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Taxes - PowerPoint PPT Presentation


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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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Presentation Transcript
income 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
Basic concepts

Effective tax rate = Tax Taxable income

Marginal tax rate = Rate applied to your last taxable dollar

Useful for figuring after-tax return

what is taxable
What is taxable?
  • Your City pension
  • Deferred Compensation Plan distributions
  • Social Security
  • Home sale gains

See IRS Publication 575 - Pension and Annuity Income

your city pension
Your City pension
  • Partially tax-free as return of your after-tax contributions
  • After recovery of after-tax contributions, pension is fully taxable
deferred compensation plan
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
rules on iras
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
social security
Social Security
  • Up to 85% may be taxable if income exceeds certain level
home sale gains
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)
paying your tax
Paying your tax
  • Timely payment required
  • Penalty for late payment
  • Withholding
paying your tax11
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

state taxes
State taxes
  • State income tax treatment of retirement income varies
  • Consult a local state tax expert
  • California income taxes
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LAFP4 FINPLN2006 2006 0818.ppt