Presentation on theme: "The “How” of Taxes Aim: How do we pay our taxes?."— Presentation transcript:
The “How” of Taxes Aim: How do we pay our taxes?
5 “W’s” of Taxes WHO- consumers, business and gov’t WHAT- get taxes collected/paid WHEN- April 15 you file for taxes, you also pay for taxes through FICA on payday OR pay sales and excise tax WHERE- paychecks, stores, markets, mail/internet WHY- to finance the public goods and other functions of gov’t
What if we’ve paid too much? Tax refund - money returned to taxpayer by gov’t who paid in excess of their amount due (yearly)
HOW is it done? Accountant: a person who files financial/tax reports and keeps/audits/inspects financial records on business or concerns Individuals can also file their own taxes through websites or online databases (TURBO TAX, H&R taxes) Tax return : filed tax form (also the money that comes back after taxes are filed)
What “individuals” are important on a tax return? Dependent: a person who is financially supported by another person (children,spouse) Head of household: filing status by a married/unmarried person who maintains a household for a dependent and provides more than 50% of dependent’s financial support
Withholding Forms Sent directly to gov’t for partial payment of taxes W-4: Prepared by employee for employer indicating his/her allowances (exemptions) and SS# W-2: tax form prepared by employer and given to employee to be filed with his/her tax forms Lists wages earned during the year Shows federal/state taxes withheld Social Security Info
Income Tax Forms 1099-INT: reports interest income on savings account, you will receive from bank 1099-DIV: reports dividends on stocks and other financial products that receive interest 1040EZ: for single/married taxpayers filing jointly, without dependents, taxable income under $50,000 and no itemized deductions 1040A: similar to EZ but has deductions (IRA contributions, student loan interest, higher education tuition and fees) 1040: taxpayer forms for those that do not qualify for EZ or As
Where does one obtain tax forms? Online! www.irs.govwww.irs.gov Through tax databases (TurboTax) Most communities locations (post office, library, senior centers, gov’t buildings) Tax forms also mailed out to people each year or handed out by employer (by January 31 st !)
Filling out your forms Deductions - expenses subtracted from adjusted gross income when calculating taxable income Exemptions - reduction of taxable income for a specific reason (IRS determined) Usually for dependents Itemized deductions- incurred expense that reduces individual’s tax income Mortgage interest, state/local taxes, charitable gifts,
When might someone claim 0 (zero) exemptions? A high school student works part-time as claimed as a dependent by parent A married man whose wife has claimed him as an exemption A person who has other income sources taxed at lower rates (or not at all)
Simulation Station: Monica Lindo http://apps.irs.gov/app/understandingTax es/index.jsp http://apps.irs.gov/app/understandingTax es/index.jsp Filing Status (SINGLE) Claimed as a dependent (YES, parents) How much did she earn ($4,821) How much tax is withheld ($47)
There are only two things certain in life: Death Taxes
Provide a way for federal, state and local gov’t to collect $ for public goods Public goods- goods/services provided by the gov’t and not restricted by person’s ability/inability to pay for them library, fire department, local parks, roads, etc
Income (what is earned) Salaries, wages, tips, commissions, interest Wealth (what is owned) Business, real estate, property, inheritance (upon a death of individual) Consumption (what one uses) Levied at the same rate for EVERYONE Clothes, CD, cars, computers, etc
Progressive- taxes where higher income individuals pay a higher percentage Individual income tax Regressive- tax that takes a larger percentage of income for lower income individuals City tax Proportional tax (flat tax)- all tax levels are paying the same rate
Social Security Many people argue today that Social Security is not being used for it’s TRUE purposes, and that’s why it’s running out!
Excise tax- federal/state tax imposed on manufacture & distribution of some consumer goods Tariffs- tax on imported goods/services Revenue sharing- a share of tax funds, provided by federal to state gov’ts OR state gov’ts to local gov’ts
The IRS- responsible for administering & enforcing revenue laws (like taxes, pension, etc) that are set by our U.S. Treasury department
Itemization- listing deductible personal expenses during the year Taxable income- amount of income subject to taxes by subtracting exemptions and deductions from adjusted gross income EX: alimony, unreimbursed business expenses, capital losses, IRA contributions Withholding- amt of employees’ income that employer sends directly to federal, state, local tax authorities as partial payment of individual’s yearly tax liability You fill out a W-4 when you start a new job for this reason!
Gross income: all income, before taxes and deductions adjusted gross income equals your gross income minus your adjustments to income. (above-the- line deductions) Example of adjustments: deductible traditional IRA contributions, alimony paid, health insurance if you're self-employed and student loan interest
How would you define fairness/unfairness of a proportional tax (ex/ 16%) on taxable income? $28,000? $44,000? $150,000? $500,000? Would you identify a tax on gasoline as “regressive”? Why/why not? Can you think of any more regressive taxes?
With a partner, create a chart that has FEDERAL, STATE and LOCAL as headers Develop charts that list gov’t jobs/careers that fall into each category (and that your taxes pay for) After, just write a sentence or two below chart to discuss what would happen in your community if the gov’t didn’t provide public goods/services