Career, Income, and Taxes

Career, Income, and TaxesDemandHow much people want to purchase of a good given its price

Law of demand= as price goes down, quantity demanded goes upSupplyHow many goods are available for purchase at a given price

Law of supply: as price goes up, more goods will be supplied

Supply and Demand TermsEquilibrium- The price and quantity at which supply and demand are equal

Shortage- when demand is greater than supply

Surplus- when supply is greater than demandShifts in Supply and Demandwww.youtube.com/watch?v=Ng3XHPdexNM

ShiftsIn supplyIn DemandProductivityTechnologySubsidiesWeatherTaxesChanges in taste and preferenceChanges in incomeChanges in expectationsChanges in the prices of related goodsPopulation size and composition

Shifts in Supply and Demand

Supply and Demand of Workers

Journal 09/13/13According to the law of supply and demand, what causes prices to rise? What causes prices to fall? Think about this concept related to the supply of workers in an economy. What is the price for a worker? What will happen if there is a shortage of workers? What will happen if there is a surplus of workers?

Earning PowerIncomeMoney received for work or investments

Investment- expense of money with the expectation of getting a profit laterWhat Makes a Job Valuable?Society needs itThere is a short supply or large demandIt is more difficult to get the necessary skillsFactors the Affect Incomethe level of education, training, and experience that is required to do a particular jobthe level of demand that exists for the type of labor you are skilled/trained/educated to providethe number of others who have similar or better skills who can compete for the jobhow good you are at what you dohow long you have been working your experience, your seniorityyour work habits, reliabilitythe state of the economy

14Factors the Affect Employment Income:the level of education, training, and experience that is required to do a particular job the level of demand that exists for the type of labor you are skilled/trained/educated to provide the number of others who have similar or better skills who can compete for the job how good you are at what you do how long you have been working your experience, your seniority your work habits, reliability the state of the economy government legislation, particularly wage legislation such as minimum wage the effectiveness and impact of unions on the negotiated wages the region in which you work and the labor market conditions in that region the profitability and success of the organization for which you work chance being at the right place at the right time or the wrong place at the wrong timeThere are, of course, other factors, some of which are even illegal but, nevertheless, can be at work in affecting income. For example, in many cases women are still paid at lower levels than their male counterparts; there may be discrimination also on the basis of age, race, or color. Authorities, in many cases, are trying to preventsituations of wage discrimination. But some still exist and pose challenges to those who face prejudice and discrimination.

How Education Influences IncomeHigh School Diploma- $1.3 millionSome college- $1.55 millionBachelors Degree- $2.27 millionMasters Degree- $2.67 millionDoctoral Degree- $3.25 millionProfessional Degree- $3.65 million

Average lifetime earningsUneducated = UnemployedEducation pays in higher earnings and lower unemployment ratesSource: www.bls.gov: Employment statistics of the civilian population 25 years and over by educational attainment.

16http://www.bls.gov/emp/ep_chart_001.htmAn Employers PerspectiveSomeone who couldnt complete high school probably finds it difficult to complete any task.High school can be hard work. A high school dropout is probably scared of a little hard work.A high school dropout didnt learn some things that are needed to be good at this job!How bright can a high school dropout be?Some Things About School Are SoFinish the sentence Some things about school are so by listing those things about school you think are difficult or hard, those that are comfortable or so-so, and those that are easy for you.

DifficultComfortableEasyDifficultComfortableDifficultComfortableDifficultEasyComfortableDifficult

Easy

Comfortable

DifficultWhat actions can you take to improve your ability and skill in areas you find difficult?What is your plan of action, your timeline, for improvement?18Finish the sentence Some things about school are so by listing those things about school you think are difficult or hard, those that are comfortable or so-so, and those that are easy for you.Calculate the difference betweenH.S. DropoutH.S. DiplomaAssociates DegreeBachelors DegreeAdvanced DegreeAnnual Income$19,226$28,950$36,395$51,568$67,073Calculate the difference in salary between:A high school dropout and a high school graduate.A high school graduate and a graduate from a two-year college program (associates degree).A two-year college graduate and a four-year college graduate (bachelors degree).A four year college graduate and an individual with an advanced degree (masters or doctorate).19Source: U.S. Census Bureau, Current Population Survey, 2005 Annual Social and Economic SupplementCalculate the lifetime earnings of each level of educational attainment using the table below. Have students assume each person works until 70 years of age. Other assumptions include:

