1. Lesson 3.2 Filing a Tax Return
Learning Objectives
LO 2-1 List and define basic tax terminology.
LO 2-2 Prepare tax form 1040EZ.
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2. Filing Status Filing status describes your tax-filing group.
You must choose one of the following as your filing status:
Single person (not married)
Married person filing a joint return
Married person filing a separate return
Head of household (can be married or single, as long as you provide a home for a dependent)
Qualifying widow(er)
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3. Exemptions
An exemption is an amount you may subtract from your income for each person who depends on your income to live.
Each exemption reduces your taxable income and thus your total tax.
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4. Exemptions—Who Qualifies
Yourself, unless someone else claims you on their return
Your spouse, if you are filing jointly
Your dependents
A dependent is a person who lives with you and for whom you pay more than half of the living expenses.
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5. Gross Income Gross income is all the taxable income you receive.
Earned income refers to money you earned from working.
Unearned income refers to money you received from passive activity (other than working).
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6. Forms of Income Wages, salaries, and tips Interest income
Dividend income
Unemployment compensation
Social security benefits
Alimony and child support
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7. Adjusted Gross Income
The law allows you to subtract some types of spending from gross income.
You can “adjust” your income by subtracting such things as contributions to individual retirement accounts, student loan interest, and tuition and fees.
These adjustments are subtracted from gross income to determine adjusted gross income.
Adjustments reduce income that is subject to tax.
Note that these adjustments are not available on Form 1040EZ. Only on longer forms, 1040A or 1040
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8. Adjusted Gross Income Gross income – Adjustments Adjusted gross income
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9. Try it…
If your Gross Income for the year is $45,000 and you have $2,500 worth of adjustments – what is your adjusted gross income?
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10. Taxable Income Taxable income is the income on which you will pay tax.
Your taxable income determines your tax liability, which is the amount of total tax you owe on a year’s income.
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11. Taxable Income Gross income – Adjustments Adjusted gross income
(continued)
Gross income
– Adjustments
Adjusted gross income
– Deductions
– Exemptions
Taxable income
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12. Deductions Itemized deductions Standard deductions Chapter 3
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13. Itemized Deductions
Itemized deductions are expenses subtracted from adjusted gross income to determine taxable income.
Examples include:
Medical and dental expenses beyond a specified percentage of income
State and local income taxes
Property taxes
Home mortgage interest
Gifts to charity
Losses from theft or property damage
Some moving expenses
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14. Standard Deduction
If you do not have many deductions, your tax may be less if you take the standard deduction.
The standard deduction is a stated amount that you may subtract from adjusted gross income instead of itemizing your deductions.
This amount changes each year.
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15. Tax Credits
A tax credit is an amount subtracted directly from the tax owed.
It is different from a deduction.
A deduction is subtracted from adjusted gross income.
A deduction reduces your tax by reducing the amount of income on which the tax is figured.
A tax credit reduces the tax itself.
The government allows tax credits for certain education expenses, child-care expenses, and other special reasons.
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16. Try it…Taxable Income *Solve Math Minute on Page 68*
(continued)
Gross income
– Adjustments
Adjusted gross income
– Deductions
– Exemptions
Taxable income
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17. Preparing a Tax Return Who must file? – Anyone who received income
Which form to use? – depends on amount of income and dependents
Where to begin? – save, save, save (receipts, W-2 forms, etc.)
Filing electronically: Tax preparation software
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18. Form 1040EZ – Turn to page 72 of your textbook
Step 1: Enter name, address, and Social Security number
Step 2: Report income
Step 3: Compute tax
Step 4: Calculate refund or amount owed
Step 5: Sign the return
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