Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 21 Planning Your Tax Strategy What actions can you take throughout the year to help reduce the amount of taxes you owe?

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. There are several types of taxes. When preparing your tax return, you will need to understand the terms and have the correct forms and documents. You should follow the basic strategies to reduce the amount of taxes you owe. Chapter 21 Planning Your Tax Strategy

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. tax liability estate tax inheritance tax income tax income tax return exclusion adjusted gross income taxable income tax deduction standard deduction itemized deduction exemption tax credit allowance extension tax audit Chapter 21 Planning Your Tax Strategy

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 21 Planning Your Tax Strategy

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Section 1Income Tax Fundamentals Discuss the importance of tax planning. Identify your taxable income. Explain deductions and tax credits. Explain the W-4 form. Chapter 21 Planning Your Tax Strategy

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Taxes and You Section 1Income Tax Fundamentals Chapter 21 Planning Your Tax Strategy Why Are Taxes Important? Medicare Medicaid Military National debt Police Fire protection Public schools Road maintenance Libraries Parks

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Making Tax Payments Section 1Income Tax Fundamentals Chapter 21 Planning Your Tax Strategy The W-4 Form

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Making Tax Payments Section 1Income Tax Fundamentals Chapter 21 Planning Your Tax Strategy Estimated Payments Estimated payments must be at least equal to the taxes owed last year or be at least 90 percent of the current year’s taxes to avoid penalties.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Making Tax Payments Section 1Income Tax Fundamentals Chapter 21 Planning Your Tax Strategy Claiming Allowances Some employees claim fewer allowances on their W-4 than they have. Some employees claim no allowances.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Making Tax Payments Section 1Income Tax Fundamentals Chapter 21 Planning Your Tax Strategy

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Many people enjoy having more taxes withheld from their paychecks in order to receive a larger refund on their income taxes. Decide whether or not this is a good idea. Explain your conclusion. Sample response: This is not a good idea. It is smarter to have less withheld and to use the extra money in your paycheck to earn interest in a savings account or other investment opportunity. Section 1Income Tax Fundamentals Chapter 21 Planning Your Tax Strategy

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Describe the types of federal income tax forms. Section 2Preparing an Income Tax Return Chapter 21 Planning Your Tax Strategy

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. The W-2 Form Section 2Preparing an Income Tax Return Chapter 21 Planning Your Tax Strategy Annual earnings Amount withheld –Federal income taxes –Social Security –State and local income taxes Information on the W-2 Form

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Federal Income Tax Return Section 2Preparing an Income Tax Return Chapter 21 Planning Your Tax Strategy Filing Status Categories Single Married, filing a joint return Married, filing separate returns Head of household Qualifying widow or widower

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Federal Income Tax Return Section 2Preparing an Income Tax Return Chapter 21 Planning Your Tax Strategy Three Basic Forms Form 1040EZ Form 1040A Form 1040

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Completing the Federal Income Tax Return Section 2Preparing an Income Tax Return Chapter 21 Planning Your Tax Strategy Tax Forms and Instruction Booklets Copies of Your Tax Returns Your W-2 Form Interest and Dividend Forms Document Checklist

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Completing the Federal Income Tax Return Section 2Preparing an Income Tax Return Chapter 21 Planning Your Tax Strategy Two Ways for You to File Electronically Use an authorized e-file provider Use your personal computer and tax software

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Completing the Federal Income Tax Return Section 2Preparing an Income Tax Return Chapter 21 Planning Your Tax Strategy You Will Have to Complete a State Income Tax Return Unless You Live in One of These States Alaska Florida Nevada South Dakota Texas Washington Wyoming

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Why might you want to hire a professional tax preparer rather than using tax software to prepare your own return? Responses will vary but may include that hiring a professional is preferred if you plan to itemize deductions but do not feel confident about what expenses are allowed as deductions. Section 2Preparing an Income Tax Return Chapter 21 Planning Your Tax Strategy

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Identify tax strategies. Section 3Tax Assistance and Strategies Chapter 21 Planning Your Tax Strategy

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Tax Assistance Section 3Tax Assistance and Strategies Chapter 21 Planning Your Tax Strategy Sources of Tax Assistance IRS Web Site Books Software Professionals

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Planning Tax Strategies Section 3Tax Assistance and Strategies Chapter 21 Planning Your Tax Strategy Consumer Purchasing StrategiesInvestment Strategies Deduct property taxes Deduct union dues Deduct business tools Deduct job-search expenses Deduct interest on home equity loan Some investments are tax deferred Individual Retirement Account (IRA) Start planning for retirement now

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Fred owns a small advertising agency. Compile a list of possible job-related expenses that Fred could deduct from his taxes. Lists will vary but may include computers, office furniture, and travel expenses. Chapter 21 Planning Your Tax Strategy Section 3Tax Assistance and Strategies

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Fact of Scarcity Chapter 21 Planning Your Tax Strategy Scarcity occurs due to limited economic resources and unlimited wants and needs.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 21 Planning Your Tax Strategy

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 21 Planning Your Tax Strategy

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. End of