Chapter 6: Paying Taxes

“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 city Payroll taxes – withheld from paycheck (Federal, state, & FICA social security taxes)

THE IRS Internal Revenue Service (IRS) – government body that enforces the federal tax system laws Branch of the US Treasury Most people file 1040 or 1040EZ tax form (see txbk pg178)

Paying 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 refund There are many tax laws that can lower taxes, ask an expert or research to see if you qualify for any!

Filling Out a Tax Form Tax instructions http://www.irs.gov/pub/irs-pdf/i1040ez.pdf

Items you need for filing taxes: Gross income from Jobs (W2 Forms) Interest/capital gains earned from savings accounts or investments scholarships Total charitable contributions and deductions Filing status (single, married filing joint or separately, head of household, dependents)

Sample W2 Form

Do 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.

Understanding Payroll Taxes Federal Insurance Contributions Act (FICA) – Medicare and Social Security taxes Funds healthcare and support to elderly and disabled Americans Social 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

Gross, Total, and Adjusted Income Gross income – total income from ANY source Capital gains – money made when you sell an asset for more than you paid for it Adjusted Gross Income (AGI) = total income - allowances

Deductions and Exemption Standard deduction – fixed amount all people are allowed to deduct from AGI to reduce taxes Varies depending on filing status and age Itemized deduction - specific expenses that, under tax law, can be deducted Examples include interest paid on home mortgage, real estate taxes, charitable donations, some large medical expenses check taxes under standard deduction AND itemization to see which works best for you!

Do 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?

Classwork Heading: Ch 6 test prep pg 191 #1-13 We will go over answers before the end of class. First grade of the quarter! Not textbooks needed tomorrow!