Federal Income Taxes http://apps.irs.gov/app/vita/ Introduction to Taxes Federal Income Taxes http://apps.irs.gov/app/vita/

Why do we pay taxes? Main source of income for federal, state, and local governments Pay for buildings, highways, public education, military, government employees, and services Based upon income

How do you pay taxes? For most people, Gross pay vs. Net pay Taxes are taken out of your pay check, by your employer, before you receive your check Gross pay vs. Net pay Employer determines how much to pay for you based on your W-4

Form W-2 Summary of earnings Amount of tax withheld Federal State Necessary for filing taxes If you have more than one employer, you will receive a W-2 from each.

1099 forms 1099-INT (Interest) 1099-DIV (Dividends) 1099-B (Sale of stock) 1099-R (Distributions from Retirement Plans) 1099-MISC (Miscellaneous Income) 1099-G (Unemployment) W-2G (Gambling Winnings)

Form 1040 1040 EZ, 1040A, 1040 Main document used when filing your federal tax returns We will be using form 1040 Used to determine your actual tax Determines how much you owe or will receive in a refund

1040 Overview Filing Status Exemptions Income Adjusted Gross Income -- Deductions= Adjusted Gross Income -- Standard or Itemized deductions -- Exemptions= Taxable Income Tax (Based on taxable income) --Tax Credits Amount you actually owe Payments Refund or owe Tax Deductions Tax Credits

Tax Deduction vs. Tax Credit Reduces your Taxable Income Tax Credit Reduces your Tax Which would you rather have? $5,000 Tax Deduction or $5,000 Tax Credit (See Scenario on next slide)

Without Deduction or Credits Income $50,000 Taxable Income 50,000 Tax owed $8,850 Simplified Scenario Tax Credit Income $50,000 - Deduction Taxable Income 50,000 Tax 8,850 - Credit 5,000 Actual Tax Owed $3,850 Actual Tax Savings $5,000 Tax Deduction Income $50,000 - Deduction 5,000 Taxable Income 45,000 Tax $7,600 - Credit Actual Tax Owed Actual Tax Savings $1,250

Terms: Liability Adjusted Gross Income Taxable Income Tax Deduction Responsibility Adjusted Gross Income Gross income minus adjustments to income Important benchmark determining certain other allowed benefits Taxable Income Amount of income used to determine tax liability Tax Deduction Reduces Taxable income Tax Credit Reduces tax liability

Terms: Exemption Alimony Charitable contributions Child care expenses Exemption from certain taxes that you would normally pay (i.e. dependents) Alimony Amount of money one spouse pays to the other, by court order, for support and maintenance. (Divorce) Charitable contributions Child care expenses Expenses for child care when you are required to work or look for work

Terms: Estimated tax payments Sale of Stock, Bonds, Real Estate Payments of taxes in advance Sale of Stock, Bonds, Real Estate Profit or loss from any of these sales Pension, Annuities, IRA Contributions or disbursements to/from retirement accounts Social Security Payments from federal government to aid people in old age (65 years) Home Mortgage payments Interest from mortgage payments are tax deductable