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Financial Smarts for Teachers: Tax Planning Tips and Strategies

A comprehensive guide for teachers on managing taxes efficiently. Learn how to reduce taxable income, maximize deductions, and calculate tax owed. Includes tips on record-keeping and IRS codes.

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Financial Smarts for Teachers: Tax Planning Tips and Strategies

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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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