Discuss the purpose of taxes and different types of taxes in the United States. Describe components of the U.S. tax system. Define Tax vocabulary Identify & explain forms needed to complete tax forms Complete tax form 1040ez © South-Western Educational Publishing HOW DOES OUR TAX SYSTEM IMPACT THE FINANCIAL DECISIONS YOU MAKE?

 Taxes give the federal government money to provide all citizens with public goods & services they could not provide individually or locally.  National defense  National Weather Service  Parks and recreation  Interstate highways  Taxes collected on the state and local level provide benefits to those populations:  Education  State welfare  Streets and roads  Police, fire and health departments WHY PAY TAXES?

 Progressive taxes-takes the larger share of income as income grows. (income tax)  Regressive taxes-taxes that take a smaller amount of total income as income grows. (sales tax, fees-hunting or car registration)  Proportional taxes-taxes for which the rate stays the same regardless of income. (property tax) TYPES OF TAXES

 The IRS-agency of the Department of Revenue  What does IRS stand for?  Internal Revenue Service  Who has the power to tax?  Congress  Paying your fair share  Regressive Tax Structure  Tax evasion (What is it?)  Avoiding paying taxes(fraudulently reduce taxable income or do not pay at all) COMPONENTS OF THE TAX SYSTEM Wesley Snipes Richard Hatch

IRS protects tax revenue through:  Auditing-an examination of tax returns by IRS with individuals  Confirm supporting documentation (income/deductions) held by tax payer against tax return  Correspondence audit-auditor sends letter to respond to specific questions or produce evidence  Field audit-auditor visits taxpayer HOW DOES THE GOVERNMENT KNOW WHO HAS NOT PAID?

 Completed by an employee at beginning of every year  Tells the employer the correct amount of tax to withhold from an employee's paycheck based on number of exemptions.  Exemptions - amount you may subtract from your income for each person who depends on your income to live  Personal exemption- automatic if claiming self and no one else can claim you as a dependent.  Dependent exemption-a person who lives with you and receives more than half his living expenses from you.  W-4 Form W-4 Form W-4 FORM MORE LESS

Your filing status is used to determine your filing requirements, standard deduction, eligibility for certain credits and deductions, and your correct tax. Determine your filing status from 5 options  Single person-not married  Married person filing a joint return-  Married person filing a separate return  “Head of household” only 1 person earns income  Qualifying widow(er) with a dependent child PREPARING A TAX RETURN

 All Wages, salaries, and tips from jobs within that year on each individual W-2 form  Interest income-earned from bank accounts & bonds as stated on Form 1099-INT.  Dividend income-income earned from stocks as stated on Form 1099-DIV  Unemployment compensation-income earned after loss of job through unemployment insurance as stated on Form 1099-G  Social security benefits-payments made to retired individuals as stated on SSA-1099  Alimony-money paid to former spouse  All forms must be sent to individual from appropriate institution by January 31 of the following year TYPES OF TAXABLE INCOME

 Sent by employer at the end of the year.  Summarizes:  annual wages  amount of taxes withheld  401k payments  Will receive one from each employer worked for in calendar year W-2 FORM

ADJUSTED GROSS INCOME Gross income –Adjustments (retirement accounts) Adjusted gross income Some spending is allowed to be subtracted from income to reduce your taxable income

TAXABLE INCOME Gross income –Adjustments Adjusted gross income –Deductions –Exemptions Taxable income Deductions- expenses the law allows you to subtract from your AGI. Itemize-list of allowable expenses on your tax return. Property tax Home mortgage interest Gifts to charity Job expenses Medical payments Standard deduction Stated amount that you may be able to subtract from your AGI. $9350 (S) or $18,700(D)

 amount subtracted directly from the tax owed  College tuition  Childcare expenses  Energy efficient appliance purchase  st time homebuyers TAX CREDITS

 Who must file? If you earned income and had taxes withheld during that year  Tax Assistant-IRS Tax Assistant-IRS  When to file? By April 15  What forms do I need?  By January 31  All W-2’s received  1099-DIV, 1099-INT if applicable  1040ez  Where to begin? Prior year  Save all deductible receipts (medical payments, work expenses, tuition receipts, etc)  Begin to organize by end of January PREPARING TO FILE

 Professional Tax Preparer  Free preparation for 1040ez by end of February  IRS  Wal-Mart  H & R Block  Tax preparation software PREPARING YOUR INCOME TAX RETURN