Taxes
Disclaimer
I am not an account, tax lawyer, book keeper, etc, but I need to understand what advice they give me. Then I-have-to make a decision. -colin
Not In This Lecture
Tax Planning: Utilizing tax credits, deductions, and incentives to minimize taxable income.
Details of Corporate Income Tax: accounting, bookkeeping, filing, reporting, and structuring
Walkthrough of forms used for reporting and filing e.g. W2, W4, 1040-EZ
Goals
Goal is to understand the broader concepts around taxation — not become a Certified Professional Accountant or CPA.
Understand your Personal taxes
Understand your Business taxes
Pay your taxes. Repeat. Pay your taxes.
Hire an professional Accountant.
See number 4.
Questions
Why do we pay taxes to the US Government?
One Person. Two Scenarios.
For DESN 480 Professional Practice,
Taxes for the individual human being alone i.e. single
Taxes for the corporate entity i.e. single owner, no partners
TLDR : Understand Your Accountant
Hire an Account, then understand their advice
Recognize both business and personal taxes can be complicated with little room for errors — hire an Accountant
Review local Spokane CPA Firms — then find an Accountant
Federal, State, and Local tax laws can be complicated — get educated and understand your Accountant
Taxes are Everywhere
We all pay taxes including $0
Taxes are apart of many global cultures
Tax laws influence the subjective and objective aspects of society
Questions
How are these questions directly to taxes?
Have you voted in a local, state, or federal election?
Do you believe right to same-sex marriage?
Do you believe college should be freely paid by US Government?
Subjective vs. Objective
Income tax rules need to objective
Subjective difficult to value accurately -- but to be taxed accurately e.g. How much is this house worth?
Objective value needs to be accurate -- also to be taxed accurately e.g. salary of $50,000 per year
Taxable incomes near the objective end with local, federal and state laws
Return to Questions
Lawmakers, you vote for, influence what we pay in taxes and how tax dollars are spent
Employed? Objectively by Law. Subjectively worked “under the table” or did-not report earnings.
Marriage couples receive tax breaks single people do not * Objectively as defined by Law a checkbox for "Married" * Subjectively as defined by Society as "who can be married"
Social Tinkering is using (tax) laws to affect society
Rich? Objective tax figures can be subjective. Tax the rich? What does it mean to be rich?
Income Tax
One four primary types of accounting Bookeeping Data, Financial, and Managerial
Income is one of many kinds of Taxes
Sales, VAT (valued added taxes), property, payroll, usage, estate
Income Tax is significant to US Govt. and debated politically
How will it be collected? Internal Revenue Service (IRS)
How will it be reported? Locally, State, and Federal levels.
How will it be enforced? Fines and imprisonment.
What is Taxable Income?
https://www.irs.gov/filing/taxable-income
Question
If you work remotely for Nintendo Japan, which country or countries do you pay taxes to?
Types of Income
Ordinary : Salary, wages, tips, etc.
Capital gains : profit earned from the sale of an asset e.g. real estate
Interest : Interest from savings, CDs, etc.
Average vs. Marginal Tax Rates
Average is tax-owed divided by income
typically lower 10-20% in the US
Marginal Tax rates
Rate of tax, on next dollar, of Income
Determines should you work overtime? Should you invest in you company? Should you work harder for more money?
Increasing or Marginal Tax rates are apart of a Progressive Tax System
Understand Marginal Tax Rates
Fixed Cost of Living
Q: Why not tax all of your income? Why exclude the "first bracket"? A: Fixed costs of living for food, shelter, transportation, etc. to work to keep the US Economy going. Once that is filled, the US Govt. will tax you.
+ Salary and Revenue
What you tax FROM Employer / Client
Employee: W2 for employee
What you send TO Employer / Client
What about Passive Income?
Exercise
At your current rate of work, energy level, time available, health, etc. -- estimate and calculate how much you could make in one year
What IRS Tax Bracket does that put you in?
How much in taxes could you owe?
~ Deductions vs. Credits
Tax Credits are better
Reduce the taxable income calculation (before tax bracket)
Reduce overall taxed owed (after tax bracket)
~ Standard Deductions
The standard deduction is a specific dollar amount that reduces the amount of income on which you're taxed. It varies based on your filing status and other factors such as age and blindness. For the tax year 2023, the standard deduction amounts are as follows:*
Single or Married Filing Separately: $13,850
Married Filing Jointly or Qualifying Widow(er): $27,700
Head of Household: $20,800
Other Deductions
Medical and Dental Expenses: Expenses that exceed 7.5% of your adjusted gross income (AGI) can be deducted if you itemize.
State and Local Taxes (SALT): Includes state and local income, sales, and property taxes, with a combined limit of $10,000.
Mortgage Interest: Interest paid on a mortgage for your primary residence or a second home.
Charitable Contributions: Donations made to qualified charitable organizations.
Casualty and Theft Losses: Losses from federally declared disasters that exceed 10% of your AGI.
Student Loan Interest: Up to $2,500 of interest paid on student loans can be deducted.
Retirement Contributions: Contributions to traditional IRAs and 401(k) plans.
Educator Expenses: Up to $300 for unreimbursed expenses paid by teachers for classroom supplies.
EITC (credit)
One of the most common IRS tax credits is the Earned Income Tax Credit (EITC). The EITC is designed to benefit low to moderate-income working individuals and families by reducing the amount of tax owed and potentially providing a refund. Here are some key details about the EITC:*
You must have earned income from employment, self-employment, or another source.
EITC can significantly reduce the tax burden for eligible taxpayers and, in many cases, result in a substantial refund
You must be a U.S. citizen or a resident alien for the entire year.
You cannot be a qualifying child of another person.
or the tax year 2023, the maximum credit ranges from $560 to $6,935, depending on the number of qualifying children and filing status.
Exercise 1: Math It.
The tax rates are 40% for ordinary income over $25,000 and 25% for all capital gains income.
You earned $100,000 of which $80,000 is ordinary income, and $20,000 is capital gains. How much do you owe in taxes?
Exercise 2: Math It.
Consider the following income tax brackets: $0 to $25,000 no tax; $25,001 and above 40%.
ABC Corp. made $100,000 of taxable income. How much will they pay in taxes?
Exercise 3: Math it.
The tax rate is no tax for the first $25,000 of income, then 40% on all income above $25,000.
You made $100,000 and have $20,000 in tax deductions. How much do you owe in taxes?
Meh.
"I'm just going use Turbo Tax and not think about it." - former Student
TAX EXERCISES
Complete these tax exercises
Note: These exercises were created AI
Use AI to help understand the answers
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