Tax Strategies - Module 12 of Family Financial Freedom
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This document provides an agenda and overview for a tax strategies workshop presented by Saunders Learning Group. The workshop will describe the importance of taxes for personal financial planning, teach how to calculate taxable income and federal income tax amounts, and cover tax preparation, sources of tax assistance, and tax strategies for different financial situations. Attendees will learn about the four main types of taxes: taxes on purchases, property, wealth, and earnings. The workshop will also explain how to compute tax liability, deductions, credits, and filing status when completing a federal income tax return.
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Tax Strategies - Module 12 of Family Financial Freedom
- 1. Workshop Module 12: Tax Strategies Saunders Learning Saunders Learnin gG Groruopu,p ,N eNwewtotno,n ,K SK S Floydsaunders.com
- 2. Saunders Learning Group provides a variety of training programs, workshops and seminars targeted to the financial services industry. Programs are available in a wide range of topics, and we are specialists in developing custom programs that are targeted to your needs. Contact the founder, Floyd Saunders at 316-‐680-‐6482 or at floyd@floydsaunders.com for more informaKon. Saunders Learning Group, Newton, KS Tax Strategies 2 Training from Saunders Learning Group
- 3. Agenda Describe the importance of taxes for personal financial planning Calculate taxable income and the amount owed for federal income tax Prepare a federal income tax return tax assistance sources tax strategies for different financial and personal situa5ons Saunders Learning Group, Newton, KS Tax Strategies
- 4. “In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin Saunders Learning Group, Newton, KS Tax Strategies 4
- 5. Who Pays What in Taxes Saunders Learning Group, Newton, KS Tax Strategies
- 6. Top 10 % pay 70 % of taxes Source: Tax Foundation and IRS - 2008 Saunders Learning Group, Newton, KS Tax Strategies
- 7. Taxes Paid by Income, 2012 Source: Tax Policy Center Saunders Learning Group, Newton, KS Tax Strategies
- 8. Saunders Learning Group, Newton, KS Tax Strategies
- 9. The Public Debt Saunders Learning Group, Newton, KS Tax Strategies
- 10. Taxes and Financial Planning Objec&ve 1: Describe the importance of taxes for personal financial planning ! An effecKve tax strategy is vital for successful financial planning ! Understanding tax rules and regulaKons can help you reduce your tax liability Saunders Learning Group, Newton, KS Tax Strategies
- 11. ! To help you cope with the many types of taxes you should... — Know current tax laws as they affect you — Maintain complete tax records — Plan purchases and investments to reduce your tax liability ! Tax planning – Take advantage of tax benefits while paying your fair share of taxes Saunders Learning Group, Newton, KS Tax Strategies
- 12. Four Types of Taxes 1. Taxes on purchases — Sales tax & excise tax 2. Taxes on property — Real estate property tax — Personal property tax 3. Taxes on wealth — Federal estate tax, state inheritance taxes 4. Taxes on earnings — Income, Social Security taxes Saunders Learning Group, Newton, KS Tax Strategies 4-12
- 13. Sales tax by state Saunders Learning Group, Newton, KS Tax Strategies
- 14. Property Taxs By State Saunders Learning Group, Newton, KS Tax Strategies
- 15. Taxes & Economic Growth Saunders Learning Group, Newton, KS Tax Strategies
- 16. Income Tax Fundamentals Step 1: Determining adjusted gross income Identify taxable income – net income, after deductions, on which income tax is computed Saunders Learning Group, Newton, KS Tax Strategies 4-16
- 17. Taxable Income Saunders Learning Group, Newton, KS Tax Strategies 4-17 Types of income subject to taxation include: Earned income - includes wages, salary, commissions, fees, tips or bonuses Investment income is money from dividends, interest, or rent from investments Passive income is from business activities - you do not directly participate - limited partnership Other income includes: alimony, awards, lottery winnings, and prizes
