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Ch18 Handout Taxation

Ch18 Handout Taxation

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Published by Katherine Sauer

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Categories:Types, School Work
Published by: Katherine Sauer on Jan 04, 2012
Copyright:Attribution Non-commercial

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06/28/2014

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 Public Economics ± Dr. Sauer 
Chapter 18: TaxationFigure 18-1Figure 18-2
Calculating your Federal Income Tax
1. compute ____________ income- wages, salaries- interest, dividends, rental income2. compute _______________ gross incomesubtract 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
 
23. Subtract any ______________________________ - fixed amount of money that is deducted for the taxpayer, spouse, dependents- indexed for inflation2011: $3,700 per person- if you are someone¶s dependent, then you cannot claim your own personal exemption- can¶t claim as a dependent anyone who files a joint tax return with a spouse- spouses filing a joint return can claim two personal exemptionsExemptions used to be ³phased out´ for very high income 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 further legislation is passed).
Income Range for PEP (2009)
Filing Status Phaseout Begins Phaseout EndsMarried Filing Jointly 250,200 372,700Qualifying Widow(er) 250,200 372,700Head of Household 208,500 331,000Single 166,800 289,300Married Filing Separately 125,100 186,3504. Decide on deduction _________________ 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 householdadditional standard deduction for blind people and senior citizens$1,150 for married individuals$1,450 for singles and heads of householdItemized 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
 A
ccording to the IRS, 2 out of 3 tax payers takes the standard deduction .(IR-2010-127, Dec. 23, 2010)
5. Compute Federal Income Tax Owed
 
3Here are the tax brackets for a single person for 2011:Marginal Tax Tax BracketRate over but not over 10% $0 $8,50015% $8,500 $34,50025% $34,500 $83,60038% $83,600 $174,40033% $174,400 $379,15035% $379,150Suppose you are single in 2011 and your AGI is $50,000.On the first $8500, you pay 10% in taxes.On the next portion of income, you pay 15% in taxes.On the next portion of income, you pay 25% in taxes.The total amount you pay in taxes is:The
marginal tax rate
is the extra taxes 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 rateof _______%.Your current marginal tax rate is ______%.The
average tax rate
is the total taxes paid, divided by total income.Suppose your gross income is $60,000.(How your Federal taxes are spent
http://www.whitehouse.gov/taxreceipt  
)(Colorado has a flat 4.63% income tax
http://www.colorado.gov/taxtracks
/) ___________________________________________________________________________________ 
The Haig-Simons Comprehensive Income Definition
It defines
taxable resources
as an individual¶s
ability to pay
taxes.The
ability to pay
is equal to an individual¶s
 potential annual consumption
.
 Potential annual consumption
is equal to
total consumption
during the year 
 plus
any
increase
in
wealth
.

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