money management - weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · paying your fair...
TRANSCRIPT
![Page 1: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/1.jpg)
Money Management
Federal Income Tax Chapter Seven
Notes
![Page 2: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/2.jpg)
Our Tax System
o Taxes are collected from the citizens and businesses.
o The money collected is called revenue and is redistributed according to the needs and priorities set by Congress.
o The largest source of government revenue is income taxes, followed by Social Security and Medicare taxes.
![Page 3: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/3.jpg)
What is a Progressive Tax?
o A commonly accepted criterion of tax fairness is that individuals with different amounts of wealth or income should pay different amounts of taxes.
o This theory is called the ability-to-pay principle.
o Progressive Taxes are those that increase in proportion to income.
o Under this system, the people with higher incomes not only pay more taxes but they pay them at a higher rate.
![Page 4: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/4.jpg)
What is a Regressive Tax?
o Regressive taxes are those that decrease in proportion to income. With a regressive tax, the person with the higher income pays a lower % of their income than those with a lower income.
o Sales Tax is a perfect example of a regressive tax. Those who can least afford to pay the tax (the poor) are assessed the greatest amount in proportion to their income.
o Sales taxes are often called “pay as you go taxes” because they are levied against your purchases.
o Another example of a regressive tax is an excise tax. These are taxes on specific goods like cigarettes or alcoholic beverages.
o Usually, lawmakers are criticized for these types of taxes saying they unfairly target the people who can afford it the least.
![Page 5: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/5.jpg)
Proportional Taxes
o Proportional taxes are those that stay constant even though the amount being taxed increases.
o For example, property taxes are proportional .... All people owning property in a the same community pay the same tax rate for every $100 of assessed value.
o Each year the property is assessed and the owner must pay the local tax assessor whatever is owed.
o On a local level, these taxes often help pay for community services such as education, police and fire departments, and parks.
![Page 6: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/6.jpg)
Components of the Tax System
o Our tax system is complex. Both businesses and individuals pay income taxes and must file income tax returns each year.
o The basic components that allow the tax system to operate efficiently are:
p The IRS p The country’s power to tax income p And each taxpayer’s willingness to pay his or her
fair share.
![Page 7: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/7.jpg)
The IRS o The Internal Revenue Service is an
administrative agency of the Department of the Treasury.
o The main function of the IRS is to collect income taxes and enforce tax laws.
o In local IRS offices, employees assist taxpayers in finding information and forms. They also print brochures and pamphlets to help taxpayers in preparing their returns.
![Page 8: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/8.jpg)
IRS In the Community
![Page 9: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/9.jpg)
The Power to Tax
o The power to levy tax rests with the Congress of the United States.
p Must originate in the House of Representatives.
p Must make it through votes in both the House and the Senate.
p Must then be signed into law by the president
![Page 10: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/10.jpg)
Paying your Fair Share
o Our income tax is at a graduated rate, the more income you receive the more you pay.
o Congress tries to balance its budget. p If more money is spent than what is received there is a
deficit. p If more comes in than is spent there is a surplus.
o Currently the government is operating at large deficits. Tax cuts were put in place, decreasing revenue. However, spending has not decreased at the same rate.
o Obviously, this is not a great example of money management! J
![Page 11: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/11.jpg)
The Brand Spanking New 1040EZ form!
![Page 12: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/12.jpg)
Filing a Tax Return o Definition of Terms
ü Filing Status – are you single, married filing as an individual, married couple filing jointly etc...?
ü Exemptions – do you have dependents to claim on your return? § You are entitled to claim yourself unless your parents still claim
you. § In order to be claimed as a dependent a person needs to meet
FIVE requirements: § Must be a relative (list of what qualifies is at the IRS website). § Must be a citizen or resident of the U.S., Canada or Mexico, or an
adopted child who has lived with you all year. § Must provide over half the persons support during the year. § The person’s income must be less than the amount of his or her
exemption ($3,100 last year). This test doesn’t qualify for kids under 19 or kids who are college students (until 24).
§ If the person is married they can’t file a joint return with their spouse.
![Page 13: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/13.jpg)
Filing a Tax Return (Continued)
§ Gross Income -- all the taxable interest you receive, including wages, tips, salaries, interest, alimony, worker’s compensation, and unemployment benefits.
§ Wages and Tips – Will be shown on your W2 form that is mailed to you by your employer.
§ Some adjustments are allowed to be subtracted from your gross income, like contributions to an IRA or a 401(k) retirement plan. Adjusted Gross Income is what is left after these adjustments are subtracted from gross income.
![Page 14: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/14.jpg)
Legal Way to Lower your Tax Liability? J
![Page 15: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/15.jpg)
Deductions
o Deductions are expenses that the law allows the taxpayer to subtract from adjusted gross income. n All taxpayers are allowed to list certain expenses, which are
called itemized deductions. Things that might be deducted: p some medical and dental expenses p state and local property taxes p home mortgage interest p gifts to charity p qualifying job expenses .. To name a few.
n If you don’t have enough of these types of deductions you can just chose the standard deduction.
![Page 16: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/16.jpg)
Standard Deductions
o Single -- $4,850 o Married filing jointly or a qualifying widow(er) --
$9,700 o Married filing separately -- $4,850 o Head of household -- $7,150 o If you're claimed as a dependent on someone
else's return -- $250 + earned income of at least $800 but not more than the standard deduction of $4850.
![Page 17: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/17.jpg)
WHAT?
o That might sound confusing but it’s actually not that bad
Gross Income - Adjustments = Adjusted Gross Income - Standardized Deductions - Exemptions = Taxable Income
o Once you do this calculation, you’ve got your taxable income! Now you can see if you get a refund or not!
![Page 18: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/18.jpg)
Who should file? When to file?
o Well just about everyone! ü If you made enough to HAVE to file, then you better! ü If you didn’t make enough to be required to file ... FILE
to RECLAIM the taxes that were taken out! If you don’t file you won’t get your refund!
o You must file no later than April 15th of the year after you earned the income!
o If April 15th falls on a holiday or a weekend they give you until the next regular workday!
![Page 19: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/19.jpg)
Is there an easy form?
![Page 20: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/20.jpg)
Which form to use?
o There are over 400 different IRS forms and schedules! WOW!
o However, most people use one of three simple forms: n Easiest – the 1040EZ –single, under 65, no more than one
personal exemption for yourself, not itemizing deductions, made less than $50,000. (About 17% use this form)
n Next easiest – 1040A – single or married, can claim all the exemptions you are entitled to, not itemizing deductions, made less than $50,000. (About 19% use this form)
n Next easiest – 1040 – single or married, all exemptions that you are entitled to, no limit to amount of money, want to itemize your deductions. (about 64% use this form)
![Page 21: Money Management - Weeblymsgordona2.weebly.com/.../chapter_seven_slideshow.pdf · Paying your Fair Share o Our income tax is at a graduated rate, the more income you receive the more](https://reader036.vdocument.in/reader036/viewer/2022070719/5edf9213ad6a402d666ae7ec/html5/thumbnails/21.jpg)
Where to Begin?
o Save all your important documents and receipts during the year. Throw them in a “Tax Folder”.
o By January 31st you should receive your W2’s and any other forms needed to prepare your returns.
o PREPARE EARLY! Might as well get that refund right away! J
o Easiest way to complete the 1040EZ is by using tax preparation software and e-filing! Some still prefer to fill out the form themselves and mail it in! We’ll learn how to do it both ways in class tomorrow!