- 18. CompuKng Your Tax Liability — Total income is affected by exclusions ! Exclusions are amounts not included in gross income. ! Exclusions can also be tax-‐exempt income, which is income not subject to federal income tax. An example is interest on most state and city bonds. — Total income is also affected by tax-‐ deferred income. This is income that will be taxed at a later date, such as earnings from a tradiKonal individual reKrement account (IRA). Saunders Learning Group, Newton, KS Tax Strategies
- 19. CompuKng Your Tax Liability (conKnued) — Adjusted gross income is gross income aber certain reducKons have been made. These reducKons are called adjustments to income, and include the following: ! ContribuKons to a tradiKonal IRA or Keogh ! Alimony payments ! Student loan interest, tuiKon & fee deducKons ! Tax-‐deferred reKrement plans, such as a 401(k)or a 403(b)(7) are a type of tax shelter Saunders Learning Group, Newton, KS Tax Strategies
- 20. CompuKng Your Tax Liability Step 2: CompuKng Taxable Income — A tax deducKon is an amount subtracted from adjusted gross income (AGI) to arrive at taxable income Saunders Learning Group, Newton, KS Tax Strategies
- 21. CompuKng Your Tax Liability (conKnued) Step 2: CompuKng Taxable Income — You can subtract the standard deducKon from AGI or itemize your deducKons — Itemized deducKons can include items such as... ! Medical, dental expenses >7.5% of AGI ! Taxes, mortgage interest, contribuKons ! Miscellaneous expenses > 2% of AGI Saunders Learning Group, Newton, KS Tax Strategies
- 22. CompuKng Your Tax Liability (conKnued) — Next subtract exempKons from AGI ! An exempKon is a deducKon for yourself, your spouse and qualified dependents ! The amount of the exempKon increases each year — Aber deducKng exempKons you have your taxable income. Saunders Learning Group, Newton, KS Tax Strategies
- 23. CompuKng Your Tax Liability Step 3: CalculaKng taxes owed — The percent rates are the marginal tax rates on the last dollars of taxable income ! For example, aber deducKons and exempKons, a person in the 28% tax bracket pays 28 cents in taxes for every dollar of taxable income in that bracket Saunders Learning Group, Newton, KS Tax Strategies
- 24. CompuKng Your Tax Liability (conKnued) — A person’s average tax rate is based on the total tax due divided by taxable income. This rate is less than a person’s marginal tax rate — For example, if a person with a taxable income of $30,000 has a total tax bill of $3,000, their average tax rate is 10% Saunders Learning Group, Newton, KS Tax Strategies
- 25. Tax Credits ! A tax credit is an amount subtracted directly from the amount of taxes owed, such as the earned income, child, and dependent care credits ! Tax Credit vs. Tax DeducKon — $100 Tax Credit reduces your taxes by $100 — $100 Tax DeducKon reduces taxes by $28 if you are in the 28% bracket Saunders Learning Group, Newton, KS Tax Strategies
- 26. Recent Tax Credits ! Foreign tax ! ReKrement savings ! AdopKon expenses ! American opportunity/LifeKme Learning ! Mortgage interest ! Energy savings ! Elderly and disabled Saunders Learning Group, Newton, KS Tax Strategies
- 27. Making Tax Payments - Withholding W-‐2 Form 1 Control number 3 Employer's Identification number 4 Employer's State number Copy B to be filed with employee's FEDERAL tax return This information is being furnished to the Internal Revenue Service W-2 Wage and Tax Statement 5 Statutory De- Legal 942 Sub- Void Employee ceased rep. emp. total 2 Employer's name, address, and ZIP code Information Data, Inc. 9834 Collins Blvd. Benton, NJ 08734 8 Employee's social sec. number 9 Federal Income tax withheld 10 Wages, tips, other comp 11 Soc sec tax withheld 123-45-6789 2,678.93 23,972.09 1,725.99 12 Employee's name, address, and ZIP code 13 Social security wages 14 Social security tips 23,972.09 16 16a Fr ben. incl in Box 10 17 State income tax 18 St wages, tips, etc 19 Name of State 20 Local income tax 21 Loc wgs, tips, etc 22 Name of locality Barbara Victor 124 Harper Lane Parmont, NJ 07819 Department of the Treasury Internal Revenue Service OMB No. 1545-0008 16-0331690 Saunders Learning Group, Newton, KS Tax Strategies
