1. 0 Finish W4 and I9 if not completed… Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill

2. 1 The Federal Income Tax What are taxes for? Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill

3. 2 Federal government spending 2010 Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill

4. 3 What kinds of taxes can you name? (there are many) http://whatistaxed.com/other_ta xes.htm http://whatistaxed.com/other_ta xes.htm Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill

5. 4 Most Important: the Federal Income Tax The personal income tax is the federal government’s main source of revenue. –What is “income”? Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill

6. 5 Gross (Total) Income Any money that “comes in” to a household  Earned income (job)  Interest income (savings; CDs)  Dividend income (investments) Gross and Adjusted Gross Income The IRS measures your “gross income” or “total income” before making adjustments based on need and your family situation: Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill

7. 6 Who must file?

8. 7 Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill The Income Tax Return Understanding Income Taxes You determine the amount of tax you owe when filling out your income tax returns. Some examples of these forms include:  1040  1040EZ If the income tax you paid through your employer is greater than your tax liability, you will receive a refund. income tax return a form on which a taxpayer reports how much money he or she received from working and other sources, and the exact taxes that are owed

9. 8 Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill How much will I owe? (Step 0 – Calculate your Gross Income) Add up all your income, earned and unearned. Jobs, tips, wages, investment income, interest, and gambling wins all count here.

10. 9 Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill How much will I owe? (Step 1 - figure out Adjusted Gross Income) You pay income tax on your adjusted gross income, not on your gross income. Reduce your income (with reductions, or adjustments) through such items as:  Contributions to an IRA  Student loan interest Money used towards these does not count towards your income taxes! adjusted gross income your gross income after calculating certain reductions

11. 10 Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill How much will I owe? (Step 2: Figure Out Your Taxable Income) After you have your adjusted gross income, you may further reduce your taxable income by using deductions and exemptions! What are some ways I’ve already shared that you can pay less in taxes? taxable income your adjusted gross income less any allowable tax deductions and exemptions

12. 11 Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill Tax Deduction an expense that you can subtract from your adjusted gross income to figure your taxable income Two types of deduction: –Itemized Calculated from a list of items that can be taken off your taxes –Standard A set dollar amount: no calculation required

13. 12 Tax Deductions Every taxpayer receives at least the standard deduction. If qualified for both – choose which is more Standard Deduction –Single: $6,100Single –Head of Household: $8,950Head of Household –Married Filing Joint: $12,200Married Filing Joint –Married Filing Separately: $6,100Married Filing Separately Itemized Deduction –Calculated by receipts/spending in: Medical expenses Charity donations State and local taxes Real estate taxes Mortgage spending Some work expenses Fees paid to tax preparers Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill

14. 13 Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill Exemptions A tax deduction (from your adjusted gross income) for your dependents  A dependent must not earn more than a set amount unless he or she is under age 19 or is a full- time student under age 24.  He or she must be a specified relative or live in the home of the taxpayer who claims him or her on the tax return.  More than half of a dependent’s support must be provided by the taxpayer who claims him or her on the tax return. exemption a deduction from adjusted gross income for the taxpayer, the spouse, and qualified dependents

15. 14 Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill How Much Do I Owe? (Part 3: Calculating Your Tax) Once you know your taxable income, you can calculate how much income tax you owe by using a:  Tax Table  Tax Rate Schedule Your income tax may be reduced by a tax credit. A tax credit:  Is an expense that you can subtract from your adjusted gross income  Results in a dollar-for-dollar reduction in the amount of taxes you owe tax credit an amount of money that can be subtracted directly from taxes you owe

16. 15 Review: How Much Do I Owe? How do I figure out how much I owe? Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill

17. 16 How Much Do I Owe? Find Gross Income Find Adjusted Gross Income (take out reductions) Find Taxable Income (take out deductions and excemptions) Look at a table (and take out “tax credits”) Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill

18. 17 Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill

19. 18 Break for the “Income Tax Worksheet” Personal Finance Unit 4 Chapter 12 © 2007 Glencoe/McGraw-Hill