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TAXES

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How to calculate the amount of federal income tax you owe. Complete a 1040EZ ... Tax. Required contribution of money ... Estate, Inheritance and Gift Tax ... – PowerPoint PPT presentation

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Title: TAXES


1
TAXES
  • By Stevie VanDeVelde

2
Topics
  • 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

3
What is the purpose of taxes
  • Support schools
  • Support building
  • Maintain roads
  • Provide for the nations defense

4
Tax
  • Required contribution of money
  • Ultimately paid to the government
  • Raise revenue to pay the cost of government

5
Direct Tax
  • Paid directly to the government
  • Examples income tax and property tax

6
Indirect Tax
  • Shifts the tax burden
  • Example buy gasoline, cigarettes then pay tax
    on them

7
Direct Tax Can Become An Indirect Tax
  • Landlords property taxes increase (direct tax)
  • Your rent increases due to it (indirect tax)

8
Types 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

9
Types 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

10
Types 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

11
Types 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

12
Income 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

13
Federal 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.

14
Federal Income Tax
  • Who Doesnt Have to Pay?
  • Low Income Families
  • Nonprofit Organizations (churches, charities)
  • Some hospitals

15
Federal 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

16
Graduated Income Tax
17
State 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

18
Taxable Income
  • Your total income
  • -
  • Adjustments to Income (paid alimony,
    contributions to IRA)
  • Your adjusted gross income
  • -
  • Deductions and Exemptions
  • Taxable Income

19
Reduction of Income Tax
  • Tax laws Those who meet certain requirements
    can reduce the amount of income which is taxed

20
Determining Your Deductions
  • Mortgage Interest
  • Property Taxes
  • Contributions to Charities and Churches

21
Tax-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

22
Determining Your Exemptions
  • Yourself (if not claimed by your parents)
  • Any Dependents

23
Taxable Income
  • Your total income
  • -
  • Adjustments to Income (paid alimony,
    contributions to IRA)
  • Your adjusted gross income
  • -
  • Deductions and Exemptions
  • Taxable Income

24
Taxable Income and Tax Table
  • Use Taxable Income
  • Determine the Amount of Tax you Owe

25
Taxable Income and Tax Table
  • Taxable income
  • 15,235
  • Tax (single)
  • 1,919

26
Your 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?

27
Tax Credits May Reduce Your Figure from the Tax
Table
  • Amount of tax due may reduce by any tax credits
  • Child Care

28
Compare
  • Tax Owe to Tax Paid
  • If too much withheld refund
  • If too little withheld
  • owe difference

29
Tax Form
  • Due April 15
  • Sign
  • Interest and Penalty if late

30
Filing
  • Process of completing and submitting an income
    tax return
  • Can be simple or complex
  • Not Filing Tax Evasion

31
Eligibility 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

32
Eligibility 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

33
Filing a 1040EZ
  • On paper
  • Telephone
  • Computer

34
IRS Web Site
  • www.irs.gov

35
John Nye Class Activity
  • Preparing a 1040EZ

36
Introduction
  • 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).

37
Introduction - 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.

38
Johns W2
39
Johns 1040EZ
40
Other 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

41
Lets 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?

42
Calculation 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?

43
Calculation 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.

44
Review 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?

45
Review Questions - Continued
  • What is a flat rate tax?
  • What are deductions?
  • What are exemptions?
  • What date must you file your taxes by?
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