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FIR1220Assignment1Summer2019.docx

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FIR 1220 Assignment 1

1. Tax Rates

The U.S. operates on a “progressive” rather that fixed percentage tax scale, meaning as you earn more, your additional earnings are taxed at a higher rate/percentage. The U.S. government passed a new tax code at the end of 2017 that went into effect for 2018.

Using the new tax rate chart provided in below, calculate how much taxes a single/unmarried individual who earns $75,000 would pay. Keep in mind that you only get taxed on your “taxable income” not on the total/gross amount of income you earned. The standard deduction for a single filer went up from $6,350 to $12,000 in 2018, so you will first deduct this amount from the gross income, and then calculate the taxes owed on the remaining income.

Tax Year 2019
0 - $9,700	10%
$9,701 - $39,475	12%
$39,476 - $84,200	22%
$84,201 - $160,725	24%
$160,726 - $204,100	32%
$204,101 - $510,300	35%
Over $510,301	37%

2. Tax Credits Vs Deductions What is the difference between tax credits and tax deductions?

What are some examples of each?

3. Banking Describe the difference between a for-profit bank and a credit union. How might a credit union help individuals establish credit? (Please use online sources and cite your references by including a link)

4. Time Value of Money This problem walks you through an easy time value of money problem. Please make sure you understand this concept and how to use this online calculator. We will use this several more times throughout the course and build off of this idea. If you need any clarification, please don’t hesitate to reach out and we can work a problem together, but absolutely make sure you understand this before moving on so you can be successful in the course.

Question: You’re saving up for a road trip across America 4 years from now. You estimate the total cost of your trip will be $4,000. Your credit union provides 3% interest on your savings account. How much money will you need to save each year in order to meet your savings goal? Use this online calculator: http://www.zenwealth.com/businessfinanceonline/TVM/TVMCalculator.html

And input the following:

PV (present value) = 0 (because you have no money now)

FV (future value) = 4000 (because you want to have that amount in the future)

Rate = 3% (what your bank account pays, is given in the problem)

Periods = 4 (because your savings goal is 4 years from now)

Then solve for “Payment” to find out how much to put away in savings each year.

How much will you need to save each year in order to meet your savings goal?

If you want to save $4,000 in 4 years, why is the answer not simply $1,000 per year?