TEST 4 CH 3,4,17

tax quiz 1 - Your adjusted gross income for 2018 was $150,000. You are filing as Married Filing Jointly. Your itemized deductions total $25,200. Based on your W-2 Statement, you had taxes withheld from your paycheck totaling $16,412. Your child is in college, and qualifies you for the Lifetime Learning Tax Credit for which you calculated an eligible amount of $1,000 to use as a tax credit. What is the total amount of tax credits you will be able to claim from the Lifetime Learning Credit?

$1,000. The total amount of tax credits, given above, will be a dollar for dollar offset to your tax calculation.

What is the present value today of $150 that will be received in four years from now if the discount rate is 12%? Select one: A.$105.60 B.$76.03 C.$95.40 D.$83.39 E.$116.90

$95.40

Compound Interest with Nonannual Periods

-compounding may be quarterly, monthly, daily, or even a continuous basis -money grows faster as the compounding period becomes shorter (sooner paid= sooner earned = more compounding = more money) -interest earned on interest more frequently grows money faster

Suppose that you want to create a "college fund" for your newborn child and place $300 in a bank account at the end of each of the next 20 years. If that account earns an annual rate of return of 7%, how much will be in that account at the end of the twentieth year? Select one: A.$11,828.32 B.$12,977.53 C.$12,298.50 D.$13,178.20 E.$13,420.00

12298.50

What is the present value of $500 received at the end of each of the next five years worth to you today at the appropriate discount rate of 6 percent? Select one: A.$2,778 B.$1,850 C.$2,106 D.$1,105

2106

You and spouse are filing a joint return. Your current deductions have reduced your taxable income to $88,990, bringing you into the 25 percent tax bracket. The last dollars you earned will be taxed at the ________ tax bracket. Select one: A.10 percent B.15 percent C.25 percent D.33 percent

25 %

At the end of each year for ten years you deposit $750 in an account that earns an annual rate of return of 12%. What is the present value of these deposits? Select one: A.$4,329.39 B.$3,161.55 C.$4,237.50 D.$4,482.63 E.$5,241.48

4237.50

You currently have $11,167 in your savings account. What interest rate do you need to earn in order to have $20,000 in the account in 10 years? Select one: A.6% B.8% C.10% D.There is not enough information to solve this question.

6%

Suppose that you placed $500 in a bank account at the end of each year for the next 10 years. How much would be in that account at the end of the tenth year if the deposits earned an annual rate of return of 8% each year? Select one: A.$5,400.00 B.$6,355.04 C.$7,774.51 D.$8,079.46 E.$7,243.50

7243.50

You invest $1,000 at age 20 at an annual rate of return of 12%. By the time you are 60 you will have amassed approximately (remember, it is how many periods of investing... in at age 20, out at 60) Select one: A.$47,040. B.$93,051. C.$504,000. D.$67,214.

93,051

tax quiz 4 - Your adjusted gross income for 2018 was $150,000. You are filing as Married Filing Jointly. Your itemized deductions total $25,200. Based on your W-2 Statement, you had taxes withheld from your paycheck totaling $16,412. Your child is in college, and qualifies you for the Lifetime Learning Tax Credit for which you calculated an eligible amount of $1,000 to use as a tax credit. Based on the information provided, what would be your taxable income? Please remember our discussion of credits and deductions.

Above, you are given the adjusted gross income of $150,000. To determine taxable income in this problem, you will use: AGI - Deduction (standard or itemized). Since you should have answered itemized in the previous question, the taxable income = $150,000 - $25,200, which is $124,800. This is your taxable income.

tax quiz 3 - Your adjusted gross income for 2018 was $150,000. You are filing as Married Filing Jointly. Your itemized deductions total $25,200. Based on your W-2 Statement, you had taxes withheld from your paycheck totaling $16,412. Your child is in college, and qualifies you for the Lifetime Learning Tax Credit for which you calculated an eligible amount of $1,000 to use as a tax credit. Based on the information provided, would you choose to take the Standard Deduction or the Itemized Deduction?

