Notes on Taxation, Income Tax, and Capital Gains

Definition: Ordinary income tax refers to the tax imposed on income earned from regular sources such as salaries, wages, rents, and profits from the sale of goods.
Example: After adjustments and deductions, if the total ordinary income is $19,000, this amount will be subject to the ordinary income tax rates applicable for the year.

Definition: The capital gains tax is applied to the profit made from the sale of certain assets, including stocks, land, or machinery.
Types of Capital Gains:
- Short-term capital gains: Gains on assets held for one year or less, usually taxed at ordinary income tax rates.
- Long-term capital gains: Gains on assets held for more than one year, typically benefiting from lower tax rates compared to ordinary income.
Tax Exemption: Capital gains income is not subject to self-employment tax, a separate tax imposed primarily on self-employed individuals' earnings.

Definition: This is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves.
Current Rate: The self-employment tax rate is approximately 15.3% on net earnings, which includes both portions (Social Security and Medicare).
Confusion Point: There are different rates to understand, one being the tax on net earnings and the other being self-employment tax which can make calculations complex.

Income Tax Calculation: Example of calculating the income tax:
- If an individual has $10,000 in taxable income at a 22% tax rate, the income tax = 10,000 imes 0.22 = 2,200.
2024 Tax Rates: For specifics related to 2024 tax rates, it is recommended to Google for the most current tax brackets to ensure accuracy during calculations.

Study Strategies: It is essential to start studying well before the exam, although some individuals delay studying until a few days prior.
Materials Needed: Students will likely be provided with necessary information such as the current tax brackets and rates during the exam.