Vikki Rocco (age 23) has been working at a local company processing 401 (k) plan benefits for six months and she just received her W-2 from work, her 1099 from her bank, and her year-end statement for her 401 (k) plan. Her parents, Dave and Amy (ages 48 and 46) received their property tax bill and year end statement for their mortgage.
Since she is living with her parents, Vikki wants to discuss her tax preparation with them. Her mam suggests that she organize her materials and plan to file online using Form 1040EZ. As, Vikki begins to input her income, she takes a closer look at her W-2 from her employer and is surprised to see how much money has been deducted from her pay for the six months she has been working. The deductions for taxes plus her 401(k) plan are more than she earned last year as a student! She is worried about how much will be deducted next year, when she has worked for a full year. She wonders if she having too much federal income tax withheld from her paycheck.
Vikki's financial statistics are shown below:
Assets:
Checking account* $5,500(interest received last year: $50)
*including her emergency fund Car $7,500
401(k) balance $3,000
Liabilities:
Student loan balance $13,700 (interest paid last year:$480)
Credit card balance $1,880 (interest paid last year:$120)
Income:
Gross salary received last year:$20,000 (for 6 months, before-tax). After-tax monthly salary:$2,333
Monthly expenses:
Rent $200
Food $100
Student loan $250
Car loan $200
Credit card payments $40
Entertainment $100
Gas/repairs $150
Retirement Savings:
401(k) $500 per month, plus 50% employer match on first 7% of pay (contributions for last year: $3,000)
1what types of taxes will Vikki need to pay? what taxes will her parents pay?
2Using your personal Finance plan sheet 9 and tax rates in the text, calculate Vikki's estimated federal income tax liability.
3what the difference between a tax credit and a tax deduction? which is better?
4what tax planning strategies should she consider? what strategies should parents consider?
5How can she use Your Personal Financial Sheet 10?
Since she is living with her parents, Vikki wants to discuss her tax preparation with them. Her mam suggests that she organize her materials and plan to file online using Form 1040EZ. As, Vikki begins to input her income, she takes a closer look at her W-2 from her employer and is surprised to see how much money has been deducted from her pay for the six months she has been working. The deductions for taxes plus her 401(k) plan are more than she earned last year as a student! She is worried about how much will be deducted next year, when she has worked for a full year. She wonders if she having too much federal income tax withheld from her paycheck.
Vikki's financial statistics are shown below:
Assets:
Checking account* $5,500(interest received last year: $50)
*including her emergency fund Car $7,500
401(k) balance $3,000
Liabilities:
Student loan balance $13,700 (interest paid last year:$480)
Credit card balance $1,880 (interest paid last year:$120)
Income:
Gross salary received last year:$20,000 (for 6 months, before-tax). After-tax monthly salary:$2,333
Monthly expenses:
Rent $200
Food $100
Student loan $250
Car loan $200
Credit card payments $40
Entertainment $100
Gas/repairs $150
Retirement Savings:
401(k) $500 per month, plus 50% employer match on first 7% of pay (contributions for last year: $3,000)
1what types of taxes will Vikki need to pay? what taxes will her parents pay?
2Using your personal Finance plan sheet 9 and tax rates in the text, calculate Vikki's estimated federal income tax liability.
3what the difference between a tax credit and a tax deduction? which is better?
4what tax planning strategies should she consider? what strategies should parents consider?
5How can she use Your Personal Financial Sheet 10?