Taxes Objective: SWBAT evaluate the basics about taxes Do Now: Why is it important to know about taxes? How does it has to do with financial planning?

Why is it important? The more you know about taxes, the better prepared you will be to create a financial plan that reduces the amount of taxes you will owe!

Taxes and financial planning Find out how the current tax laws and regulations affect you Make an effort to maintain complete and accurate tax records Learn how to reduce tax liability Tax liability: total amount of taxes you owe

Types of taxes Taxes on Purchases Taxes on Property Sales Tax Excise Tax: special sales tax on specific goods and services (e.g. gasoline, air travel) Taxes on Property Real Estate Property Tax Personal Property Tax (e.g. cars, boats, jewelry, furniture)

Types of taxes Taxes on Wealth Estate Tax: a tax collected on the value of a person’s property at the time of his or her death Inheritance Tax: a tax collected on the property left by a person in his or her will Gift Tax: a tax collected on money or property valued at more than $14,000 (in the 2015 calendar year) given by one person to another a single year

Types of taxes Taxes on Earnings Social Security Tax: a tax collected by the government to fund the benefits of retirees and those unable to work Income Tax: a tax on wages, salaries, and self-employed earnings It is the federal government’s main source of revenue (money)

The internal revenue services (IRS) IRS is the federal agency under the Department of Treasury that collects taxes, or tax revenues and to enforce the nation’s tax laws Taxes on earnings are collected on a pay-as-you earn basis The employer withhold, or take out social security and income tax payments from your paycheck and send the money to IRS

Understanding income taxes Where does our income taxes go? Let your paycheck tell you!

Learning how to read paystub

Learning how to read paystub

Steps in calculating your income tax Determine your adjusted gross income Identify your taxable income Calculate how much you owe

Income tax terminology Income Tax Return A form on which you report how much money you received from working and other sources and the exact taxes, if any, you owe Compare the amount of tax you owe to the total income tax your employer withheld from your paychecks during the year Tax withheld > Tax liability = Refund Tax liability > Tax withheld = Paid for the difference

Income tax terminology Gross income include one, two or three components: Earned Income The money you receive for working (include wages/salaries, commissions, bonuses) Interest Income The interest you receive from banks, credit unions, and savings & loan associations Dividend Income Includes the cash dividends that you receive from investments

Income tax terminology Gross income is also affected by: Exclusion (Tax-exempt income) An amount of income that is not included in your gross income (e.g. interest earned through U.S. saving bonds) Tax-deferred Income Income that will be taxed at a later date (e.g. retirement IRA) Adjusted Gross Income Your gross income after certain reductions (e.g. student loan interest, IRA) have been made; you pay tax on this, not on gross income

Income tax terminology Taxable Income Your adjusted gross income less any allowable tax deductions and exemptions Tax Deduction An expense that you are allowed to subtract from your adjusted gross income to arrive at your taxable income

Income tax terminology Standard Deduction An amount set by the IRS on which no taxes are paid Itemized Deduction A specific expense (e.g. mortgage interest, charitable contributions, medical expenses) that you deduct from your adjusted gross income Exemption a deduction from your adjusted gross income for yourself, your spouse, and qualified dependents https://www.tax.ny.gov/pit/file/standard_deductions.htm

Income tax terminology Tax Credit An amount subtracted directly from the amount of taxes you owe Allowance An adjustment to the tax withheld from your paycheck, based on marital status and whether you are supporting other people with your money Claiming few allowances = more tax money withheld

Filing tax returns Complete the Employee’s Withholding Allowance Certificate (W-4 form) when you begin working at a job File for tax if you fulfill the age, income, and filing status. If you do not meet filing requirements, you should still file a tax return to obtain a refund! File by April 15th each year to avoid penalty; if you cannot meet the deadline, file for a four-month extension (an extended deadline for filing an income tax return)

Filing tax returns (continued) Choose the correct tax form and instruction booklets, use copies of your tax return from previous years for reference Make sure to attach your W-2 form, and interest and dividend forms W-2 form is the Wage and Tax Statement prepared by the employer listing the employee’s annual earnings, and the amount withheld from his/her paychecks for federal income taxes, Social Security, and any applicable state and local income taxes

Filing tax returns (continued) Don’t forget to keep copies of tax returns and all supporting documents in a safe place for at least 7 years!!!

Tax Audit Tax audit is a detailed examination of your tax return by the IRS The IRS does periodic audits to determine whether taxpayers are paying all of their required taxes

Tax Strategies To legally minimize the amount of tax you have to pay: Be familiar with deductibles (e.g. mortgages, union dues, some job-related travel and education expenses, business tools, etc.) Make smart investment decisions Start retirement plans Keep updated with tax laws and change your tax strategies if necessary

video https://www.youtube.com/watch?v=f_c_OsHlCL8 https://www.youtube.com/watch?v=RnxGhlX8PVY