Two Things You Must Do In Life Die and pay taxes Tax system relies on voluntary compliance IRS (Internal Revenue Service)
Withholding Employers must withhold taxes April 15 th W4 form filled in by employees Young people working part time may be exempt from withholding
Filing Your Income Tax Return Employers must report to the IRS (W2) You as the wage earner file any of these tax forms –1040EZ (less than ½ hour to prepare) –1040A (use if you have dependents) –1040 (<$50,000 income or you itemize)
Standard Deductions Definition: Amount of income not taxed Single person : First $4850 Married: First $9700 Head of household: First $7150 Itemize first time when you buy a house. The interest on the mortgage is deductible Remember, deductions lower taxable income.
Mathematical Examples of Filing Income Tax Returns Single person living at home Earns $5200 from part time job Not allowed to take personal deduction because he is claimed as a dependent Can take the standard deduction (can’t itemize) $5200 – $4850 = $350 Use tax table to determine tax on $350
Mathematical Examples of Filing Income Tax Returns (ex. #2) Single person living on her own Earning $25000 per year Claim standard deduction ($4850) Claim personal exemption ($3100) Taxed on $25,000 - $7950 (ex. and de.) $17,050 is her tax liability Check the table for taxes owed.
Mathematical Examples of Filing Income Tax Returns (ex. #3) Married couple with 2 children Jointly earn $48,000 Claim standard deduction for married couple filing jointly ($9,700) Claim personal deductions –($3,100 * 4 = $12,400) Total tax liability ($48,000 - $22,100 =$25,900) Use Tax form 1040 ( no itemized, income less that $50,000) Check the tax chart to determine amount owed.
Mathematical Examples of Filing Income Tax Returns (ex. #4) Married couple, 2 children Annual income of $75,000 Just purchased a home Itemized deductions is $13,280 (exceeds the standard deduction of $9700) Claim personal exemptions (4 * 3100 = $12,400) Tax liability = $49,720 (Use 1040) What is the tax due.
End of Dependency What about the first year on your own? No such thing as ½ deduction Who ever pays more of half your support may claim the personal exemption for the year.