- 28. Filing Your Federal Income Tax Return ! There are five filing status categories — Single or legally separated — Married, filing jointly — Married, filing separately — Head of household ! Unmarried individual who maintains a household for a child or dependent relaKve — Qualifying widow or widower (2 years) Saunders Learning Group, Newton, KS Tax Strategies
- 29. Which Tax Form Should You Use? 1040EZ ! Least complicated; quick and easy to file ! Single or married filing jointly, under age 65 and with no dependents ! Income consisted of wages, salaries, and Kps, and no more than $1,500 of taxable interest ! Your taxable income is less than $100,000 ! You do not itemize deducKons, claim any adjustments to income or tax credits Saunders Learning Group, Newton, KS Tax Strategies
- 30. 1040 Returns 1040A ! Taxable income less than $100,000 ! Adjustments to income are allowed ! Tax credits for child care and dependent care are allowed 1040 ! Required to use this form if income is over $50,000; use if you itemize deducKons 1040X ! Used to amend a previously filed return Saunders Learning Group, Newton, KS Tax Strategies
- 31. CompleKng Your Federal Income Tax Return ! Summary of tax calculaKon: " Filing status and exempKons # Income $ Adjustments to income % Tax computaKon & Tax credits Saunders Learning Group, Newton, KS Tax Strategies
- 32. CompleKng Your Federal Income Tax Return (conKnued) ' Other taxes (such as from` self-‐employment) ( Payments (total withholding, esKmated payments, etc.) ) Determine if you are due a refund or owe taxes Refunds can be sent directly to your bank account * Sign your return Saunders Learning Group, Newton, KS Tax Strategies
- 33. Which Online Tax Sobware to Use? Saunders Learning Group, Newton, KS Tax Strategies
- 34. Market Share of Online Tax Prep Online DIY Tax Preparation Share of Market Intuit (TurboTax) InfoSpace (TaxACT) H&R Block Other Source: ComScore, Inc. May 31, 2012 Saunders Learning Group, Newton, KS Tax Strategies
- 35. Tax PreparaKon Services ! Range from a one-‐person office to large firms such as H & R Block ! Government-‐approved tax experts are called enrolled agents ! Accountants ! Asorneys ! If your professional tax preparer makes a mistake, you are sKll responsible for paying the correct amount, plus any interest and penalKes Saunders Learning Group, Newton, KS Tax Strategies
- 36. Tax Assistance and the Audit Process The IRS • PublicaKons and forms 1-‐800-‐TAX-‐FORM — www.irs.gov — Recorded messages 1-‐800-‐829-‐4477 — Phone hot line 1-‐800-‐829-‐1040 — Walk-‐in service at an IRS office — CD-‐ROMs the IRS sells that has forms and pubs ! Tax publicaKons e.g. Ernst and Young Tax Guide Saunders Learning Group, Newton, KS Tax Strategies
- 37. Tax Assistance and the Audit Process Electronic filing — Free File Alliance offers free tax preparaKon, e-‐filing for some taxpayers — Refunds are generally received within three weeks — Tax preparers charge a fee for electronic filing — Telefile is a way to file by phone if you are using form 1040EZ Saunders Learning Group, Newton, KS Tax Strategies
- 38. What if Your Return is Audited? ! About 1% of all returns are audited ! If you claim large or unusual deducKons you are more likely to be audited ! There are three types of audits 1. Correspondence for minor quesKons 2. Office audit takes place at an IRS office 3. Field is the most complex, with an IRS agent visiKng you at home, business or your accountant’s office ! You have audit rights, including Kme to prepare for the audit, and clarificaKon Saunders Learning Group, Newton, KS Tax Strategies
- 39. Tax-‐Planning Strategies ! PracKce tax avoidance…. — LegiKmate methods to reduce your tax obligaKon to your fair share but no more — Financial decisions related to purchasing, invesKng, and reKrement planning are the most heavily affected by tax laws ! …not Tax Evasion — Illegally not paying all the taxes you owe, such as not reporKng all income Saunders Learning Group, Newton, KS Tax Strategies
