8.3 Paying Income Taxes

1
8.3 Paying Income Taxes

• 2 income tax responsibilities
• Complete a w-4 when you start a job.
• File a tax return at least once a year and pay
  any additional tax owed.

2
Allowances USE W-4(w-4 before you start work.)

• Purpose Determines how much tax to take out of
  your paycheck.
• Completed at hire.
• Higher allowances- Less taxes taken out of
  paycheck.

3
When can you change of allowances on w-4?

• Anytime
• Ex when you have a baby or get married.

4
Dependent

• Anyone supported by tax payers income.
• Why should you have fewer taxes taken out if you
  have more dependents?

5
Three Sets Of Twins Born In Different Years Over
New Year's Weekend
6
Would you like no federal taxes taken out of your
check?

• The Standard Deduction for individual is 6100
  for 2013.
• If you expect to earn less than that amount and
  did not have any tax liability in 2012, you can
  write EXEMPT on line 7 on your W-4.
• No FEDERAL taxes will be taken our of your check.
  You will not have to file a 1040EZ tax return.
  State taxes and FICA will still be deducted from
  you check.

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WHICH IS BETTER?

• Big refund?
• Bigger paychecks throughout the year?

8
Average tax refund 3000.

• "All a tax refund is, is the government saying to
  you, 'You've overpaid and here's your change,' "
  explains Charles Enis, an accounting professor at
  Penn State University.
• Uncle Sam is getting an interest-free loan from
  you.

9
What do you need to file the 1040EZ tax return?

• W-2 and form 1099 if you have savings account
  or other taxable income.
• ie prize winnings.

10
When to you get w-2?

• Has to be mailed to you by JAN. 31st.
• What is it?
• See example on back of W-4 worksheet.
• Shows how much you made from job, how much was
  taken out in deductions.
• Should match your last pay stub of the year
• How many will you get?

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Tax Deductions

• What do they do?

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Tax Deduction

• Something that reduces the amount of taxes paid.
• 2 types of deductions- Choose one or the other

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Itemized vs. Standard Tax Deduction

• Which One Should You Take?

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2013 Standard Tax Deduction

• standard tax deduction is easiest.
• its simply a fixed number set each year just
  have to write it down on your tax form .
• Nearly 2 out of 3 taxpayers take the standard
  deduction
• Get to use the short tax form,
• 1040EZ.

• Single   6,100
• Married, Filing Jointly    12,200
• Married, Filing Separately   6,100
• Head of Household  8,950
• Blind or over 65 and married add   1,200
• Blind or over 65 and single/head of household
  add     1,500

15
2013 Itemized Tax Deductions

• But if you think you may have tax deductions
  bigger than the standard deduction
• it may make sense to itemize, even though it
  will require better record keeping and a little
  more work
• Can not use 1040EZ tax form if itemizing
  deductions.

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Itemized Tax deductions

• Examples include
• Mortgage interest.
• Charitable contributions.
• Property taxes.
• State and local income taxes.
• Medical expenses that exceed 7.5 of your
  adjusted gross income.
• Various miscellaneous expenses that exceed 2 of
  your income such as union dues, tools and
  supplies needed for work, tax preparation fees,
  some legal fees, and many more.

17
Single person

• For 2013 You could take Standard Deduction of
  6,100
• Or show receipts for Itemized deductions greater
  than 6,100.
• Must use one or the other, not both.

18
Missed deductions can be the most costly.

• About 48 million of us itemize on our 1040s --
  claiming more than 1 trillion worth of
  deductions.
• 1,000,000,000,000
• Another 92 million taxpayers claim about 700
  billion worth using standard deductions
• 700,000,000,000
• http//www.kiplinger.com/features/archives/the-mos
  toverlooked-tax-deductions.htmlixzz1XEFxeqJH

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Tax Credits bonuses

• Examples
• 500 tuition credit
• 10 of cost of some Energy Star Appliances.
• American Opportunity Tax Credit
• up to 2,500 on the first 4,000 of qualifying
  educational expenses, which include course
  materials as well as tuition.
• First time homebuyers tax credit
• Up to 8000 credit extended to 2010 taxes.

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EX how tax credit works

• Owe 345 in taxes.
• tax credit 500
• ________________________
• Now get a 155 refund instead of paying.

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American Opportunity Tax Credit

• up to 2,500 on the first 4,000 of qualifying
  educational expenses, which include course
  materials as well as tuition.
• Will be good for 2013-2017 years (10,000 total)
  
• Families who earn too much cant claim the
  credit. The income phase-out for claiming the
  AOTC is 160,000 180,000 of modified adjusted
  gross income on joint tax returns (80,000
  90,000 for single tax filers and head of
  household).
• The amount of the credit is calculated as 100 of
  the first 2,000 in qualified tuition and fees
  costs paid, plus 25 of the next 2,000 paid for
  such fees.
• For lower income taxpayers who dont owe 2,500
  in tax, up to 1,000 of the credit is refundable.
  (The credit is not refundable on a dependent
  childs return).

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Why are tax credits better than tax deductions?
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2013 tax returns

• Why is it important for you parents to get their
  taxes completed quickly this year?
• FAFSA should be submitted by FEB 28th.
• Need 2013 tax info to complete the form.

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Next, we will complete a 1040EZ tax form.
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1040EZ Easy Form

• Use the 1040EZ if
• Your taxable income is below 100,000
• Your filing status is Single or Married Filing
  Jointly
• You and your spouse if married -- are under
  age 65 and not blind
• You are not claiming any dependents
• Your interest income is 1,500 or less
• Using Standardized Deduction.

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When do you get your money?

• Check the Status Online The fastest and easiest
  way to find out about your current year refund is
  to go to IRS.gov and click the Wheres My
  Refund? link at the IRS.gov home page. To check
  the status online you will need your Social
  Security number, filing status and the exact
  whole dollar amount of your refund shown on your
  return.
• Check the Status By Phone You can check the
  status of your refund by calling the IRS Refund
  Hotline at 8008291954. When you call, you will
  need to provide your Social Security number, your
  filing status and the exact whole dollar amount
  of the refund shown on your return.