H.S. DropoutH.S. DiplomaAssociates DegreeBachelors DegreeAdvanced DegreeAnnual Income$19,226$28,950$36,395$51,568$67,073Years WorkedLife EarningsThe high school dropout begins full-time work at age 16.The high school graduate begins full-time work at age 18.The graduate of the two-year college begins full-time work at age 20.The graduate of the four-year college begins full-time work at age 22.The graduate with a masters degree begins full-time work at age 24.20Source: U.S. Census Bureau, Current Population Survey, 2005 Annual Social and Economic Supplement

Write three paragraphs summarizing what you have learned about careers and income. Include comments about employers perspectives and your feelings about school. Conclude with your educational goals and how they will influence your income.EntrepreneurismWhat is an entrepreneur?A person who organizes, manages, and assumes the risks of a business or enterprise. EntrepreneurshipRISKSNo guaranteesNo regular paycheckNo bossLong hoursAssume debt of business

REWARDSBe your own bossKeep profitsControlSatisfactionPursue talent and creativity

Characteristics of EntrepreneursWilling to take risksA person who creates a business from scratch.Self employedStrong sense of disciplineBe your own bossBeat the competition

Who are some entrepreneurs you might know?

Walt DisneyWho are some entrepreneurs you might know?Oprah Winfrey

Who are some entrepreneurs you might know?Donald Trump

28Donald Trump received much of his business sense from his father, Fred Trump, who was forced by his father's death to help support a large family. His father succeeded in producing affordable housing. Donald Trump was brought up assisting his father with his business ventures. Donald set a goal to be involved in real estate in a larger scale than his father.Trump started a billion dollar empire and is now also on his own hit TV show called the Apprentice. Donald Trump owns over 100 businesses. Writing a ResumeThings to IncludeYour nameContact Information- definitely email and phone, address is optional

Things to IncludeObjective- what you hope to accomplish with your job search

Prior Experience- List the title, when you worked there, and specific accomplishments while there

Things to IncludeEducation- list where you went to school, during what years, and the degree you earned (or anticipated graduation date)

Skills/Accomplishments- any other bragging rights that might help you with the job you are applying for

FormattingShould look professionalPut dates in chronological orderCan have heading, but should not have bordersSimple, easy-to-read fontText should not be too large or too smallUse normal size paper in a neutral colorSources of IncomeSources of IncomeWages (a fixed regular payment by an employer to an employee) and Salaries/AllowancesInvestment IncomeSelf-employmentInheritanceGiftsAwardsLottery!Employee benefits The additional services offered and paid in part by employers.

Ex. Insurance- a guarantee of compensation for loss or damage.

Common Employee BenefitsPaid Vacation Holidays (Personal Leave)Paid Sick Days (Sick Leave)Health InsuranceDisability Income InsuranceLife InsuranceDental/Vision InsuranceProfit Sharing

37When you work as an employee for a company, other benefits may be provided. It is certainly not the case that all companies offer attractive benefits packages. Benefits packages vary a great deal from company to company, industry to industry, and even occupation to occupation. Since they can be quite significant, the benefits that are available should be factored into employment decisions. The possible benefits can include the following: paid vacation holidays paid sick days paid provincial government medical premiums (covering your health insurance) extended health care insurance disability income insurance (short-term and long-term) life insurance dental insurance profit sharing (employees receive a share of the companys profits) payroll savings plan (convenient plan to help build savings) stock option purchase (become a part owner of the company through owning shares) registered pension plan (to help build a retirement fund) group registered retirement savings plan educational expense reimbursement (cover costs of additional education and training) provision of an automobile or funds for travel expenses benefits for a spouse access to financial adviceCommon Employee BenefitsPayroll Savings PlanStock Option PurchaseRegistered Pension Plan- payment made during retirementRetirement (leaving a job)Tuition ReimbursementTravel ExpensesSpouse BenefitsAccess to Financial Advice

Economic Conditionshave a great influence on how consumers spend money.Consumer PricesConsumer SpendingInterest Rates

39Current economic conditions affect your personal financial decisions and how economic conditions can influence financial planning. There are three important economic conditions: 1. Consumer prices, 2. Consumer spending, 3. Interest rates.

Consumer PricesOver time the prices of most products goes up. This rise in the level of prices for goods and services is called inflation. During times of rapid inflation, it takes more money to buy the same amount of goods and services. For example, if the rate of inflation is 5 percent, then a computer that cost $1,000 a year ago would now cost $1,050 if the computer price increased a the inflationary rate.

The main cause of inflation is an increase in demand without an increase in supply. For example, if people have more money to spend because of pay increases of borrowing but the same amounts of goods and services are available, then prices will rise.

