© South-Western Educational Publishing Chapter 7 Federal Income Tax Our Tax System Based on voluntary compliance Filing Tax Returns Must be done by April 15
GOALS © South-Western Educational Publishing Lesson 7.1 Our Tax System Discuss the purpose of taxes and different types of taxes in the United States. Describe components of the U.S. tax system.
Why Pay Federal Income Taxes? Federal level National Defense National Weather Service National Parks Interstate highways Student loans and other aide Relief agencies Regulatory agencies © South-Western Educational Publishing
Why Pay State and Local Income Taxes? Education State welfare programs Streets, roads, and highways Police, fire, and health departments Local recreation and state parks © South-Western Educational Publishing
Types of Taxes Progressive taxes Income Taxes o Based on the ability to pay The more you earn the more you pay More of a burden to the wealthy
Types of Taxes Regressive taxes Sales tax o Indiana 7%, TN 10% Burden on poor/lowest wage earners Proportional taxes Property tax Tax burden is equally distributed according to property values © South-Western Educational Publishing
Components of the Tax System The IRS (Internal Revenue Service) Primary job is to collect taxes The power to tax Approved and changed by Congress & President Paying your fair share Tax brackets: % increases with income Tax evasion : not paying taxes intentionally
© South-Western Educational Publishing IRS Audit Correspondence audit Field audit
GOALS © South-Western Educational Publishing Lesson 7.2 Filing Tax Returns Define tax vocabulary. Prepare tax Forms 1040EZ and 1040A.
© South-Western Educational Publishing Filing Status Single person Married person filing a joint return Married person filing a separate return “Head of household” Qualifying widow(er) with a dependent child
© South-Western Educational Publishing Exemptions Personal exemption Dependent exemption
© South-Western Educational Publishing Gross Income Wages, salaries, and tips Interest income Dividend income Unemployment compensation Social security benefits Alimony
© South-Western Educational Publishing Adjusted Gross Income Gross income –Adjustments Adjusted gross income
© South-Western Educational Publishing Taxable Income Gross income –Adjustments Adjusted gross income –Deductions –Exemptions Taxable income
© South-Western Educational Publishing Deductions Itemize Standard deduction
© South-Western Educational Publishing Tax Credits For college tuition For childcare to enable parents to work For lower-income wage earners
Taxes and Behavior Business tax credits Sin Taxes © South-Western Educational Publishing
Preparing to File Who must file? When to file? Which form to use? Where to begin? Filing electronically
© South-Western Educational Publishing Preparing Your Income Tax Return Tax preparation software Form 1040EZ Form 1040A
© South-Western Educational Publishing Form 1040EZ Step 1: Name, address, and social security number Step 2: Report income Step 3: Compute tax Step 4: Refund or amount owed Step 5: Sign the return
© South-Western Educational Publishing Form 1040A Step 1: Name and address Step 2: Filing status Step 3: Exemptions Step 4: Total income Step 5: Adjusted gross income
© South-Western Educational Publishing Form 1040A (continued) Step 6: Taxable income Step 7: Tax, credits, and payments Step 8: Refund or amount owed Step 9: Signature