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Heritage Economics

December 1-5

Intro to Personal Finance

Personal Economics and Finance:


Income Taxes
Many states (including Georgia) also have an
income tax. The tax rate in Georgia is 6%. Seven
states, including Florida and Texas, do not have
an income tax. Why do you suppose highincome celebrities like Rush Limbaugh and Neal
Boortz moved to Florida?

The big daddy, though, is the


Federal Income Tax . . .

Federal Income Tax Brackets 2015


Progressive Taxation

Federal Income Taxation


The tax rate is applied to Taxable
Income
What is taxable income?
We start with gross income income
from all sources, primarily wages,
earnings from small businesses
(partnerships and s-corps), and self
employment.

Federal Income Taxation


We are allowed to reduce our total gross
income by subtracting amounts allowed for
exemptions and deductions.
Exemptions are generally related to
status the most common one is
dependency a tax filer receives an
exemption of some income for each
dependent child the taxpayer has during
the tax year. ($3950 per child in 2014)

Federal Income Taxation


Deductions are certain qualified
expenditures we can use to reduce taxable
income
-- often these are expenditures for activities the
government wants to encourage, such as home
mortgage interest, or charitable contributions
-- other common deductions address fairness such
as allowing deduction for state income taxes paid, or
deductions for large medical expenses.

Federal Income Taxation


Deductions are certain qualified
expenditures we can use to reduce taxable
income
All tax filers are allowed to claim a fixed sum as a
standard deduction
Tax filers who have actually paid more than the
standard deduction amount will want to itemize
deductions on their tax return.

Federal Income Taxation


Gross Income Exemptions Deductions = Taxable Income.

Taxable Income X Tax Rate = Total Tax

But, your actual tax payable might be further


reduced by Tax Credits credits allowed,
again, primarily for activities the government
favors or wants to encourage - child care tax
credits, green energy tax credits, first-time
homebuyer, etc.

Federal Income Taxation


Tax Withholding
Employers are required to withhold a portion
of earnings calculated to cover the employees
tax liability. The calculation relies on income
level, and anticipated exemptions and
deductions.
Employees are required to submit an IRS Form
W4 to guide the employer in determining how
much to withhold and pay directly to the
Treasury.

Federal Income Taxation


A taxpayer who over-withholds during the tax
year will receive a refund of the overpayment
after filing a tax return.
A taxpayer who under-withholds must submit a
payment with the tax return.
The tax refund or the payment submitted are
not the same as the income tax paid! They are
just account adjustments made at the time of
filing the tax return!

Federal Income Taxation


Are you required to file a tax return? Like
everything in the tax code, nothing is simple, but
some basic rules for 2014 for single taxpayers
(who are claimed as dependents on their parents
return) you must file if you:
Earned more than $6,100, or
Earned more than $400 in self-employment
income
Earned more than $108.28 from a church
Had more than $1000 in unearned income.

Federal Income Taxation


Is sleeping on the job Unearned Income?

Federal Income Taxation


Unearned Income: This means interest,
dividends, capital gains, that are not received as a
result of performing services hence,
unearned.

When filling out a W4 form, you may


claim an exemption from withholding if
A. Most of your income is unearned
B. You had no tax liability last year,
and expect to have none this year
C. You are under 18, blind, or
disabled
D. You have more than 8 qualified
dependents

A taxpayer in the 25% marginal tax


bracket who is entitled to claim an $800
tax credit will
A. Be required to itemize deductions to
take advantage of the credit
B. Reduce his tax bill by $200
C. Reduce his tax bill by $800
D. Reduce his tax bill by no more than
$200, depending on whether the credit
shifts him to a lower tax bracket

Credit Scores and Credit Reporting


What is a credit score and why does it
matter?
A credit score is a number that
represents your calculated measure of
credit risk.
Your score is very important because
it can determine your financial future.

Credit Scores and Credit Reporting


Your credit rating can affect whether
or not you can obtain, and/or the
price you must pay, for

A mortgage
A car loan
A credit card
A school loan

Credit Scores and Credit Reporting


A lender will use your score to calculate
the rate you get for a loan; the lower
the scores, the higher the interest rate
you'll be charged.
Over time, maintaining good scores will
save you lots of money.

