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Course: Personal finance > Unit 8
Lesson 1: Personal taxes overview- Tax deductions introduction
- Standard and itemized tax deductions
- AMT overview
- Alternative minimum tax
- Estate tax introduction
- Tax brackets and progressive taxation
- Calculating federal taxes and take home pay
- Calculating state taxes and take home pay
- Marriage penalty
- Married taxes clarification
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Standard and itemized tax deductions
Get a better understanding of how deductions work and which ones are right for you. Created by Sal Khan.
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- Between0:15-0:18Sal mentions State taxes. What is the difference between State Taxes and the Tax that he is calculating currently? Also, is the act of State Taxes also carried out internationally? Also, is the standardised tax deduction something that anyone can apply for monthly or annually, or do you need to be in a specific financial situation?(5 votes)
- The state tax he mentioned at the time was taxes paid by either you or your employer to the state you worked in. The taxes he is calculating is for the federal government.
If you live abroad, not in the United States, you will have to check with the most recent state you lived in to see if you need to pay state taxes.
The standard tax deduction is a calculated number that the government came up with that they think is the most basic cost of living. It is not something you have to qualify for.(8 votes)
- How do I view the transcript of a video lesson?(5 votes)
- 1:36brings about some interesting questions:
1. Couple B is working and is jointly filed, right? So if there were another couple (Couple C) with a working dad and a stay-at-home mom, could the dad file for himself?
2. If say the wife in Couple B stops working, or the wife in Couple C got a job, can both couples go to the IRS to have their files edited?(3 votes)- 1. Yes, he could file "Married filing separately" but he will most likely not get all the tax benefits for filing jointly with his wife, especially if there are kids.
2. Starting/stopping work, say in 2018, does not affect previous tax years files. Married couples have the options to file joint, separate, or head of household. You can always amend a previous year's tax forms, assuming you filed those years already, by filling out a Federal 1040X.(4 votes)
- Didn't the 2017 tax law eliminate the standard deduction?(4 votes)
- Please help! I am looking for a video on self-employment tax prep! I have searched and searched. Someone please help me find the information on self-eployment taxes! Thanks!!(4 votes)
- If you get income from more than one job, then will you add all the income and subtract the itemized or state deductions?(1 vote)
- No question for this video(1 vote)
- why does it matter what year you file your taxes?(1 vote)
Video transcript
- [Instructor] Person A here made $100,000 in the year that we care about, and he's getting ready to pay his taxes, and he's got some deductions. He made a $2,000 donation to charity and a $5,000 donation to state taxes, or not a donation, (chuckles)
he paid $5,000 in state taxes. So his total deductions right over here, and we would call these
his itemized deductions, 'cause he has literally put all of the items that he's deducting, so his itemized, itemized deductions are going to be $7,000. Now, before he just decides
to subtract that $7,000 from his income to get
his new taxable income, he should compare that against
the standard deduction. No matter what you do here, the IRS will give you
just a freebie deduction. And if you're a single person, and this is, obviously, depending on what year you're filing in, but at the time of this video, the standard deduction, the standard deduction is
$6,100 for a single person. So in this person's situation, his itemized deductions were larger than his standard deductions, so this is what he is going to take. He can't take both of these, so he can't deduct 13,100. He would wanna pick the
larger of these two things. So his taxable income will
be $100,000 minus $7,000. So his taxable income is going to be 93, $93,000. This is what he's going to pay taxes on. Now let's think about
Couple B right over here. They, as a couple, made $100,000. They're married, they're filing jointly. And they've made a $4,000
donation to charity. They've paid $5,000 in state taxes. And they've paid $3,000
in mortgage interest. And all of these are tax deductions. So what are their total
itemized deductions? So, itemized deductions. Let's see, four plus five is nine, plus three is $12,000
in itemized deductions. Now, you might say, oh, this is great. They can deduct 12,000 from their 100,000. But once again, we wanna compare it against the standard deduction. It's not gonna be the
same standard deduction as what we saw for a single person. Now, they're married filing jointly. It's actually twice as large. Their standard deduction, their standard deduction
is going to be 12,200. So even though they made
all of these donations or they paid these taxes and they paid this mortgage interest, it still didn't become larger than their standard deductions, so it's still in their best interest to just go ahead with
their standard deduction. So it really didn't matter,
from a tax point of view, whether or not they made these donations. 'Cause they still didn't get past this threshold right over here. Once again, you have to pick
the larger of these two. You don't get both of these. So their taxable income, Couple B's taxable
income, in this scenario, is going to be 100,000 minus 12,200, which is what? 100,000 minus 12,000 would be 88,000. Minus another 200 would be
$87,800 of taxable income.