Inflation can be especially hard on certain groups, such as retired people whose income many not increase. The inflation rate affects consumer prices and varies from year to year. In the 1960s, the annual inflation rate was between 1 and 3 percent. In the late 1970s and early 1980s, the inflation rate climbed to 10-12 percent each year. More recently it slowed to 2-4 percent each year.

Consumer SpendingA consumer is a person who purchases and uses goods or services. You are a consumer whenever you buy anything a CD, books, clothes, lunch or even a haircut. Consumer spending affects the economy by helping to create and maintain jobs. When people buy more goods or services companies have to hire extra employees to meet the demand. This situation leads to a higher rate of employment, making more jobs available. More people work, and they have more money to spend. However when consumer buy fewer goods and services, companies have to produce less and lay off workers. Then unemployment rises, making jobs harder to find.

Interest RatesLike everything else, money has a price, and this price is called interest. Interest is the price that is paid for the use of anothers money. Interest rates also affect the economy. Whey you deposit your payckeck in a savings account, the interest you receive is the money the bank or another financial institution pays you for uthe use of your money. The bank, in turn, uses your money to make loans to people who want to purchase items such as houses, automobiles, and new businesses. Borrowers who receive the loans must pay a fee, or interest to the bank or lending institution.

Interest rates represent the cost of money. When consumers increase their savings and investments, the supply of money that is available for others to borrow grows, and interest rates go down. When consumers borrow more money, the demand for money increases, and interest rates go up.

Interest rates on loans also rise during times of inflation. Interest rates will affect your financial planning, whether you save, invest, or obtain loans. The amounts of earning you receive from your savings account or the interest you pay on a loan depend on the current interest rates. Interest rates are just one facet of the economic factors the influence your personal financial planning.http://personalfinancelink.com/financial-goals/economic-conditions-affect-personal-financial-planning Cost of livingThe average cost of the necessities of life in a given area

What affects cost of living?Geographic areaCoastal areas tend to be more expensive than inlandProximity to needs (water, food, fuel)The farther away from goods and services, the more they costHow many people live in an areaUrban areas tend to be more expensive than rural areasUnderstanding TaxesWhat are taxes?Taxes are required contributions to state revenue, levied by the government on personal income and business profits or added to the cost of some goods, services, and transactions. 43Taxes are what we pay for civilized society Oliver Wendell Holmes Jr., 1904

44Taxes are a necessary part of life in the United States.Although taxation has often received a less than favorable review bytaxpayers, the benefits of taxation are positive.What do you think is meant by this quote? Do you agree with it?(Answers will vary.)Cooking Oil, Foreigners,Slaves (Ancient Egypt)Early Taxes

Sales, Inheritance, Imports,Exports (Ancient Rome)Beards, Beehives, Boots,Souls (Russia, 1702)Bachelors (England,1695; Missouri, 1820)45Throughout history, taxation has been a powerful means of shapingcivilization.Ancient Egyptians were known to tax all aspects of daily life.Egyptians taxed foreigners, slaves, and the use of cooking oil necessary for preparing family meals.Egyptians often were forced into slavery when taxes became too high to pay.Roman governments had an advanced system of taxation, whichincluded taxes on sales, inheritance, imports, and exports.The Roman emperor Vespasian was famous for his liberal use oftaxation. He imposed the Fiscus Judaicus, which was a tax on Jews. In addition, he taxed the urine that was used in cleaning and tanning leather.Peter the Great of Russia taxed hats, boots, beehives, basements,chimneys, food, clothing, birth, marriage and burial in addition to taxingbeards and souls.Even bachelors were taxed in England and the state of Missouri!Other TaxesProperty taxSales taxGasoline taxLocal/City taxes

Taxes Fund Public Goods and Services

National Defense

State and Local Police

Financial Aid

Health Care for Elderly

Public Education

Social Services47Taxes are required payments of money to various levels of government.Taxes provide revenue for public goods and services that benefit thecommunity and the nation as a whole.Taxes help support goods and services such as our national defense, state and local police and protection agencies, health care, public education, financial aid for the disabled and unemployed, and social services for low-income families.The amount of revenue raised by taxes determines the amount ofservices the government can afford to provide.

