Unit 5

Goal 7.1 Financial Planning, Budgeting, and Taxes.

Objective; Analyze the benefits of financial planning and preparing a budget.

A: Make a budget: A budget makes sure you have enough money to spend and save. A budget allows you to see where your money is being spent and it helps you make sure your income matches your expenses.

◦ Income: The money you make from a job, or investments i.e. dividends, bonuses, capital gains, interest on savings.

◦ Expenses: Money paid out of your income. Fixed expenses: tend to be the same each month.

Ex: Rent or mortgage. Variable expenses: tend to fluctuate each month.

Ex: clothing, groceries.

I: How to plan for the future.

A: Credit cards: are forms of payment on credit. You buy something now and pay for it later. Managed properly, credit cards offer us convenience, a sense of security, and allow us to build a healthy credit history. Irresponsible credit card use can result in excessive debt and become a long-term financial liability.

B: Debit Cards: resemble a credit card but is linked to a checking or savings account. Funds are withdrawn immediately from the linked account with each purchase. Debit card transactions are debits.

C: Credit Card Fees : Credit cards charge fees for their usage.◦ 1. Annual Fee:◦ 2. Annual Percentage Rate (APR):◦ 3. Finance Charge:◦ 4. Late Fee:◦ 5. Minimum Monthly Payment:◦ 6. Monthly Periodic Rate:◦ 7. Transaction Fee:

II: Credit Cards

Interested in finding out more?

Visit the following website or do your own research to learn about these credit card charges.

http://creditcards.lovetoknow.com/What_Is_APR

A:Types of Taxes off income.1. Estate Tax: tax paid on inheritance from

relative or individual.

2. Income Tax: tax paid on salary from job.

3. Capital Gains Tax: tax on the gains (money made over and above the original selling price) made from selling stocks, land, or other investments.

III: Taxes: Americans pay taxes every year to the Federal and State Government. Taxes are due on April 15th or the taxpayer will incur a penalty unless they file for a late return.

B: Tax Credits: Tax credits reduce the amount of taxes you are liable for. Two types of tax credits-nonrefundable and refundable.

1. The Child and Dependent Care Credit is a nonrefundable tax credit based on expenses incurred for the care of a qualifying person.

2. The American Opportunity Credit is worth up to $2,500 per student for four years of post-secondary education. The credit is 40% refundable, up to $1,000, so it can benefit even those with no tax liability.

3. The Lifetime Learning Credit provides a maximum non-refundable tax credit of $2,000 per year for all students attending an eligible educational institution in your household. The Lifetime Learning Credit may be limited by your income and amount of tax.

C: Refundable tax credits: A refundable tax credit is a tax credit that can reduce your tax liability below zero (0). Because it is possible to receive a refund from this type of credit, they're referred to as refundable. Examples.◦ 1. The Earned Income Tax Credit (EIC) is a refundable tax credit that

reduces or eliminates the tax paid by low-income workers.

D: Tax Deductions: Tax deductions are expenses that reduce the amount of income subject to tax.

There are two types of deductions most taxpayers will qualify for: Standard: Itemized

The Standard deduction: ◦ The standard deduction is a fixed dollar amount

based on your filing status.

Itemized deductions include:◦ Miscellaneous itemized deductions◦ Archer medical savings accounts (MSAs)◦ Casualty and theft losses◦ Charitable contributions◦ Deductible taxes◦ Health savings account (HSAs)◦ Interest expenses◦ Medical and dental expenses◦ Mortgage points◦ Employee business expenses◦ Student loan interest

A: The 1040 is the form a taxpayer fills out to file for a tax refund or to pay taxes. If you have paid too much to the government you will receive a tax refund. If you have paid too little then you owe money to the federal or state government.

B: Recommended records to file taxes: Preparing your tax return will be easier if the records you need are organized

and readily available: Proof of identification Social Security numbers for you, your spouse, and dependents Birth dates for you, your spouse, and dependents Wages and earnings statements: Forms W-2, W-2G, 1099-R, etc. These forms

come from employers, investment firms, etc. Interest and dividends statements from banks, brokerages, etc. A copy of last year's tax return Bank routing and account numbers The amount you paid for childcare and the childcare provider's tax identification

number Receipts for charitable donations

IV: Filing Taxes

Go to the following website http://www.1040.com/federal-taxes/filing-basics/

Read Tax Return Filing Basics. Answer the following question and discuss with a partner. 1. What are the two ways to file a tax return? 2. What can you do if you cannot afford to hire someone to

do it for you? 3. What form of identification do you need to claim your

spouse and children?

Look on page 550-551 of your textbook and make a budget using the dollar amounts given.

1.Fill in a budget spreadsheet (create one in your notes).

2. Answer all 4 questions under Analyzing economics.

Classroom/Homework Activity:

Take a look on page 526 of your textbook. Analyze the chart. 1. What are the median incomes for men and women who

are employed full time? 2. What is the difference in median income between female

high school graduates and females who attain bachelor’s degrees?

3. Is the unemployment rate greater for worker’s with only a high school diploma? Why?

4. What is underemployment? How is it different from unemployment?

EDUCATION AND EARNING POWER