Finance Unit 2

Planning Your

Tax Strategy

Only two things in life are certain: Death and Taxes

Benjamin Franklin

GOALS• Develop an awareness of how your tax status

is a critical part of managing your financial future

‒ Discover the four main categories of taxes and identify the specific taxes in each category

‒ Distinguish between tax deductions and tax credits‒ Ascertain why some people may pay more or less

taxes than others‒ Select appropriate tax strategies for different

financial and personal situations‒ Discern how tax revenues benefit you and

where tax revenues go‒ Explain common taxes assessed as payroll

deductions ‒ Prepare individual income tax forms

• Your Subtopics Go Here

4 Categories of Taxes1. Taxes on Earnings

• Income Taxes‒ Federal Income Taxes‒ State Income Taxes‒ Local Income Taxes

Live or work within the city• Social Security and Medicare• http://

en.wikipedia.org/wiki/Payroll_tax#Social_Security_and_Medicare_taxes

2. Taxes on Purchases• Sales Tax

‒ http://www.sale-tax.com/Ohio• Excise Tax

‒ Levied on specific goods and services

‒ Gasoline, Cigarettes, Alcohol, Airline tickets

• Your Subtopics Go Here

4 Categories of Taxes

3. Taxes on Property• Real Estate Taxes

‒ http://www.auditor.co.stark.oh.us/

4. Taxes on Wealth• Estate Taxes

‒ Unified Gift and Estate Tax system in the United States http://

corporate.findlaw.com/law-library/unified-gift-and-estate-tax-system.html

Distinguish Between Tax Deductions and Tax Credits

• Tax Credit‒ An amount that directly reduces tax owed

Entered on your personal income tax form after amount of tax due is determined

• Tax Deduction‒ Reduces your taxable income --the amount of

income you earned minus the deduction Moves you into a lower tax bracket which means

the amount of tax you will owe is lower

Tax Deductions1. 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. Deductions

Tax Credits– Refundable or Nonrefundable

• Refundable- can get paid even if you do not owe income taxes! Must file to collect!

Federal Earned Income Tax Credit (EITC)• For tax year 2012, a worker with no children who

made less than $13,980 can receive up to $475. • Single parents with three or more children who

made less than $45,060 are eligible for $5,891.• Married couples must file taxes jointly. • Couples earning less than $19,190 qualify for a

credit of $475. • Those with three or more children qualify for $5,891

if they made less than $50,270.

The IRS estimates that more than 26 million citizens received over $60 billion in federal, refundable credits in 2011.

Tax Credits (con’t.)• Hope Scholarship Credit• Lifetime Learning Credit• Earned Income Credit• Child Tax Credit• Child and Dependent Care Credit• Adoption Credit• Mortgage Interest Credit• Retirement Savings Contribution Credit• Elderly or Disabled Tax Credit• Energy-Savings Tax Credit

Distinguish Between Tax Avoidance and Tax Evasion

• Tax Evasion—Not Legal‒ Not paying taxes that you owe or by not filing a

tax return to report what you owe

• Tax Avoidance‒ By legally reducing your taxable income or by

avoiding paying undue taxes can result in significant amounts of money that can be put to work to enhance your financial plan Tax deductions, Tax Credits

Preparing Individual Income Tax Forms

W-4, W-2, W-WHOhttp://

www.irs.gov/Individuals/IRS-Withholding-Calculator

1040, 1040EZ, & Tax Schedules

http://www.irs.gov/Individuals

• IRS will process electronically filed returns in as little as 10 days but paper

refunds will take 4-6 weeks.

• 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.

• $29.99

*Additional fees– Refund Amount Fee– $300 - $3500 3%– $3501 - $4500 $105In addition to the fees listed above, there is an account handling fee of

$30.95http://www.bbb.org/blog/2013/01/rapid-tax-

refund-not-so-fast/

Word of Caution

http://www.tax.ohio.gov/portals/0/forms/ohio_individual/individual/2012/PIT_IT1040EZ.pdf

Ohio Tax Forms—1040EZ

Federal Tax Forms—1040EZhttp://www.irs.gov/pub/irs-pdf/f1040ez.pdf

City of Canton Electronic Income Tax Filinghttps://www.cantonincometax.com/2012filing

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