Standard 2.1.5 Mrs. Morrey Financial Literacy Riverton High School Unit 8: Taxes Standard 2.1.5 Mrs. Morrey Financial Literacy Riverton High School

Objective Understand the effects of FEDERAL and state income taxes. Learn about other taxes Americans are subject to paying. Determine the difference between GROSS income and NET income.

Progressive Tax The Federal income tax is a progressive tax, in which the tax rate increases as the taxable amount increases. This means the higher your income, the more you are paying in taxes, both as a total amount and as a percentage.

Tax Freedom Day Tax Freedom Day is the first day of the year (MAY 4th) in which a nation as a whole has theoretically earned enough income to pay its taxes. Almost FOUR months of your yearly income goes to pay various taxes—IN OTHER WORDS, 30% OF YOUR INCOME GOES TOWARDS PAYING TAXES!

2015 Federal Income Tax Brackets Tax Brackets are income ranges in which the same tax rates apply!

EXEMPTIONS Personal Exemption: An allowed reduction in your income BEFORE taxes are computed. You get one EXEMPTION for you, your spouse, and each dependent. An individual may only be used as and EXEMPTION ONCE! $4,000 (2015 Exemption)

Dependent Qualifying Relationship Must have a qualifying relationship—child, grandchild, parents, uncle, aunt, niece/nephew. Dependent can’t earn more than the exemption amount. Up to 19 years old or 24 and full-time student. Must provide more than half of the dependents financial support.

DEDUCTIONS Deductions: Expenses that reduce your taxable income. Medical Expenses & Dental Expenses Exceed 10% of your gross Mortgage Interest Paid Charitable Contributions Religious Institutions Educational Institutions Medical Institutions/Causes Humanitarian Funds Student Loan Interest A DEDUCTION WILL LOWER YOUR TAXABLE INCOME, BUT NOT DOLLAR FOR DOLLAR!

DEDUCTIONS ITEMIZING DEDUCTIONS STANDARD DEDUCTION Itemized deductions are eligible expenses that individual taxpayers can claim on federal income tax returns and which decrease their taxable income, and is claimable in place of a standard deduction. Listing all of your expenses individually! Standard deduction is a set deduction allowed by the IRS, regardless of your actual expenses. You can ITEMIZE or take the STANDARD DEDUCTION, but you CANNOT take both!

Calculating Your Taxable Income Gross Income (Total Wages) LESS Exemptions (You, Your Spouse, Your Dependents) Deductions (Itemized or Standard Deductions) EQUALS TAXABLE INCOME

Who has to file a tax return? Single: Gross income is greater than $10,300 Married: Combined gross income is greater than $20,600 IF YOUR INCOME IS LESS  you do not legally need to file your income taxes, however, if you had more taxes withheld than necessary, you will NOT receive a tax refund if you do not file!

Filing Status SINGLE You are single at then end of the year with NO dependents!

Filing Status MARRIED FILING JOINTLY You are married at the end of the year and you and your spouse combine your incomes.

Filing Status MARRIED FILING SEPARATELY You are married at the end of the year and you and your spouse file separate returns.

Filing Status HEAD OF HOUSEHOLD You are unmarried at the end of the year but you have at least one dependent living with you.

Calculating Your Income Tax After you find your taxable income, taxes owed are calculated by using the tax tables. Tax brackets are already built into the tax tables. Once taxes owed have been calculated, CREDITS can be deducted.

Tax Credits will lower your taxable income, DOLLAR for DOLLAR! Child Tax Credit Intended to off-set the cost of raising a child. $1,000 per child up to the age of 17

American Opportunity Tax Credit TAX CREDITS American Opportunity Tax Credit A tax credit for tuition, up to $2,500 of the first $4,000 of educational expenses for the first four years of post- high school education.

Child and Dependent Care Tax Credit TAX CREDITS Child and Dependent Care Tax Credit If you paid someone to care for your child, spouse, or dependent last year, you may be able to claim the Child and Dependent Care Credit on your federal income tax return.

Earned Income Tax Credit TAX CREDITS Earned Income Tax Credit A tax credit for low income families WITH children. $20,000 to $40,000 annual gross income. Living around the level of “poverty”.

Picking a Tax Form 1040EZ No dependents Taxable income less than $50,000 No itemizing—taking the Standard Deduction

Picking a Tax Form 1040 EVERYONE ELSE Itemizing Dependents No income limit

Other Mandatory Taxes Social Security (FICA) Medicare Government funded program to help subsidize the wages of the elderly and the disabled. 6.2% of gross income Medicare Government funded program to help cover insurance costs for the elderly and disabled. 1.45% of gross income

Sales Tax

Other Taxes You Pay Gas Tax 24.5 cents per gallon in Utah 42.4 cents per gallon in New York 7 cents per gallon in Georgia Alcohol Taxes $12.18 per gallon in Utah $35.22 per gallon in Washington $1.89 per gallon in West Virginia Cigarette Taxes $1.70 per pack in Utah $3.75 per pack in Rhode Island

Other Taxes You Pay Restaurant Tax Gift Taxes Estate Taxes 8.1% Gifts valuing over $14,000 are taxed at 40% Estate Taxes 40% tax rate