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Financial Smarts

Financial Smarts. For Teachers. Sponsors. Taxes. Tax Steps. Plan ahead Keep good records Know tax codes. How to Calculate. Amount You Owe Equals Your net taxable income Your tax bracket Minus your withholding. What’s Taxable?. Teaching salary Salary from a 2 nd job

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Financial Smarts

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  1. Financial Smarts For Teachers

  2. Sponsors

  3. Taxes

  4. Tax Steps • Plan ahead • Keep good records • Know tax codes

  5. How to Calculate Amount You Owe Equals • Your net taxable income • Your tax bracket • Minus your withholding

  6. What’s Taxable? • Teaching salary • Salary from a 2nd job • Freelance profit • Interest income • Dividend income • State tax refunds • Alimony received • Capital gains

  7. What’s Taxable? • Contest winnings • Game show winnings • Gambling winnings • Lottery winnings

  8. Non-Taxable Income • Dependent children income (limit) • Tax-free interest • Federal income tax refunds • Fellowships or scholarship grants • Awards for educational achievements

  9. Non-Taxable Income • Reimbursements for educational courses • Certain moving expenses • Profit from sale of residence • Accident insurance benefits • Child support

  10. Reducing Taxable Income • Increase number of legal dependents • Support children up to age 24 who arefull-time students • Provide 50%+ support to other children and dependents • Itemize deductions • Pay for continuing education

  11. Reducing Taxable Income • Union dues and membership fees are usually deductible • Alimony payments • Equipment necessary for your job • Trips, lectures, journals

  12. Educator Expense • $250/year for books and supplies • Keep receipts • “Above-the-line” item • For qualified educators K–12 • Extended to 2007

  13. IRS Publication 970 Contents • Scholarships, fellowships, grants, tuition reductions • Hope Credit, Lifetime Learning Credit • Student loan interest deduction • Cancellation of student loan • Tuition and fees deduction • Coverdell Education Savings Account • Qualified Tuition Program • Early Distribution from IRAs

  14. Itemized Deductions • Home mortgage interest • Medical expenses exceeding 7.5% AGI • Charitable contributions, expenses • Casualty or theft losses

  15. Self Employment • Only profit is taxable • Pay Social Security (self-employment tax) on profits • Take advantage of deductions

  16. Self Employment Deductions • Expenses • Advertising • Accounting • Automobile and other transportation costs • Office supplies • Professional fees • Gifts

  17. Self Employment Deductions • Entertainment (limited to 50%) • Research or education • Taxes other than federal income • Retirement plan-contributions

  18. Projecting Tax Liability • Start with last year’s tax liability • Adjust for income increases or decreases • Adjust for changes in family status • Know IRA and Tax Sheltered Annuity options • Adjust withholding accordingly

  19. Tax Withholding Withhold Too Much Withhold Too Little You Lose Interest! You Owe Interest, Penalty!

  20. Tax Schedule

  21. Tax Schedule

  22. Calculating Tax • Determine total income • Repot gross income by subtracting exclusions • Subtract adjustments to income. • Subtract IRS’s standard deduction amount for your tax status or list itemized deductions

  23. Calculating Tax • Determine tax liability • Subtract appropriate tax credits • Calculate balance due IRS or amount of refund • Subtract amount of personal expenditures

  24. Done! Hurray!

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