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Taxes

Taxes. Income taxes. Tax basics Effective and marginal tax rates What is taxable? Pensions and annuities Other income Home sale gains Paying taxes in retirement Withholding Estimated taxes State taxes. Basic concepts. Effective tax rate = Tax Taxable income

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Taxes

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  1. Taxes

  2. Income taxes • Tax basics • Effective and marginal tax rates • What is taxable? • Pensions and annuities • Other income • Home sale gains • Paying taxes in retirement • Withholding • Estimated taxes • State taxes

  3. Basic concepts Effective tax rate = Tax Taxable income Marginal tax rate = Rate applied to your last taxable dollar Useful for figuring after-tax return

  4. What is taxable? • Your City pension • Deferred Compensation Plan distributions • Social Security • Home sale gains See IRS Publication 575 - Pension and Annuity Income

  5. Your City pension • Partially tax-free as return of your after-tax contributions • After recovery of after-tax contributions, pension is fully taxable

  6. Deferred Compensation Plan • All distributions fully taxable in year received • No early-withdrawal penalties • Can be rolled over into an IRA • Three-year catch-up provision available within three years of retirement eligibility • Age-based catch-up available to employees 50 years of age

  7. Rules on IRAs • 10% federal penalty on withdrawals before age 59-1/2 • 2.5% California penalty • Must start withdrawing from an IRA by April 1 of year following age 70-1/2 according to formula • 50% penalty on underwithdrawals in year following age 70-1/2 or later

  8. Social Security • Up to 85% may be taxable if income exceeds certain level

  9. Home sale gains Exclusion available for capital gain • Conditions • Owned home two of last five years • Lived in home two of last five years • Have not used the exclusion in two-year period ending on sale date • Amount • Single: $250,000 • Married: $500,000 (if both meet the “lived-in-it” and “have-not-used” requirements; otherwise $250,000)

  10. Paying your tax • Timely payment required • Penalty for late payment • Withholding

  11. Paying your tax • Estimated tax payments • No penalty if: • Less than $1,000 owed at filing time • 100% of previous year's tax amount paid* • 90% of current year's tax paid * Other percentages may apply to certain high-income taxpayers

  12. State taxes • State income tax treatment of retirement income varies • Consult a local state tax expert • California income taxes

  13. Click link below to continue... LAFP4 FINPLN2006 2006 0818.ppt

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