Chapter 2, Sec. 2-2 Federal Income Taxes

I can… Calculate the adjusted gross income and taxable income Calculate the income tax due Calculate the income tax refund for single dependents

Gross Income Total income in a year that includes: Wages Salaries Commissions Bonuses Tips Interest earned from investments Dividends Prizes Pensions Business profit

Do I have to report that total to the government? YES! But they do allow you to make some “adjustments” to your income before you do! This is great because it results in your paying LESS IN TAXES! For example: If your business loss money If you put money towards retirement If you paid alimony (money to an ex) Gross income-adjustments=adjusted gross income

So how do I figure up my total taxable income? Next, the government allows you to subtract deductions. Deductions are a GREAT thing! They are expenses that you’ve paid that reduce the amount of your taxable income. Examples: Interest paid on mortgages Property taxes State and local income taxes Medical/dental expenses Contributions to charities

What if I don’t have any deductions? The government allows you to claim what they call a “standard deduction.” Single: $5450 Married filing jointly: $10,900 So if I made $30,000 the government would only tax me on $24,550 ($30000-5450). If your deductions are more than the standard deduction you can list yours under what’s called an “itemized deduction.”

So is there anything else I can do to reduce the amount of taxes I pay? YES! You can claim “exemptions.” An exemption is an amount of income per person that is free from tax.

So how many exemptions can I claim? You can claim 1 for yourself (unless someone else claims you…like your parents). You can claim 1 for your spouse. You can claim 1 for each dependent. So if you’re married with two kids you can claim 4 exemptions! Each exemption is worth $3500! So if you make $30,000/year you’re only taxed on $26,500! 

So my taxable income is… Adjusted gross income-deductions/exemptions P.48, example 1 P. 49, check your understanding P. 52, 11-16 (omit 15)

So when are my final income taxes due? Income taxes are due to the Internal Revenue Service by April 15th. This is based on what you earned up until December of that year.

So how do I know if I paid too little or too much in taxes each paycheck? You are required to complete a tax return to see if you withheld too little or too much (depending on how many withholding allowances you claimed). If you paid too much the government will give you a REFUND!  If you didn’t pay enough you will have to pay the government! 

So where do I look to see if I paid too little or too much? The government created tax tables for incomes less than $100,000 based on gross wages. You just look it up there and fill it in on your tax return.

To find out if I get a refund or if I have to pay… Look up your taxable income and your income tax due Subtract the total amount of money withheld from your paychecks If your income tax due is greater than what was withheld—you owe government! If your income tax due is less than what was withheld—the government owes you a refund!

So what if my parents claim me? Do I get any money back if I have a job? YES! Usually more is withheld from your paycheck than what you will owe in taxes. So—you get a refund! Two types of income: earned and unearned. Earned is from a job. Unearned is money you get from interest (like money earned off a savings account)

So how much money will I get? A single dependent who is not blind and under 65 can claim a standard deduction the higher of these 2 amounts: $850 The amount of earned income, plus $300, up to $5450 (typical standard deduction).