Above, you see that the total itemized deductions equals $25,200, and you previously should have answered $24,000 for the standard deduction. As such, since you always choose the higher of the two, the correct choice is the itemized deduction ($25,200)

Annuity (Multiple Amount)

Accumulate value over time

Payment (Single Amount)

Accumulate value over time

AGI stands for? Select one: A.Allowed grand interest B.Allowed granted income C.Adjusted gross interest D.Adjusted gross income

Adjusted gross income

AMT

Alternative minimum tax - ensures that wealthy pay enough taxes

Annuity 2

An annuity is a series of equal dollar payments coming at the end of each time period for a specific number of periods.

Futuure value of annuity

Annual Payment (pmt) * futurevalue interest factor of an annuity

Example 2 - What is the future value of $4,000 invested at 8% for 30 years?

Answer: $4000 * 10.062 = $40,248.

Example 3 - I want to have $5000 when I graduate in 4 years. At a 4% investment rate, how much do I need to invest now?

Answer: Find 4%, 4 years in FV Table. Divide 5000$ by 1.170. 4273.50 is the answer.

Example 1 - What is the future value of $500 invested at 6% for 10 years

Answer: Find 6% and 10 years on the table (1.791) Multiply $500 * 1.7908 = $895.40

tax quiz 5 - Your adjusted gross income for 2018 was $150,000. You are filing as Married Filing Jointly. Your itemized deductions total $25,200. Based on your W-2 Statement, you had taxes withheld from your paycheck totaling $16,412. Your child is in college, and qualifies you for the Lifetime Learning Tax Credit for which you calculated an eligible amount of $1,000 to use as a tax credit. Based on the information provided and your calculation, what is your 2018 average tax rate?

Answer: You take your total tax liability divided by your adjusted gross income: $18,335 / $150,000 = 12.2%

tax quiz 6 - Your adjusted gross income for 2018 was $150,000. You are filing as Married Filing Jointly. Your itemized deductions total $25,200. Based on your W-2 Statement, you had taxes withheld from your paycheck totaling $16,412. Your child is in college, and qualifies you for the Lifetime Learning Tax Credit for which you calculated an eligible amount of $1,000 to use as a tax credit. Based on the information provided and your calculations, what is your 2018 marginal tax rate?

Answer: Your final tax dollar paid in this example was in the 22% bracket. Since you are not at the maximum dollar threshold in this bracket ($165,000), the marginal tax rate of the next dollar you earn, which would bring you to $150,001, is 22%

Stage 6 Step 1 - Reexamine Your Finances

Assess current financial situation. Emergency fund—ensure adequate liquidity. Reexamine financial goals. Reexamine investment strategy. Revise budget.

Stage 4 Step 1 - Survey Your Finances

Assess your current financial situation. Reexamine your financial goals. Revise your budget.

Which of the methods listed below is not used by the IRS as a tax collection mechanism? Select one: A.Paycheck withholdings B.Audits held in your home or office C.Quarterly estimated tax payments D.Payments sent with your tax return E.All of these are used by the IRS to collect income taxes.

Audits held in your home of office

Which of the following would offset your tax liability in a direct dollar for dollar manner and may actually increase your tax refund beyond the amount paid during the tax year? Select one: A.Tax adjustment B.Tax credit C.Tax exemption D.Tax deduction

B

Why might someone choose to use itemized deductions instead of taking the standard deduction offered by the IRS? Select one: A.It is easier to calculate your itemized deductions versus the standard deduction. B.You may have a lower tax liability if you itemize instead of using the standard deduction, as long as itemized exceeds the standard deduction. C.Married taxpayers must use the itemized deductions only. D.Most computer tax software automatically itemizes deductions. E.both You may have a lower tax liability if you itemize instead of using the standard deduction and Married taxpayers must use the itemized deductions only are correct.

B

Which indicates the correct order for completing your tax returns? Select one: A.Claim exemptions, calculate total tax, subtract deductions, subtract adjustments, determine gross income B.Subtract deductions, calculate total tax, claim exemptions, determine gross income, subtract adjustments C.Determine gross income, subtract adjustments, subtract deductions, calculate total tax D.Determine gross income, subtract adjustments, add up exemptions, subtract deductions, calculate total tax

C. Determine gross income, subtract adjustments, subtract deductions, calculate total tax

Stage 1 Step 5: Begin Saving for your goals

Consider a roth ira know your risk capacity and tolerance pay attention to asset allocation put together a strategy control your spending

Simple interest

Does not earn interest on interest

Stage 2 Step 6 - Make It Work

Don't keep money secrets. Don't let one partner take all the financial responsibility. Avoid bad debt.

