2“Only two things in life are certain: death and taxes.” Tax – money collected by a government from its citizens for the purpose of operating the government.Sales tax – pay when you make a store purchase (state or city tax, not federal)Real estate tax – varies from city to cityPayroll taxes – withheld from paycheck (Federal, state, & FICA social security taxes)
3THE IRSInternal Revenue Service (IRS) – government body that enforces the federal tax system lawsBranch of the USTreasuryMost people file1040 or 1040EZ taxform (see txbk pg178)
4Paying Taxes Taxes are always due by April 15th! Tax return – compares income taxes owed to income taxes already paid (deducted) to see if you owe more or if you get a tax refundThere are many tax laws that can lower taxes, ask an expert or research to see if you qualify for any!
6Items you need for filing taxes: Gross income fromJobs (W2 Forms)Interest/capital gains earned from savings accounts or investmentsscholarshipsTotal charitable contributions and deductionsFiling status (single, married filing joint or separately, head of household, dependents)
8Do you get a tax refund?Scenario: According to your W-2 statement, your wages were $11,357 for the previous year. The amount deducted from your earnings for federal income tax was $1,248. In addition to your wages you earned $488 interest from your savings account. You are filling as a single person and you are claimed as a dependent on your parent's tax form. Classwork: Fill out the 1040EZ tax form to see if owe money or get a tax refund.
9Understanding Payroll Taxes Federal Insurance Contributions Act (FICA) – Medicare and Social Security taxesFunds healthcare and support to elderly and disabled AmericansSocial security is 6.2% of salary to a specific income level (determined by inflation)Medicare covers 65 and older or disabled (no cap)Personal income taxes – federal and state income taxes
10Gross, Total, and Adjusted Income Gross income – total income from ANY sourceCapital gains – money made when you sell an asset for more than you paid for itAdjusted Gross Income (AGI) =total income - allowances
11Deductions and Exemption Standard deduction – fixed amount all people are allowed to deduct from AGI to reduce taxesVaries depending on filing status and ageItemized deduction - specific expenses that, under tax law, can be deductedExamples include interest paid on home mortgage, real estate taxes, charitable donations, some large medical expensescheck taxes under standard deduction AND itemization to see which works best for you!
12Do you understand?1. What are the important facts needed for filling out the tax form? 2. What does it mean to be claimed as a dependent? 3. What is the difference between adjusted gross income and gross taxable income?
13ClassworkHeading: Ch 6 test prep pg 191 #1-13We will go over answers before the end of class.First grade of the quarter!Not textbooks needed tomorrow!