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Chapter 5 TAXES.

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Presentation on theme: "Chapter 5 TAXES."— Presentation transcript:

1 Chapter 5 TAXES

2 Government Spending

3 Power To Influence Government use tax to do 2 things Generate Revenue
Influence consumer buying decisions Example: “Sin Tax” The government taxes certain products to discourage their use because they are harmful to our bodies even though they are legal Millions of Americans buy and use these products anyway The government taxes these products higher because it is a choice to use them- not everyone uses them.

4 Government Spending The federal government spends $2.65 trillion each year Roughly $15,000 for every person who lives in the United States Most of the government’s spending pays for goods and services that benefit all Americans. Public Goods: Roads, schools, national defense, and services of various regulatory agencies.

5 Taxes Fund Public Goods and Services
Social Security, Medicare, and Retirement 36% National Defense 23% Foods Stamps and Unemployment (Social Programs) 19% Taxes are required payments of money to various levels of government. Taxes provide revenue for public goods and services that benefit the community and the nation as a whole. Taxes help support goods and services such as our national defense, state and local police and protection agencies, health care, public education, financial aid for the disabled and unemployed, and social services for low-income families. The amount of revenue raised by taxes determines the amount of services the government can afford to provide. State and Local Police Net Interest on Debt Public Education 2% 12% 8%

6 Goods and Services State and Local Government Provide…
Building and maintaining roads Operating police and fire protection system Maintaining a criminal justice system Building and staffing schools Building and operating state colleges and universities Supporting medical facilities Constructing and operating sewage treatment plants Operating unemployment compensation programs

7 State and Local Gov’t Regulations
Rules are written into laws enforced by state and local government Example: In order to drive, you must have a drivers license To build a house you must have a permit These create order and safety in the state and local communities

8 Sources of Government Income

9 Individuals Contributions
Social Security Wages are taxed at a rate of 6.2% Collected on gross income Medicare Wages are taxes at a rate of 1.45% The total most people pay for SS and Medicare is 7.65% of gross income

10 Employer Contribution
For each dollar you earn, your employer will pay 15.3 cents to the government for social security and Medicare taxes.

11 Principles Of Taxation
A law that states every taxpayer should be treated equally This does NOT mean all taxpayers should pay the same amount. This law states that some people should pay MORE than others.

12 Benefit Principle States that those who use a good or service provided by the government should pay for it. Example: Toll Roads Those who drive on the road pays tolls.

13 Ability To Pay Principle
Those who have larger incomes should pay a larger share of what they receive. Example: Federal Income Tax

14 Progressive Tax Regressive Tax Proportional Tax
Taxes and Income- 3 ways Progressive Tax Regressive Tax Proportional Tax

15 Progressive Tax Takes a larger share of income as income grows
Federal income tax- The more you MAKE the more you PAY

16 Regressive Tax Takes a smaller portion of income as income grows
Sales tax Lauren makes $16,000/ year Sal makes $45,000/ year They both buy a car for $10,000 and have to pay 8% ($800) in sales tax. $800 It is 5% of Laurens income but only 1.8% of Sal’s income

17 Proportional Tax Takes the same share of ALL incomes.
This would occur if people were ALL taxed for example 10% of their income for something. This does not exist in our economy.

18 How Taxes Are Collected
Direct Tax Paid directly to government Ex: Income and Property Tax Indirect Tax Included in cost of goods and services Part of rent is used for landlord to pay property tax Pay-As-You-Earn Taxes Paid as you earn income Federal Withholding Tax

19 Types of Taxes Income Taxes Sales Tax Property Tax Excise Tax
Estate and Gift Tax Business and License Tax

20 Types Of Taxes Income taxes Sales Taxes Withheld from paycheck
Ex. Federal, state, local taxes Illinois State - 5.0% Local taxes ~ 1-2% Sales Taxes Taxes added to price of goods and services Some states don’t have sales tax but they pay more money in property or income tax to off set what they lose in state tax.

21 Types Of Taxes Property Tax Excise Tax
Taxes on the value of real property Added to home or loan payments Excise Tax Collected on the sale of specific goods and services such as tobacco, gasoline, and alcoholic beverages Unlike sales tax, excise tax is included in the price charged to customers. Ex, when you pay for gas- the price includes both federal and state excise tax.

22 Types Of Taxes Estate Tax Gift Tax
Property tax given to someone legally entitled to an estate when a person dies. Gift Tax Taxes the giver of gifts may pay Federal law allows people to make some gifts that are not taxes Maximum value of gifts that were not taxed was $12,000 in 2008.

23 Types Of Taxes Business or license tax
Paid to receive licensing or a permit to operate a type of business Ex. To be a teacher you have to take certification test which you pay for.

24 Customs Duties and Tariffs
Customs Duties or Tariffs Controls the flow of products imported into the united states This results in items from abroad being sold at higher prices than they otherwise would be.