Understanding how tax planning affects your personal finances is actually important for most taxpayers, not just the wealthy, because Select one: A.many people don't take advantage of all the deductions and tax credits they are entitled to. B.many people pay higher taxes or receive smaller refunds than they need to. C.the average American spends close to one-third of the year earning the money necessary to pay his or her taxes. D.only choices many people don't take advantage of all the deductions and tax credits they are entitled to and many people pay higher taxes or receive smaller refunds than they need to. E.All of these choices.

E

Stage 4 Step 2 - Plan for College

Estimate the costs. Automate your savings.

Compound Interest Formula

FV = PV * PV increased by the end of 1 year.

example future value - If we want 100,000 in 30 years but we only have 10,000 to invest now, what interest rate would we need to earn to make this goal possible.

FV = [FV of $1 factor: n,i] * PV Solve for the unknown: [FV of $1 factor: n,i] * 10,000 Solve for the unknown: [FV of $1 factor: n,i] = 10 Look at the table for 30 years. The interest of 8% has a factor of 10.0620; there, i=8%

Future value of an annuity

FVa = PMT * FVIFa^i,n

Present Value Example 1 - What is the present value of $1,500 to be received at the end of 10 years assuming an 8% discount rate?

Find the PV of $1 for n = 10 and i = 8% it is 0.4632. Multiply 0.4632 by 1,500 to find the PV of $694.80 694.80 is the present value of 1500 to be received in 10 years assuming 8%. Another way to think of this. $694.80 is the amount that should be invested today in order to have 1500 in 10 years assuming 8% interest.

pv of 1$ annuity example - what is the present value of $500 to be recieved at the end of each of the next 20 years, assuming a 10% interest rate.

Find the PV of a $1 annuity for n = 20 and i = 10%; it is a 8.5136 Multiply 8.5136 by $500 = 4256.80

Stage 4 Step 5 - Take advantage of tax savings

Get a Social Security number. Update your W-4 form. Update your flexible spending accounts (FSAs).

Stage 2 Step 1 - Get organized

Get talking. Update financial records. Decide what's common and what's separate. Gain control of your debt and your credit score. Consolidate credit cards. Merge finances to make good decisions. Set up plan to pay household expenses. Set aside an area dedicated to your financial paperwork.

Financial Life Events

Getting started marriage buying a home having a child inheritances, bonuses, or unexpected money a major illness caring for an elderly parent retiring death of a spouse divorce

When talking with your future partner, ask these questions:

How did your family handle money? Did they have debt problems? Did they use credit cards? How much income is enough? How do you feel about both spouses working after you have children? How much do you earn? Do you have other sources of income? What do you own? How do you feel about debt? Do you have debt? Do you have other financial commitments—for example, aging parents who may need financial support or children from a previous marriage? Once you're married, will you invest separately? Who will pay for what? Will you have one or two checking accounts? Do you or your partner need life insurance and, if so, how much? How about health insurance? What do your employee benefits include?

Stage 1 Step 3: Identify Your Goals

Identify and prioritize financial goals Set a time frame Identify the costs of your goals revisit your goals annually

Example of future value of investment

If a 22 year old begins saving for retirement, he will have to save a lot less each year than someone who waits until the age of 40. From an investment perspective, the 22 year old has time on his hands.

Finding Present Values

In compounding, we find future values given an investment amount. This single payment or investment is called the present value As in compounding, finding present values is useful in setting financial goals. As in compounding, we find the present value of a single payment or an annuity

Who must file a federal income tax return? Select one: A.Individuals whose income meets federal guidelines B.All heads of household C.Only those who have to file a state income tax return D.All American citizens E.Everyone with an earned income during the year

Individuals whose income meets federal guidelines

Since 1985, tax brackets have changed annually to reflect the increases in the cost of living, otherwise known as?

Inflation

Compound Interest

Interest paid on interest. Reinvestment of interest paid on an investments principal

Discount Rate

Interest rate used to bring future money back to present

Present value of future sum

Inversely related to both the number of years until payment will be received and the discount rate

Investing

Investing money to earn interest will facilitate the growth of your investment.

