Keeping Records and Paying Taxes
Organizing Your Financial Records Financial records documents such as bank statements, motor vehicle titles, insurance papers, employment contracts, receipts, tax records, and bills containing the history of how someone’s money is spent
Filing Systems for Paper Documents Alphabetical Numerical Chronological
Online Safety Keep hard copy records Do not give out personal or financial information Never click on links in messages that say you need to update your financial or personal information at a particular website Regularly update your operating system, firewalls, and antivirus software Read the privacy policy of companies before clicking “I agree”
Money Management Software Can help you maintain accurate electronic records Enable you to create graphs that chart your income and spending
Paying Taxes Taxes the money that people pay to their local, state, and federal governments to fund programs and public services Federal taxes are used for Medicaid, Social Security, Education, the military, roads and public projects State taxes fund public projects, unemployment insurance, education
Local taxes often go towards police, fire, schools, parks and community services
Types of taxes Sales tax a tax that people pay when they make a purchase Property tax a tax that owners pay on their land and property Estate tax a tax collected when someone dies and passes wealth along to a family member or other heir
Income tax a tax figured as a percentage of someone’s earnings
Withholding the money that has been taken out to be taxes and other items such as health insurance and a pension plan Social Security the federal program that people pay into while they are working, that pays disability, retirement, and life insurance benefits to eligible recipients
W4, 1040, and 1040EZ W4 form tells your employer how much money to withhold from each paycheck
1040 or 1040EZ form the official government form used to report your income and your federal income tax Adjusted gross income total income minus certain adjustments and reductions such as contributions to a retirement account, interest on as student loan, and exemptions claimed
Taxpayers can claim an exemption for themselves, as well as exemptions for their spouses and their dependents – usually children Tax deductions expenses subtracted from adjusted gross income before figuring a person’s taxable income
Everyone gets a standard deduction of $6,100. If you had a lot of tax deductions that totaled more than the standard deduction, you would be better off itemizing your deductions such as mortgage loan interest and property taxes
Filing an Income Tax Return If you earn less than $10,000 and nobody can claim you as a dependent then you do not have to file a return, unless you had taxes withheld and might be eligible for a refund If you are claimed as a dependent and you make more than $6,100 you need to file a return and if you’re late, the federal government will assess additional fees, penalties, and interest
W2 Form An IRS document from an employer showing the total amount withheld from an employee’s paychecks throughout the year