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D ETERMINING YOUR TAX LIABILITY

D ETERMINING YOUR TAX LIABILITY. 58. Gross income - Adjustments ____________________ Adjusted gross income - Deductions - Exemptions ____________________ Taxable income. D ETERMINING YOUR TAX LIABILITY. 58. Taxable income Tax - Credits + Other taxes ____________________ Taxes due.

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D ETERMINING YOUR TAX LIABILITY

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  1. DETERMINING YOUR TAX LIABILITY 58 Gross income- Adjustments____________________ Adjusted gross income- Deductions- Exemptions____________________ Taxable income

  2. DETERMINING YOUR TAX LIABILITY 58 Taxable income Tax- Credits+ Other taxes____________________Taxes due

  3. MARGINAL TAX BRACKETS 59 Over $297,350 Over $297,350 39.6% 39.6% $297,350 $297,350 36% 36% $136,750 $166,500 *2001brackets 31% 31% $65,550 $109,250 28% 28% $27,050 $45,200 15% 15% SINGLE MARRIED FILING JOINTLY

  4. MARGINAL TAX BRACKETS 59 Over $148,675 Over $297,350 39.6% 39.6% $148,675 $297,350 36% 36% $151,650 $83,250 *2001brackets 31% 31% $54,625 $93,650 28% 28% $36,250 $22,600 15% 15% MARRIED FILING SEPARATELY HEAD OF HOUSEHOLD

  5. DEDUCTIONS AND EXEMPTIONS • Standard or itemized deductions • Personal exemptions • Phaseout for high-income taxpayers

  6. TAX CREDITS • Child care credit • Credit for the elderly or disabled • Earned income credit • Child tax credit • Education credits

  7. WHAT CAN YOU DO TO MINIMIZEYOUR INCOME TAX LIABILITY?

  8. FREQUENTLY OVERLOOKED CONSIDERATIONS • Filing status • All possible exemptions • Withholding • Flexible spending accounts

  9. TAX-REDUCTION STRATEGIES 63 1. Contribute to an employer-sponsored retirement plan or tax-deductible IRA 2. Convert nondeductible consumer interest 3. Donate appreciated assets 4. Document your deductible expenses 5. Consider your investments

  10. HOME OWNERSHIP • Mortgage interest • Real estate taxes • Sale of principalresidence exclusion

  11. INCOME SPLITTING • Employment • Investments

  12. TAXING CHILDREN’S INCOME Under Age 14Earned Income Rate $ 0 - $4,550 Exempt Over $4,550 Child’s Rate Unearned Income Rate $ 0 - $750 Exempt $751 - $1,500 15% Over - $1,500 Parents Rate

  13. TAX-FAVORED INVESTING 66 1. Tax-exemptalternatives 2. Tax-deferredalternatives

  14. TAX-EXEMPT ALTERNATIVES • U.S. Treasury securities • Series EESavings Bonds • Municipal bonds

  15. TAX-DEFERRED ALTERNATIVES Employer-sponsored retirement plans • Corporate pension plans • Profit-sharing plans • 401(k) and 403(b) plans • SEPs • SIMPLE plans Keogh plansIRAs

  16. EMPLOYER-SPONSOREDRETIREMENT PLANS Savings Account Employer-Sponsored Plan Amount saved$10,500$10,500 Taxes (28%)(2,940)0 Amount saved, after taxes7,56010,500 Annual return (6%)454630 Taxes (28%)(127)0 Ending balance$7,887$11,130* *The full value of the employer-sponsored plan will be subject to regular income taxes upon withdrawal.

  17. ANNUITIES • Fixed • Variable

  18. LIFE INSURANCE • Whole life • Universal life • Variable universal life

  19. WHAT IF YOU GET AUDITED?

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