Stage 3 Step 1 - The purchase fits your financial plan

Keep track of your credit score.

Successful Debt Management

Key 1: The obvious: Spend less than you earn and budget your money. Key 2: Know the costs. Key 3: Understand the difference between good and bad debt. Key 4: Make sure you can repay what you borrow—set your own standards. Key 5: Keep your credit score strong—it keeps costs down and is a source of emergency money. Key 6: Don't live with bad (and expensive) debt.

Stage 2 Step 5 - Make a will

Make a will. Review your beneficiaries.

Stage 1 Step 6 - Manage Your Portfolio

Monitor your portfolio Stay current adjust to changes

The Keys to Success: A Dozen Decisions

Number 1: Become Knowledgeable Number 2: Don't Procrastinate Number 3: Live Below Your Means Number 4: Realize You Aren't Indestructible Number 5: Protect Your Stuff (and Look Out for Lawyers) Number 6: Embrace the "B" Word (Budget) Number 7: Reinvent and Upgrade Your Skills Number 8: Hide Your Plastic Number 9: Stocks Are Risky, But Not as Risky as Not Investing in Them Number 10: Exploit Tax-Favored Retirement Plans to the Fullest Number 11: Plan for the Number of Children You Want Number 12: Stay Married

Rule of 72

Numbers of years for a given sum to double is found by dividing the investment's annual growth or interest rate into 72.

present value interest factor

PV = FV * Present-Value Interest Factor

Present value equation

PV = FV at the end of n years (FVn) * Amount FV has decreased in n years [1/(1+i)n]

________ income is from activities in which the taxpayer does not actively participate.

Passive

A tax system in which tax rates increase as income increases is called a(n) ________ system.

Progressive

the federal income tax structure

Progressive or graduated tax Tax rates and tax brackets personal exemption itemized or standard deductions taxable income taxable income is a function of adjusted gross income (agi) deductions exemptions

Time value of money concept

Recognizes that money received at some point in the future is not as valuable as money received today. A dollar received today is worth more than a dollar received in the future. Money paid out a later date is more desirable than paying it now.

Stage 2 Step 2 - Revisit Your Financial Goals

Reexamine your financial goals. Begin saving for your goals. Make your saving automatic. Make sure you have an emergency fund. Begin working toward retirement.

Compounding

Refers to the process of accumulating value over time.

All dollars are not created equal

Refers to the time value of money

Stage 6 Step 3 - Alternatives to Finance Your Illness

Reverse mortgage Determine how much you can get with a reverse mortgage. Life insurance Disability insurance

Stage 4 Step 3 - Reconsider Your Insurance Needs

Review and update life, health, and disability insurance coverage.

Stage 2 Step 3 - Reexamine Your Insurance and Benefits

Review your beneficiaries. Include all family members. Review your insurance. Consider disability insurance. Coordinate your benefits.

Stage 1 Step 4 : Begin Saving for your goals

Save more than you think you can make savings automatic avoid expenses whenever you can dont procrastinate catch your matches

Stage 8 Step 1 through 4

Step 1: Develop a Retirement Income Plan Mental preparation Financial preparation Plan how you will use your retirement savings. Step 2: Manage Your Income in Retirement Withdrawal strategy Monitor your investments Emergency fund Step 3: Review Your Insurance Coverage and Your Will Employer retiree health care Medicare Medicare supplemental insurance Long-term health care insurance Homeowner's insurance Review your will Step 4: Keep Track of Important Retirement Planning Dates Apply for Social Security benefits. Apply for Medicare benefits. Receive distributions for your retirement accounts. Take mandatory retirement distributions. Become eligible for a reverse mortgage.

Stage 5 Step 1 through 5

Step 1: Examine the priorities of your goals Step 2: Reexamine your goals Step 3: Consider estate planning Transfer of your estate Step 4: Examine the tax implications Plan for tax implications. Consider estate taxes.

Stage 7 Step 1 through 4

Step 1: Health Care and Estate Planning Concerns Initiate a dialogue with your parents. Step 2: Oversee Your Parents' Financial Affairs Organize the paperwork. Gain an understanding of their goals and budget. Develop a budget. Protect your parents. Durable power of attorney Living will Step 3: Discuss Long-Term Health Care Options Long-term health care insurance Step 4: Estate Planning Discuss estate planning.

