Download - Lecture - Taxes
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Citizens Guide to EconomicsDr. Katie Sauer
Taxes Individuals Pay
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1. Federal Taxes
Income Tax
Payroll Tax
The Social Security tax is also called the FICA (Federal
Insurance Contributions Act) tax. (6.2%)
The Medicare Tax is used to provide medical benefits for
certain individuals when they reach age 65. (1.45%)
Estate Tax
Gift Tax
Gasoline Tax (18.4cents per gallon)
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Calculating your Federal Income Tax
1. compute gross income
- wages, salaries
- interest, dividends, rental income
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2. compute adjusted gross income
subtract off:
- retirement savings contributions
- alimony
- educator expenses
- contributions to HSAs- job-related moves expenses
- interest paid on student loans
- if self-employed:- health insurance premiums
- 50% of paid payroll taxes
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3. Subtract any exemptions
- fixed amount of money that is deducted for the
taxpayer, spouse, dependents
- indexed for inflation
2011: $3,700 per person
- if you are someones dependent, then you cannotclaim your own personal exemption
- cant claim as a dependent anyone who files a
joint tax return with a spouse
- spouses filing a joint return can claim two
personal exemptions
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Exemptions used to be phased out for very highincome levels.
- personal exemption phaseout (PEP)
These limits will not apply for the year 2010, 2011 or
2012.
The limits will come back in 2013 (unless furtherlegislation is passed).
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Income Range for PEP (2009)
Filing Status Phaseout Begins Phaseout Ends
Married Filing Jointly 250,200 372,700
Qualifying Widow(er) 250,200 372,700Head of Household 208,500 331,000
Single 166,800 289,300
Married Filing Separately 125,100 186,350
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4. Decide on deduction type
Standard Deduction:$11,600 for married couples filing jointly
$5,800 for singles
$5,800 for married individuals filing separately
$8,500 for heads of household
additional standard deduction for blind people
and senior citizens$1,150 for married individuals
$1,450 for singles and heads of household
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Itemized Deduction:
- medical and dental expenses exceeding 7.5%of AGI
- other taxes paid (state, local income tax)
- interest on mortgage
- charitable donations
- casualty and theft losses
- union dues and job travel expenses
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According to the IRS, 2 out of 3 tax payers takes the
standard deduction .(IR-2010-127, Dec. 23, 2010)
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5. Compute Federal Income Tax Owed
Here are the tax brackets for a single person for 2011:
Marginal Tax Tax Bracket
Rate over but not over
10% $0 $8,50015% $8,500 $34,500
25% $34,500 $83,600
28% $83,600 $174,400
33% $174,400 $379,150
35% $379,150
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Suppose you are single in 2011 and your AGI is $50,000.
Marginal Tax Tax Bracket
Rate over but not over
10% $0 $8,500
15% $8,500 $34,500
25% $34,500 $83,600
28% $83,600 $174,40033% $174,400 $379,150
35% $379,150
On the first $8500, you pay 10% in taxes.8500 x 0.10 = 850
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Marginal Tax Tax Bracket
Rate over but not over
10% $0 $8,500
15% $8,500 $34,500
25% $34,500 $83,600
28% $83,600 $174,40033% $174,400 $379,150
35% $379,150
On the next portion of income, you pay 15% in taxes.345008500 = 26000
26000 x 0.15 = 3900
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Marginal Tax Tax Bracket
Rate over but not over
10% $0 $8,500
15% $8,500 $34,500
25% $34,500 $83,600
28% $83,600 $174,40033% $174,400 $379,150
35% $379,150
On the next portion of income, you pay 25% in taxes.5000034500 = 15500
15500 x 0.25 = 3875
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The total amount you pay in taxes is:
= (0.10)(8500) + (0.15)(34500-8500) + (0.25)(50000-34500)
= 850 + 3900 + 3875= 8625
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The marginal tax rate is the tax rate paid on an
additional dollar of income.
If your AGI is $50,000 and then you earn one extra
dollar of income, that dollar is taxed at a rate of25%.
Your current marginal tax rate is 25%.
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The average tax rate is the total taxes paid, divided bytotal income.
= 8625 / gross income
Suppose your gross income is $60,000.
= 8625 / 60000 x 100%
= 14.4% is your average tax rate
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2. Colorado State Taxes for Individuals
Income Tax (4.63%)
Sales Tax (2.9%)
Consumer Use Tax (purchases that did not includeColorado sales tax internet, mail order, phone)
(2.9%)
Estate and Trust Income Tax (4.63%)
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Gasoline Tax (22cents per gallon)
Cigarette Tax (4.2cents per cigarette, 2.9% per pack,
40% on other tobacco products)
Alcohol Tax (8cents per gallon beer/cider, 7.33centsper liter wine, 60.26cents per liter of spirits)
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3. Local Taxes and Fees
Motor Vehicle Registration
Property TaxCity Sales Tax
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4. Special District Taxes
RTD levies a sales/use tax of 1.0% .
The Football District has a 0.1% sales/use tax.
The Scientific and Cultural Facilities District
has a 0.1% sales/use tax.