25 Payroll Taxes A tax placed on income earned by individuals
Largest form of revenue received by government Paid to the government by individual employees and their employers. The money from these taxes fund Medicare and Social Security Amount taken out of each check varies based on a person’s annual earnings

26 Income Taxes Taxes you pay on most types of income you receive
The amount paid by each individual varies based on their income The money from these taxes go into a general fund

27 Pay Stub Social Security Largest Deduction
FICA (federal insurancecontribution Act) includes social security and medicare (sometimes) Largest Deduction

28 FICA Federal Insurance Contribution Act
A law that requires workers and their employers to contribute to Social Security and Medicare Social Security is a program that helps provide benefits to those who have retired Medicare provides health insurance for seniors over the age of 65 as well as certain people with disabilities

29 Withholdings Money that is withheld from your paycheck
Enables government to collect taxes at a steady rate (each pay period) instead of at the end of the year You pay little tax with each paycheck, so you don’t face a huge tax bill at the end of the year

30 Gross Income/Gross Pay
Amount earned before taxes have been withheld

31 Net Income/ Net Pay Amount you receive after withholdings are subtracted from your gross pay

32 Gross Income vs. Net Income
State taxes/withholdings 401K / Retirement account Medical/Dental insurance Social Security Medicare Net Income

33 Paystub Activity Pay Stub Activity Work on Paystub Activity 1 as class
Complete Paystub 2 individually

34 Forms, Forms, FORMS! W-4 W-2 1099 1040EZ
Determines how much to withhold from your paycheck. Given by your employer. Summary of how much money you made at a particular company and how much tax was taken out of your paycheck. Form you receive at the end of the year that shows if you made money (interest) on an savings accounts. Also can be given if you were paid money (over $600) but not taxed. Tax form filled out at the end of the year to determine if you get a refund or owe money.

35 W-4 Form The form that is filled out when you are first hired at a company Provides information your employer needs to determine how much to withhold from your paycheck

36 Allowances A number that reduces the amount of income withheld from your paycheck Claiming a lower number on your W-4 form will result in MORE money being withheld from your paycheck may mean you will get back more money at the end of the year. The lowest number you can claim is 0 Highest you can go up to is 9 you need to show proof to the IRS for this

37 IRS Federal agency that collects income taxes
Agency in the department of treasury Headquarters: Washington D.C. Each year the IRS calls thousands of taxpayers for an audit Examination of their tax return

38 Tax Return Set of forms a taxpayer uses to calculate their obligations (what they owe/don’t owe) This is the only way you can get money back. (Usually during Feb-April) You are responsible for information on tax return, if it is incorrect you are liable!

39 Tax Refund If your tax return shows you paid more money in withholdings than you owed, you will receive a refund

40 Taxes Owed If your tax return shows that your withholdings were not enough to cover the taxes you owe, you must pay the remaining amount to the government.

41 W-2 Form Summary of your earnings and withholdings for the year.
You will receive a W-2 for each job you held during the year. When you file a tax return, you must include your W-2!

42 W-2 Form Wages/Tips Fed. Income Tax Employer Employee

43 1099 Form If you have a savings account or any other investments where you earn money- you will receive a 1099 Form at the end of the year. Statement of the interest your bank paid on your savings that year

44 Tax Return Forms Forms to file your individual federal taxes 1040

45 1040EZ Simplest Tax Return Form To qualify the following must be true:
You are single or married filing jointly with spouse You have no dependents You and your spouse are under 65 yrs Neither you nor your spouse is blind Your taxable income is less than $100,000 You have earned no more than $1,500 in interest You have no other income besides wages, tips, scholarships, or unemployment

46 Dependent Dependent Independent People who are supported financially
Someone who is not supported by anyone else financially

47 Deductions Expenses the law allows you to subtract from your adjusted gross income to determine you taxable income 4 kinds of deductions: Business Deductions Traveling, meals, gifts, use of car, health insurance, use of home, education, employee pay, etc. Adjustments IRS or Alimony payments Itemized/ Standard Exemptions You, your spouse, children

48 Examples Of Itemized Deductions
Medical/dental expenses State and local taxes Property tax Mortgage interest Gifts to charity Losses from theft or property damage Moving expenses Investment expenses You cannot use the 1040EZ form if you are choosing to itemize your deductions!

49 Standard Deduction Specific dollar amount that you are allowed to subtract from your taxable income

50 Standard Vs. Itemized Deduction
Set dollar amount- $9,500 (2012) Itemized Allows you to list expenses If your expenses add up to MORE than what the standard deduction would be, then you should choose to Itemize your deductions You have to choose one OR the other YOU CANNOT DO BOTH!

51 Social Security Number
Unique number assigned to you by the federal government No one else has the same number The government uses this number throughout your life to: Identify you as a taxpayer Keep track of your earnings and tax records Pay you social security benefit when you reach retirement Social Security

52 Taxable Income Income figure used to determine your taxes

53 How to fill out a 1040EZ!

54 Things you will need…. 1040 EZ Form W-2 Form 1099 Form Tax Table
This is REQUIRED in order to fill out your 1040EZ 1099 Form If you have one! Tax Table

55 1040 EZ Scenario Jonathan Jackson
What items do you need to complete his 1040EZ? Determine whether he is an independent or a dependent Complete the 1040EZ and determine if he is going to receive a refund!

56 Step # 1: Fill In Your Basic Info!
Name (first and last) Address Social Security Number

57 Step #1-4 1. Fill in Total Wages, Salaries, Tips
2. Fill in Taxable Interest Income From 1099 form (interest from bank account) 3. Fill in Unemployment Compensations Add them all up and you will get… -Adjusted Gross Income

58 Step # 5 If you are an independent and single you will put $9,500 on line 5 If you are an independent, you will flip your sheet over to the back and fill in worksheet 5!

59 Step # 6 Subtract like 5 FROM line 4 This is your taxable Income!

60 Step # 7 -Federal Income Tax Withheld
This will be found on your W-2

61 Step #8 Earned Income Credit
Workers with low incomes will qualify **We will not be spending time on this… Leave it blank!

62 Step # 9- Total Payments & Credit
Add up the following: Federal Income Tax Withheld (#7) Earned Income Credit (#8) This will result in the total amount of your taxes that you have ALREADY PAID!

63 Step # 10- Tax Table
Use the tax table to determine how much tax you can subtract from your total payments and credits

64 Step # 10 Continued…

65 Step # 11– Refund? If line 9 is larger than line 10, subtract line 10 from line 9. This is the refund! $648.00!!

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