Stage 9 Steps 1 through 5

Step 1: Organize Financial Material The papers The will Step 2: Contact Sources of Survivor Benefits Insurers Social Security Past employers Step 3: If you are the executor, carry out your responsibilities Distribution of assets Step 4: Change Ownership or Title to Assets Insurance policies Automobiles Bank accounts, stocks, bonds, and safety-deposit boxes Credit cards Step 5: Review Your Financial and Retirement Needs Determine if your benefits change. Contact the employer. Review your insurance. Review your medical insurance.

Stage 10 Step 1 through 5

Step 1: Prepare for Divorce Pay down debt. Keep the costs down. Remember Principle 1: The Best Protection Is Knowledge. Step 2: Avoid Credit Damage Joint accounts Late payments and your credit report Late payments? Have your account "re-aged." Step 3: Revisit Your Financial Goals Reevaluate your goals. Social Security and your ex-spouse's earnings history Step 4: Revisit Your Insurance Coverage Insurance coverage Child support or alimony—check out life insurance Your life insurance policy Step 5: Rework Your Budget Your budget Retirement savings Reexamine your expenses Emergency fund Tax breaks

Stage 3 Step 2 - Consider Tax Implications

Take advantage of the tax benefits. Build the tax benefits into your budget. Reexamine your investments. Update your employer records. Know your state.

The amount of income taxes that you actually pay is based upon your Select one: A.taxable income minus exemptions and deductions. B.adjusted gross income. C.gross income. D.taxable income.

Taxable income

Avoid any lender who

Tells you to falsify information on the loan application—for example, if the lender tells you to say your loan is primarily for business purposes when it's not. Pressures you into applying for a loan or applying for more money than you need. Pressures you into accepting monthly payments you can't make. Fails to provide required loan disclosures or tells you not to read them. Misrepresents the kind of credit you're getting—for example, if the lender calls a one-time loan a line of credit. Promises one set of terms when you apply and gives you another set of terms to sign—with no legitimate explanation for the change. Tells you to sign blank forms and says he or she will fill them in later. Says you can't have copies of documents that you've signed.

Tax quiz 2 - Your adjusted gross income for 2018 was $150,000. You are filing as Married Filing Jointly. Your itemized deductions total $25,200. Based on your W-2 Statement, you had taxes withheld from your paycheck totaling $16,412. Your child is in college, and qualifies you for the Lifetime Learning Tax Credit for which you calculated an eligible amount of $1,000 to use as a tax credit. What is the 2018 Standard Deduction you would be eligible to take?

The Standard Deduction for "Married Filing Jointly" status is $24,000. This comes from our discussion/slides.

Future Value

The amount an investment grows to. It includes both the amount invested and the interest earned.

tax quiz 4 - Your adjusted gross income for 2018 was $150,000. You are filing as Married Filing Jointly. Your itemized deductions total $25,200. Based on your W-2 Statement, you had taxes withheld from your paycheck totaling $16,412. Your child is in college, and qualifies you for the Lifetime Learning Tax Credit for which you calculated an eligible amount of $1,000 to use as a tax credit. Based on the information and your calculations, how much do you need to pay the US Treasury when you file your 2018 tax return?

The calculated taxes you owe = $18,335. Above, you are given that according to your W-2, you have already paid $16,412. The remaining amount is how much you still owe the US Treasury: $18,335 - $16,412 = $1,923. Please remember that if you paid more than your tax calculation, that is when you would be entitled to a refund.

Present Value Interest

The current value in today's dollars of a future sum of money

Principal

The face value of the deposit or debt instrument.

The importance of the Interest Rate

The interest rate plays a critical role in how much an investment grows Higher interest rate - daily double compound interest is the eight wonder of the world - albert einstein

Future Value Interest

The value of an investment at some point in the future.

Time value of money has several applications including

The way to determine future amounts Determine present amounts And applies to interest rates, inflation rates, investment rates, compounding of money, etc.

Rule 72 Example - If an investment grows at an annual rate of 9 percent per year

Then it should take 72/9 = 8 years to double.