The Federal Government Dollar- Where It Comes FromExcise, Customs, Estate, Gift, and Miscellaneous Taxes7%Personal Income Taxes43%Social Security, Medicare, and Unemployment and other Retirement Taxes35%CorporateIncome Taxes7%Borrowing toCover Deficit 8%48The income tax is the most significant means of raising revenue in thefederal government.Payroll taxes, such as Social Security, Medicare, unemployment, andother retirement taxes (FICA), account for the second largest source offederal revenue through taxation.Excise, estate, gift, and corporate income taxes, as well as customs,borrowing to cover deficit, and miscellaneous taxes raise the rest of therevenue needed by the federal government

The Federal Government Dollar- Where It GoesLaw Enforcement and General Government3%Social Security, Medicare, andother Retirement38%National Defense, Veterans, and Foreign Affairs20%Social Programs21%Physical, Human, andCommunity Development10%Net Interest onthe Debt8%49Social Security, Medicare, and other retirement programs make up the largest payout by the federal government. These programs Provide income support for the retired and disabled and medical care for the elderly.National defense, veterans, and foreign affairs are anotherexpenditure. Money is provided to equip, modernize, and pay our armedforces and to fund other national defense activities.A portion of this funding is allotted for veterans benefits and services. About 1 percent of this money is given to foreign countries and United States embassies abroad to provide military and economic assistance and maintenance.Social programs, such as Medicaid, food stamps, aid to families withdependent children, health research, public health programs, assistedhousing, and social services are funded by revenue raised by taxes.Law enforcement, general government activities (including the collectionof taxes), judicial activities, and prisons account for a small percentage of expenditures.What is taxmoney used for?BridgesRoad maintenanceResearchEducationArmed services, national defense, veterans, and foreign affairsRetirement income for elderlySocial programsPhysical, human, and community developmentLaw enforcementInterest on the national debt

Social SecurityThe Social Security tax is also called the FICA tax. (Federal Insurance Contributions Act) Social Security taxes provide the following benefits for employees and their dependents: retirement benefits benefits for the dependents of retired workers benefits for the disabled and their dependents

51MedicareThe Medicare tax is used to provide medical benefits for certain individuals when they reach age 65. Workers, retired workers, and the spouses of workers and retired workers are eligible to receive Medicare benefits upon reaching age 65. 52Irs.govEach person is responsible for filing a tax return.Voluntary Compliance

53In the United States, taxation operates under a system ofvoluntary compliance.Simply stated, this means that taxpayers are responsible for declaring allof their income.It is also the responsibility of taxpayers to obtain necessary forms andinstructions, provide complete information, and file their returns on time.Unless each taxpayer declares and pays his or her fair share,government services will suffer and honest taxpayers will end up paying more.Tax Avoidance versus Tax EvasionTax Evasion: Failure to pay legally due taxesTax Avoidance: Legal means of decreasingyour tax bill54Two issues involved with voluntary compliance are tax evasion and tax avoidance.Tax evasion is the failure to pay legally due taxes.In this form of underground economy, people fail to report income to the government.This reduces the governments revenue and the filers tax bill. This form of tax cheating is difficult to measure.It is estimated that taxpayers voluntarily pay only 80 percent of their legally owed taxes.Tax avoidance is a legal means of decreasing your tax bill.Examples of tax avoidance would be moving a business to a state with lower taxes, taking advantage of tax loopholes, or changing spending habits to avoid paying tax on certain items.The distinction between tax avoidance and tax evasion is knowing andtaking legitimate deductions and credits when appropriate.Information on taxpayer returns is privateTaxpayer RightsTaxpayers have the right to appeal anIRS decision

55Taxpayers have the right to privacy. Information on returns is private andconfidential and can only be examined by authorized tax personnel.Taxpayers have the right to appeal an IRS decision through the IRS or a court.The income tax law is a lot of bunk. The government cant collect legal taxes from illegal money.Al Capone

56Failure to pay legally owed taxes can result in fines or imprisonment fortax fraud or tax evasion.Al Capone, a man remembered as one of the most notorious criminals of the twentieth century, was imprisoned for tax evasion in June, 1930.Spiro Agnew, our thirtyninth vice president (19691973), resigned from office after being fined for tax evasion. Be smart: Pay all taxes owed to the government!

Photo Credit: National Archives

Tax FormsNet Income vs. Gross IncomeGross income is the total amount a worker is paid before any required or voluntary deductions are made.Net income, also called take home pay, is the amount a person receives when he cashes or deposits his check. It is the remaining amount after deductions are made.Gross Income - DeductionsNet IncomeRequired Payroll DeductionsBy law, employers must pay taxes deducted from employee paychecks. The most common taxes are federal and state, and sometimes cities have their own local taxes. In addition, employees have to pay a Social Security Tax (FICA), and Medicare tax contribution with each paycheck.60Voluntary Payroll DeductionsHealth InsuranceRetirement SavingsUnion DuesCharitable Contributions61Calculate Sales TaxFigure the sales tax in the following scenarios. On a piece of scratch paper, write your answers AND explain why it is critical to include tax when planning your budget and spending.If a CD costs $15.00 and the tax is 7.5%, what is the final cost?62The Center for Applied Research in Education 1996Calculate Sales TaxYou and your friends receive a lunch bill for $22.50 before tax is included. The tax in your state is 8%. What is the total cost when the tax is included?

