Presentation on theme: "Income Taxes. Taxes Definition: a charge imposed by the government to fund public services Federal taxes—fund national defense, social security, etc.."— Presentation transcript:
Taxes Definition: a charge imposed by the government to fund public services Federal taxes—fund national defense, social security, etc.. State taxes—fund education, police, etc.. People love services…hate taxes!
Government Sources of Revenue: Individual income taxes—81% Corporate taxes—10% Excise and other taxes—9%
Tax Day! The tax system is a system of voluntary compliance –The government trusts that we will pay our taxes by April 15, or via extensions What do you think voluntary compliance means? –Other examples: Draft registration Stop signs
Taxpayer Responsibilities: 1. Obtain a social security number Record of earnings for old age and survivors benefits IRS Identification 2. Pay as you go 3. File a W-4 (withholding certificate) –Exemptions—so employer knows how much to withhold –New one if change jobs 4. File Tax by April 15
Employer Responsibilities: 1. Supply proper forms 2. Report your income to the government 3. Pay share of taxes on your salaries 4. Send a W-2 by January 31 Statement of your earnings for the previous year Amount of taxes withheld
Penalties Liens—if something sold, can get money Levies—can take property outright Jail
Taxpayer Rights Privacy of information Representation during examination (Audit) Explanation of challenges/charges Appeal to IRS or courts
Different Tax Systems Progressive Tax—larger percent from high income than with a lower income Regressive tax—imposes a higher percentage rate of taxation on low incomes than on higher incomes Proportional (flat tax)— tax all people the same percentage
Discussion: What should be the criteria for choosing which tax system we use? –Fairness? –Ability to pay?
Criteria: 5 things meet the criteria: –Fairness –Efficient –Help the economy –Bring in revenue –Politically acceptable
Now…the forms W-4 –A form completed by an employee to indicate his/her tax situation (exemptions, states, etc.) to the employer. This tells the employer the correct amount of tax to withhold from an employees paycheck W-2 –The statement outlining an employees wages, along with state and federal taxes withheld 1099-Int –Sent to report how much income you have made on interest from savings accounts, dividends from stocks 1040 EZ –Most common form used; you will use this!
Types of Taxes Income— money goes to the federal government for programs Consumption (sales tax)— at state level varies from county to county…currently 8.25%, but going up! Excise (luxury tax)— cigarette, alcohol, tires, fishing equipment—places the tax on the actual consumer. –If you want it, you will pay for it. –Money used for specific things, ie. Taxes on gas build roads –Used to discourage usage (liquor, cigarettes) Property tax— tax on your property…money goes to pay for teachers/schools! Tax is 1.5% of your home’s total value every year
Important Terms to Know: Adjusted gross income—total income reduced by certain amounts, such as contributions made to a charity, donating clothes, medical bills, etc… Taxable income—the income on which tax is figured Dependents—a person who relies on someone else for support Filing status—how you are categorized, ie. Single? Married filing jointly? Married filing separately?
Important Terms, cont. Exemption—an exemption from all or certain taxes of a state or nation in which part of the taxes would normally be collected from an individual or an organization are instead forgone…ex/property used for religious purposes, educational scholarships, gifts, inheritances, employee discounts, payments for personal injuries, etc… Deduction (tax deductible expense) —represents an expense incurred by the taxpayer which one can subtract from total income…example: mileage to work, donation, business startup costs, mortgage interest, etc…