Summary ch17

There is no substitute for starting early in financial planning and saving. Financial events like marriage and children complicate financial planning—be open with partners and plan ahead. To succeed financially, gain an understanding of personal finance, avoid procrastination, live below means, have adequate insurance, become an budgeter, keep skills fresh, and avoid credit card debt. Controlling debt is a challenge but spending less than your earn, budgeting, and knowing costs of debt are key deterrents against unnecessary debt.

Gross income is another name for ________ income.

Total

Tax credits reduce your taxes on a dollar-for-dollar basis. Select one: True False

True

Stage 6 Step 2 - Take Advantages of Tax Breaks

Understand the tax implications. Explore flexible spending accounts (FSAs).

Stage 2 Step 4 - Reexamine Your Taxes

Update W-4 form. Take advantage of tax breaks.

Stage 4 Step 4 - Update Your Wills and Trusts

Update or make a will. Update your retirement account beneficiary designations

Stage 3 Step 3 - Take care of the details

Update your address. Update your insurance policies.

Your adjusted gross income for 2018 was $150,000. You are filing as Married Filing Jointly. Your itemized deductions total $25,200. Based on your W-2 Statement, you had taxes withheld from your paycheck totaling $16,412. Your child is in college, and qualifies you for the Lifetime Learning Tax Credit for which you calculated an eligible amount of $1,000 to use as a tax credit. Based on the information provided and your calculations, what is your total tax liability for 2018? Please remember our discussion of credits and deductions.

You start with Adjusted Gross Income of $124,800, and calculate each bracket as shown above. The answer is $18,335.

Compound Annuities

a compound annuity involves depositing an equal sum of money at the end of each year for a certain number of years, allowing it to grow. You want to know how much your savings will have grown by some point in the future.

Income that comes from wages or a business is called Select one: A.investment income. B.passive income. C.portfolio income. D.active income.

active income

passive income

activities in which the taxpayer does not actively participate

Excise taxes Select one: A.are imposed on specific purchases, such as alcohol and cigarettes. B.are often aimed at reducing the consumption of the items being taxed. C.are referred to as "sin taxes" in some cases. D.All of these.

all of the above

Which of the following are permissible itemized tax deductions? Select one: A.Medical and dental expenses B.Casualty and theft losses C.Home mortgage interest D.Gifts to charity E.All of these

all of the above

Which of the following is an advantage of filing electronically? Select one: A.Faster refunds B.Quick electronic confirmation C.More accurate returns D.All of these

all of the above

capital asset

an asset you own

pv of annuity

annuity payment or (pmt) * present value interest factor of annuity

capital gains

are not claimed or taxed until the asset is sold

capital gains taxes

are postponed until you sell the asset.

tax brackets

changes annually to reflect changes in the cost of living standard deductions and personal exemptions are increased to reflect inflation

Stage 1 Step 1 : Manage Your Life

delete incriminating photos from social media invest in yourself be able to describe what you do

the ingredients of success

evaluate your financial health plan and budget manage your cash and credit control your debt make knowledgeable consumer decisions have adequate health life property and liability insurance understand investing principles make investment decisions that reflect your goals plan for retirement plan for what happens to your wealth and your dependents after you die.

audit

examination of tax return by the irs although selection is random, the odds are higher if you have been audited in the past you may be asked to mail additional information or have an IRS face-to face interview you will have the opportunity to reexamine areas in question, get all data and records, and appeal audit outcome if necessary.

non-income based taxes

excise taxes property taxes gift and estate taxes

A dollar received in the future is worth more than a dollar received today. Select one: True False

false

Standard deductions need yearlong record-keeping and thorough and accurate documentation. Select one: True False

false

benefits of e-filing include

faster refunds more accurate returns quick electronic confirmation delete the paperwork federal efiling

The discount rate is the interest rate used to bring ________ back to ________. Select one: A.current dollars; present dollars B.current interest rate; present present interest rate C.future dollars; present dollars D.future interest rate; present interest rate

future dollars;present dollars

standard deduction

governments best estimate of what the average person would deduct if itemizing

adjusted gross income

gross income less allowable adjustments adjustments include retirement contributions student loan interest paid moving expenses health savings account contributions unreimbursed educator expenses

active income

income from wages or a business

tax-deffered

income on which the payment of taxes is postponed

base income tax

intersection of filing status and taxable income in the federal income tax tables

