© South-Western Educational Publishing Chapter 7 Federal Income Tax  Our Tax System  Filing Tax Returns

GOALS © South-Western Educational Publishing Lesson 7.1 Our Tax System  Discuss the purpose of taxes and different types of taxes in the United States.  Describe components of the U.S. tax system.

© South-Western Educational Publishing Types of Taxes  Progressive taxes  Regressive taxes  Proportional taxes

© South-Western Educational Publishing Components of the Tax System  The IRS  The power to tax  Paying your fair share  Tax brackets  Tax evasion

IRS Audit An IRS audit is an examination of your taxis. Tax payers being audited have 3 choices. 1. represent themselves. 2. Have a lawyer, CPA, member of family or enrolled agent represent them 3. represent themselves and bring any of the 4 with them.  Correspondence audit  Sends letter asking questions and the tax payers sits down with the auditor.  Field audit  IRS agent/auditor visits the tax payer.

© South-Western Educational Publishing Filing Status  Single person  Married person filing a joint return  Married person filing a separate return  “Head of household”  Qualifying widow(er) with a dependent child

© South-Western Educational Publishing Exemptions  Personal exemption  Dependent exemption

© South-Western Educational Publishing Gross Income  Wages, salaries, and tips  Interest income  Dividend income  Unemployment compensation  Social security benefits  Child support  Alimony

© South-Western Educational Publishing Adjusted Gross Income Gross income –Adjustments Adjusted gross income

© South-Western Educational Publishing Taxable Income Gross income –Adjustments Adjusted gross income –Deductions –Exemptions Taxable income

Deductions  Itemized  Must use schedule A and form 1040 to itemize deductions. Ex. Medical, dental, home mortgage, gifts to charity, moving expenses etc.  Standard deduction  The stated amount that you may subtract from adjusted gross income instead of itemizing your deductions.

Tax Credits Tax credit is an amount subtracted directly form the tax owed. It is different than a deduction.  For college tuition  For childcare to enable parents to work  For lower-income wage earners

Preparing to File  Who must file? If you earned more than a certain amount. In 2014 for example, if you are under age 65 and single, you must file a tax return if you earn $10,150 or more  When to file? April 15 th (weekend next day)  Which form to use? Over 400 use  Where to begin? Gather documentation.  Filing electronically or by paper  Read page 152 which form to use.

© South-Western Educational Publishing Preparing Your Income Tax Return  Tax preparation software  Form 1040EZ  Form 1040A  Read page 152 which form to use.

© South-Western Educational Publishing Form 1040EZ  Step 1: Name, address, and social security number  Step 2: Report income  Step 3: Compute tax  Step 4: Refund or amount owed  Step 5: Sign the return

© South-Western Educational Publishing Form 1040A  Step 1: Name and address  Step 2: Filing status  Step 3: Exemptions  Step 4: Total income  Step 5: Adjusted gross income

© South-Western Educational Publishing Form 1040A (continued)  Step 6: Taxable income  Step 7: Tax, credits, and payments  Step 8: Refund or amount owed  Step 9: Signature