Credit Scores and Credit Reporting

Others who often use credit scores:


Insurance companies
Landlords
Employers
Government security clearances
Utility companies, cell phone
companies, cable tv, car rental
companies, store credit agencies, etc

Credit Scores and Credit Reporting

Some factors affecting credit scores:


Promptness in paying bills
How much you owe
Length of credit history
Variety of credit history
Unused credit margin
Prior bankruptcies, collections, or
judgments

Credit Scores and Credit Reporting


Scores range from 300 to 900
Most people are in the 600 to 800 range.
To get the most favorable interest rates,
you'll need a score of 720 or higher.
On average, a person with a credit score of 520
will get interest rates on loans that are three to
four percentage points higher than rates given
to a person with a score of 720.

Credit Scores and Credit Reporting


There are three credit reporting agencies in the United
States who collect credit information and report credit
scores. They do not share information with each other,
and they each have their own information sources.
Heres who they are and how to contact them.

Equifax
1-800-685-1111
www.equifax.com

Experian
1-888-397-3742
www.experian.com

TransUnion
1-800-888-4213
www.transunion.com

Free Credit reports


You are entitled to one free credit report
from each agency each year. Go to
AnnualCreditReport.com
A good strategy for free credit
monitoring is to ask for a free report
from one of the credit agencies every
four months.

Balanced

The next questions are


based on Balanced,
Part 3

Part of the episode focused on the phrase:


The ___________ is slave to the
__________.

A.Sinner, Devil
B.Borrower, Lender
C.Worker, Master
D.Farmer, Weather

According to Andy, most Americans with


debt problems today got that way
because they

A. Hit a financial bump


B. Abused credit cards
C. Lacked self control
D. Didnt work enough

Proverbs 25:28

Like a city whose walls are


broken through is a person
who lacks self control.

Being in debt impacts your ability to be


_____________

A.
B.
C.
D.

Spontaneous
Devout
Generous
Healthy

Credit Score Review

Why it matters
Check your credit score
regularly
Learn to establish a score

Credit Cards vs. Debit Cards


Using a credit card means youre
TAKING OUT A LOAN
Using a debit card means youre
TAKING YOUR OWN MONEY OUT
OF YOUR ACCOUNT

Credit Cards vs. Debit Cards

Debit cards have some risks


credit cards dont have, and
Credit cards have some
benefits debit cards dont
have

Credit Cards vs. Debit Cards

Debit cards have some risks


credit cards dont have:
A debit card provides a
thief direct access to your
bank account
Authorization issues

Credit Cards vs. Debit Cards

Credit cards have some


benefits debit cards dont have:
Consumer protections
Helps build credit score
Emergency funds

Credit Cards vs. Debit Cards

DO NOT GET A CREDIT


CARD unless youre sure
you have the self control
NEVER to incur a charge
you cant pay off that
month!

Credit Cards

Credit cards charge very high


interest rates (finance charges)
if your balance is not paid in
full each month.
Why?
How it works

Credit Cards

In many cases, include late


payment, the credit card lender
might have the right to raise
your rate to extraordinarily
high levels
30% APR

Credit Cards

Some cards charge annual fees


as well.
Know your grace period and
payment due date. Pay online if
possible to avoid disputes
about timely payment.

Credit Card Rules


Never lend it to anyone.

Never sign a blank charge slip. Draw lines through blank


spaces on charge slips above the total so the amount cant be
changed.

Never put your account number on the outside of an


envelope or on a postcard.

Always be cautious about disclosing your account


number on the telephone unless you know the person youre
dealing with represents a reputable company.

Always carry only the cards you anticipate using to


prevent the possible loss or theft of all your cards or
identification.

Always report lost or stolen ATM and credit cards to the


card issuers as soon as possible. Follow up with a letter that
includes your account number, when you noticed the card was
missing, and when you first reported the loss.

Credit Card Rules

But never forget Rule #1:


Dont get the card to start with
unless and until youre SURE
youll have the self control not
to use it for more than youre
able to pay off that month!!

Credit Card Rules

Credit card issuers


aggressively recruit
college students.
Just remember Rule #1
before you sign up!