Women and Personal Finance

its more difficult for women to achieve financial security women generally earn less money women are less likely to have pensions women qualify for less income from social security women live on average 7 years longer than men

FV of 1$ annuity - million dollars at age 65

lets assume you save 10% of your annual earnings, and invest that same amount at the end of each year. A recent sample of 401k compound annual growth rates show about 14% rate from 2010-2016. Let's be conservative and use 6% The goal is 1,000,000 at age 65, by investing 10% of your salary at the end of each year in a fund with returns of 6% minimum. You are looking for the minimum amount to achieve that target. When do you start?

itemize deductions

list of deductible expenses; medical expenses, tax expenses, mortgage interest payments, etc

tax-deffered retirement

plans allow you to defer tax payments to the future

The current value in today's dollars of a future sum of money is called Select one: A.discounted value. B.adjusted value. C.present value. D.compounded value. E.future value.

present value

the financial life cycle

recent graduates make financial decisions in first decade after college purchase car and possibly first home establish credit and pay taxes get married and begin a family set up an emergency fund, start saving for your goals, and begin a retirement account

Annual compounding

reinvesting interest at the end of each year for more than 1 year

Examples of annuity

rent payments, mortgage payments, car payments, etc. Bonds will involve interest payments that are annuities

portfolio or investment income

securities

Love & Money

sixty-six percent of americans don't understand the concept of time value of money.

income based taxes

social security of fica state and local income taxes lack of health insurance penalty

Challenges include

student loans, credit card debt, budgeting, spending, saving, and financial shocks of marriage and children. Take control now, or put it off and make financial management tougher in the future.

taxable income

subtract deductions and exemptions from agi

subtracting deductions

take greater deduction between standard and itemized deduction

subtract your credits and determine your taxes due

tax credits reduce actual taxes paid tax credits phase as agi increases child credit education credits child and dependent care credit earned income credit health care premium credit adoption credit some credit are eliminated and some are increased

equivalent taxable yield

tax free yield on the municipal bond / (1-investor's marginal tax bracket)

bracket creep

tax increase caused by inflation increasing wages

capital gains tax

tax you pay on your capital gains

Income on which the payment of taxes is postponed until some future date is called

tax-deferred

average tax rate

the average amount of your total income taken away in taxes

n

the number of years during which compounding occurs.

marginal tax rate

the percentage of the last dollar earned that goes to pay taxes

marginal tax rate

the tax rate on an additional dollar of income additional tax liability divided by additional income this is the rate that is the most relevant for tax planning and investment decisions

The ________ Principle states that a dollar today is worth more than a dollar in the future. Select one: A.Time value of money B.Future value of money C.Adjusted value of money D.Annuity value of money E.Discounted value of money

time value of money

average tax rate

total lax liability divided by total income gives taxpayers an indication of the percentage of their income that went to federal income tax

For the Taylors, they are allowed to take a tax credit of $2,000 per dependent child off of their

total tax owed

Stage 1 Step 2 : Lay the groundwork

track expenses and create a budget control debt establish an emergency fund insure yourself control your credit score keep current on personal finance

Compounding is when the interest you have already earned on an investment earns interest. Select one: True False

true

For most tax payers, their average tax rate is lower than their marginal tax rate. Select one: True False

true

The earlier you begin saving for your retirement, the easier it will be to reach your financial goals for retirement. Select one: True False

true

The impact of taxes are an important consideration in most of the financial decisions that you will make. Select one: True False

true

The present value of a financial asset is what you should be willing to pay today for that financial asset. Select one: True False

true

Two of the most important factors in reaching your financial goals are the return on your investments and the length of time you have until you need your money. Select one: True False

true

You pay taxes only when you sell stock and realize the gain. Select one: True False

true

capital loss

what you lose when you sell a capital asset for a loss

capital gain

what you make if you sell a capital asset for a profit

paying income taxes

withholdings are determined by income level and information on w-4 form

Taxes when selling your home

you can typically exclude from taxable income the capital gain on the sale of your home This is limited to 250,000 for single individuals and $500,000 for married couples to be eligible for the full exclusion, you must have owned the home for the last two years and used it as your main residence for the two most recent years

to calculate taxes

you need to determine income, adjusted gross income, taxable income, then the taxes you owe.