Title: TAXES
1TAXES
2Topics
- Purpose of taxes
- Different types of taxes
- What taxes you can expect to pay
- How to calculate the amount of federal income tax
you owe - Complete a 1040EZ
3What is the purpose of taxes
- Support schools
- Support building
- Maintain roads
- Provide for the nations defense
4Tax
- Required contribution of money
- Ultimately paid to the government
- Raise revenue to pay the cost of government
5Direct Tax
- Paid directly to the government
- Examples income tax and property tax
6Indirect Tax
- Shifts the tax burden
- Example buy gasoline, cigarettes then pay tax
on them
7Direct Tax Can Become An Indirect Tax
- Landlords property taxes increase (direct tax)
- Your rent increases due to it (indirect tax)
8Types of Taxes
- Income Tax
- Paid based on the money you earn and profits a
business makes - Paid to Federal, State and sometimes Local
Government - Paid on salary, wages, tips and savings and
investment income - Pay for the overall costs of governments
9Types of Taxes - Continued
- Payroll Tax
- Paid to support Soc. Security taxes
- Both you and your employer make a contribution
- Help provide you with retirement income/benefits
- Some occupations (teachers and government
workers) pay into a state retirement program
rather than Soc. Security
10Types of Taxes - Continued
- Sales Tax
- State and Local Governments
- Tax is added to the cost of the items
- Sales tax in Illinois is 6.25
11Types of Taxes - Continued
- Estate, Inheritance and Gift Tax
- Estate tax assessed on the value of the
deceaseds property before it is passed on - Inheritance tax taken out of each persons
share of the will - Federal Estate Tax
- State (some) both Inheritance and estate tax
- Gifts up to a certain amount are tax free. Over
that amount a gift tax is imposed
12Income Tax
- History
- 1913 Federal Income tax imposed
- The 16th amendment gave the government the right
to tax - Wisconsin 1st state to administer an income tax
- By mid-1970s almost all states have an income
tax
13Federal Income Tax
- Who Must Pay?
- Individuals
- Corporations
- Trusts
- Estates
- Business owners (pay through their individual
income taxes) - Citizens of other countries who earn income in
the U.S.
14Federal Income Tax
- Who Doesnt Have to Pay?
- Low Income Families
- Nonprofit Organizations (churches, charities)
- Some hospitals
15Federal Income Tax
- Part of being a good citizen
- Graduated income tax
- Seen as fairest type of tax
- Those who earn more pay a higher percentage
16Graduated Income Tax
17State Income Tax
- Most have a graduated income tax
- Some use a flat rate
- Your income is 25,000 and your spouses income
is 35,000, therefore, you would pay 6 on all
income or 3,600
18Taxable Income
- Your total income
- -
- Adjustments to Income (paid alimony,
contributions to IRA) -
- Your adjusted gross income
- -
- Deductions and Exemptions
-
- Taxable Income
19Reduction of Income Tax
- Tax laws Those who meet certain requirements
can reduce the amount of income which is taxed
20Determining Your Deductions
- Mortgage Interest
- Property Taxes
- Contributions to Charities and Churches
21Tax-Free Income
- Allows a certain level of tax-free income
- Marital status
- Number of dependents
- Thus,
- Larger families generally pay less tax
- Married couples generally pay less tax
22Determining Your Exemptions
- Yourself (if not claimed by your parents)
- Any Dependents
23Taxable Income
- Your total income
- -
- Adjustments to Income (paid alimony,
contributions to IRA) -
- Your adjusted gross income
- -
- Deductions and Exemptions
-
- Taxable Income
24Taxable Income and Tax Table
- Use Taxable Income
- Determine the Amount of Tax you Owe
25Taxable Income and Tax Table
- Taxable income
- 15,235
- Tax (single)
- 1,919
26Your Turn
- Based on the table, how much tax does a married
couple filing jointly owe on an income of
15,742? - How much does a single person owe on the same
amount?
27Tax Credits May Reduce Your Figure from the Tax
Table
- Amount of tax due may reduce by any tax credits
- Child Care
28Compare
- Tax Owe to Tax Paid
- If too much withheld refund
- If too little withheld
- owe difference
29Tax Form
- Due April 15
- Sign
- Interest and Penalty if late
30Filing
- Process of completing and submitting an income
tax return - Can be simple or complex
- Not Filing Tax Evasion
31Eligibility for filing a 1040EZ
- Filing status single or married filing jointly
- No dependents
- No student loan interest deduction or an
education credit - Not age 65 or over (you or your spouse)
- Taxable Income less than 100,000
32Eligibility for filing a 1040EZ Cont.
- Only had wages, salaries, tips and taxable
scholarships, unemployment compensation,
qualified state tuition program earnings or
Alaska Permanent Fund dividends - AND your taxable interest income was not more
than 1,500. - Did not receive any Advance earned income credit
payments - Did not owe any household employment taxes on
wages you paid to a household employee
33Filing a 1040EZ
- On paper
- Telephone
- Computer
34IRS Web Site
35John Nye Class Activity
36Introduction
- In 2005, John Nye worked after school and all day
Saturday at Ruddens Ice Cream Parlor. - In late January 2006, John received a W-2 Wage
and Tax Statement from his employer. - John went to the post office and picked up a Form
1040EZ and the instructions for completing this
form. (You can also download them from the web
site).
37Introduction - Continued
- John also received a 1099-int Interest income
earned from from his local bank. He had earned
63.00 in interest income. - With this information he was able to complete his
1040EZ.
38Johns W2
39Johns 1040EZ
40Other Types of 1040s
- 1040A
- Dividend and Capital Gains from Stock
- Deductible Student Loan Interest
- 1040
- Itemize rather than taking the standard
deductions - Receive income from rental property
41Lets Do Some Calculations!
- Suppose you make 370 a week. Each year you pay
2,884 in federal income tax, 578 in state
income tax, 262 in sales tax, 88 in property
tax, 1,472 in FICA tax, and 158 for other
taxes. How much do you pay for taxes during the
year? How many weeks must you work just to pay
taxes?
42Calculation 2
- Suppose you earned an annual salary of 27,000
and your spouse earned 32,000. If there were a
flat tax on income of 5, how much income tax
would your family have to pay?
43Calculation 3
- Using the tax table, determine the amount of tax
you owe, if your wages were 15,178.00, tips were
1,132.00 and interest income was 220.00. The
amount of tax withheld from your employer was
1,596.00.
44Review Questions
- What do taxes pay for?
- Name some types of taxes
- What is it called if you have earned income and
fail to file an income tax return? - If you are married, can you use form 1040EZ to
file your federal income tax return? - What is a Graduated Income Tax?
45Review Questions - Continued
- What is a flat rate tax?
- What are deductions?
- What are exemptions?
- What date must you file your taxes by?