Refund
• Split refunds among up to three accounts
– banks, mutual funds, brokerage firms or credit
– To encourage savings
• Direct deposit to one account
• Paper check through the mail.
IRS will process electronically filed returns in
as little as 10 days but paper refunds will take
A Word of Caution
• Beware of Tax Refund Anticipation
Loans (aka rapid refund)
– Very costly
– Similar to a payday loan!!
– File electronically and it is almost as fast
A Word of Caution:
• Rapid Access Loan (1-2 Day Refund)Get a
loan in the amount of your refund in as little as 1-2 business
days after IRS acknowledgment. Loan must be approved and
fees will be deducted from the loan. Available again in January,
• *See below for additional fees charged by
– Refund Amount SBBT Fee
– $300 - $3500 3%
– $3501 - $4500 $105
– In addition to the fees stated above,there is an
account handling fee of $30.95.
On a Lighter Note
• The guy who said that truth never hurts never
had to fill out a Form 1040.
• Another difference between death and taxes
is that death is frequently painless.
• Children may be deductible, but they are still
• Tax Humor (page 1) From Tom Antion & Associates -
March 5, 2007!!
• Investment Planning
– Note that it is the FIRST Wednesday due
to Spring Break!!
– Remember to bring a friend!
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