- 40. Tax-‐Planning Strategies To minimize taxes owed... • If you expect to have the same or a lower tax rate next year. Accelerate deductions • If you expect to the same or a lower tax rate next year. Delay the receipt of income • If you expect to have a higher tax Delay deductions rate next year. • If you expect to have a higher tax rate next year. Accelerate the receipt of income Saunders Learning Group, Newton, KS Tax Strategies
- 41. Tax-‐Planning Strategies (conKnued) ! Homeowners—mortgage interest and property taxes are deducKble when you itemize. This reduces your taxable income. ! Use your home equity line of credit to buy a car or consolidate debt. Interest can be deducKble when you itemize. ! Job-‐related expenses may be allowed as itemized deducKons. ! Using tax-‐exempt investments, such as municipal bonds can help reduce your taxes. Saunders Learning Group, Newton, KS Tax Strategies
- 42. Tax-‐Planning Strategies (conKnued) ! Tax-‐exempt investments — Interest income from municipal bonds is not subject to federal income taxes ! Put money in tax-‐deferred investments — Series EE U.S. Treasury bonds interest is exempt if used for tuiKon — Tax-‐deferred annuiKes — Take advantage of tax-‐deferred reKrement plans ! IRA, 401(k) plans ! Establish a Keogh plan if self-‐employed Saunders Learning Group, Newton, KS Tax Strategies
- 43. Tax-‐Deferred Compounding Assumes a $25 week contribution with an annual growth rate of 8 % and a 25% tax rate. Saunders Learning Group, Newton, KS Tax Strategies
- 44. Tax-‐Planning Strategies (conKnued) ! Long-‐term capital gains on the sale of a home are excluded from taxes up to a certain amount ! Self-‐Employment -‐ tax advantages, such as deducKng health/life insurance costs, but have to pay self-‐employment tax (Social Security) ! Children’s investments and income shibing (<$1500) ! EducaKon IRA savings -‐ earnings are tax free Saunders Learning Group, Newton, KS Tax Strategies
- 45. Tax-‐Planning Strategies (conKnued) ! ReKrement Planning — TradiKonal IRA — Roth IRA — Keogh Plan Saunders Learning Group, Newton, KS Tax Strategies
- 46. Questions Saunders Learning Group, Newton, KS Tax Strategies
- 47. Post Workshop Action Plan ! Complete the Post Workshop AcKon Plan Saunders Learning Group, Newton, KS Tax Strategies 47
- 48. Reference Material Family Financial Freedom 140 pages ISBN 978-1-60-746269-9 Available Formats: 6"x9" paperback PDF download eBook download Link to order: http://www.fastpencil.com/publications/4498-Family-Financial-Freedom? tid=bookbuy#read_book Also available on Kndle, Nook, iPad and other popular e-readers can be ordered from Amazon or Barnes and Noble in paperback (available soon). Book summary: You might be struggling to make ends meet, but achieving true financial freedom is still possible. The good news is virtually anyone with a desire to learn and the willingness to plan can achieve a considerable degree of financial security. This book is a road map to the personal financial freedom you want and deserve. There are no quick-rich schemes here, just common sense advice on how to manage your money, protect your family from risks and start making the moves to being more financial secure. Saunders Learning Group, Newton, KS Tax Strategies
- 49. Family Financial Freedom Seminars • This series of seminars on family financial freedom is available to all trainers, educators and professional advisors in the financial services industry. • The series of seminars can be taught with or without the book, “Family Financial Freedom”. • Here is a full listing of seminar topics: 1. Geyng Started 2. Making Your Money Work For You 3. Building the Base 4. Securing the Base 5. Financing Your Future 6. Mutual Funds 7. Real Estate 8. Your investments 9. ReKre in Comfort 10. Passing On Your Wealth 11. How Professional Can Help • A leader’s guide and participant’s workbook is also available. Order your copy from Scribd • Contact the author, Floyd Saunders for pricing and order details to purchase the entire series of seminars: floyd.saunders@yahoo.com Saunders Learning Group, Newton, KS Tax Strategies