Calculate Sales TaxWhich would cost morea pair of earrings priced at $28.00 with a 7% tax, or a set of posters at $29.00 with a 5.5% tax?

Calculate Sales TaxThe class trip is going to cost each of the fifty students $130.00. If tax is 5%, what is the total cost for the entire class?

Tax FormsFederal TaxW-4I-9W-21040EZ

Utah State Tax FormTC-40State & Federal Income Tax

67PDF of 1040 form http://www.irs.gov/pub/irs-pdf/f1040.pdf W4You use W-4 Employee's Withholding Allowance Certificate Form to establish your withholding allowances for Federal income taxes.

68Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. Consider completing a new Form W-4 each year and when your personal or financial situation changes.PDF of W-4 http://www.irs.gov/pub/irs-pdf/fw4.pdf W4Line 5 is where you write your withholding allowances. Usually a number between 0 and 7.

Higher # = less $ withheldLower # = more $ withheldLess chance of tax return.Greater chance of tax return.I9An I-9 Form is the Employment Eligibility Verification Form required by the Immigration and Naturalization Services (INS) to verify your identity and your eligibility to work. All employees must complete this form and provide valid original identifications. You are not eligible for pay until Payroll Services receives a satisfactory I-9.

I-9

71The purpose of this form is to document that each new employee (both citizen and noncitizen) hired after November 6, 1986,is authorized to work in the United States.PDF of I-9 http://www.uscis.gov/files/form/i-9.pdf W-2Form W-2 reflects all taxable wages you received during the calendar year and all taxes withheld from those wages. The form serves as an annual report that enables you to file your personal income tax return with the Internal Revenue Service.

72PDF W2 http://www.irs.gov/pub/irs-pdf/fw2.pdf

1040 EZSimilar to the 1040 income tax form, 1040EZ is a faster and easier way to file your taxes. This form is only eligible for people with income less than $50,000 and interest income of $400 or less.

73PDF of 1040 EZ form http://www.irs.gov/pub/irs-pdf/f1040ez.pdf

Utah State Tax

Calculating TaxesFICA Taxes 7.65% for the first $113,700 of wages1.45% for wages about that

How much would you pay in FICA taxes if you made $67,000?How much would you pay in FICA taxes if you made $125,000?Answers$67,000 (.0765)= $5,125.25

$113,700 (.0765)= $8698.05$11,300 (.0145)= $163.85$8698.05+$163.85=$8861.90

Steps to Calculating Income TaxDetermine gross incomeDetermine the number of exemptions and deductions Find the net incomeDiscover which tax brackets are coveredDetermine how much is taxed at each level (bracket) and add together for total

Income TaxOnly taxed on the net amount.

Gross is what they pay you, net is the gross pay minus exemptions and deductions.

Exemption: $3,900 per personStandard deductions $6,100 (single), $8,950 (head of household), $12,200 (married filing jointly)

Finding Gross IncomePhil gets paid $85,000 a year at his job.Amanda makes $10/hour, works 40 hours a week, 52 weeks of the year.Jesse gets $62,500 annually from job and then also makes $1500 on interest from a savings account.Net Income 1What is the net (taxable) income of a single person who makes $26,600 and takes the standard deduction and one exemption?

$26,600-$6,100-$3,900=$16,600Net Income 2What is the net taxable income of someone who makes $52,600 annually and takes the standard deduction and one exemption?Net Income 3What is the net taxable income of a person who makes $74,000 annually, taking the standard decuction, is head of household and taking exemptions for himself and his three children?Graduated Income Tax

Determining Income Tax 1Zeke makes $54,000 a year. He is single and wants to take the standard deduction and one exemption. How much will he be taxed?Answer1. Find the net income: $54,000-$6,100-$3,900= $44,0002. Find the tax bracket(s) he falls under: 10%, 15%, 25%3. Find out how much is taxed at each level:First $8,925 @ 10%= $892.50Next ($36,250-$8,925) @ 15%= $4,098.75Last ($44,000-$36,250) @ 25%= $1,937.504. Why do we subtract? Because the money we subtract has already been taxed at a lower rate.5. Total $892.50+$4,098.75+$1,937.50=$6,928.75

Determining Income Tax 2Alice makes $90,500 annually, is head of household, and has two children. She wants exemptions for herself and her children and plans to take a deduction of $10,500. How much will she be taxed?