CHAPTER 20Slide 1 of 6 Chapter 20. INCOME TAXES How the basic tax laws work… How to Keep Yours at a Minimum… How Audits Work A. Be Prepared (See Personal Action Worksheet, Text page 611) B. The Importance of Knowing About Income Taxes - Examples 1. The Pervasiveness of Taxes in our Lives C. The Basic Concept of Income Taxes - Step-by-step 1. Who must file? 2. Which forms should you use? 3. Choosing your filing status 4. Exemptions and Dependents

CHAPTER 20Slide 2 of 6 C. The Basic Concept of Income Taxes, (continued) 5. Declaring your income a. Taxable income - wages, interest, dividends, alimony b. Separately scheduled income - from business, capital gains, pensions, annuities, rents, royalties c. Miscellaneous income - from fees, gambling, barter, etc. 6. Non-taxable income - gifts, inheritance, life insurance proceeds, scholarships, etc.

CHAPTER 20Slide 3 of 6 C. The Basic Concept of Income Taxes, (continued) 7. Total of all taxable income 8. Minus “Adjustments” - IRA and Keogh payments, alimony paid, etc. 9. Equals “Adjusted Gross Income” 10. Deductions - To Itemize or claim the “standard deduction?” a. What is deductible and what is not? 11. Computing your taxes: a. Adjusted gross income less deductions (standard or itemized) equals taxable income b. Subtract value of exemptions c. Compute from tax tables d. Add credits, subtract taxes withheld or otherwise paid = tax due

CHAPTER 20Slide 4 of 6 D. Tax Cutting Strategies 1. Tax exempt and tax deferred income 2. Tax withholding and the W-4 form 3. Year-end strategies 4. Children’s income 5. Tax “shelters” E. Filing Your Return 1. Extensions and amended returns

CHAPTER 20Slide 5 of 6 F. What Happens to Your Return? Examinations and Audits 1. Initial screenings 2. Audits - Why might your return be audited? 3. Audit strategies - Yours 4. Audit strategies - Theirs 5. Resolving an audit if you and the IRS agree 6. Resolving an audit if you and the IRS disagree 7. Your best protection

CHAPTER 20Slide 6 of 6 TALKING POINTS… Chapter Twenty, Number One Discuss the pros and cons of these various ways of getting your income taxes prepared: 1. Doing it yourself using IRS forms and instructions. 2. Buying a computer program to do it for you. 3. Using a tax preparation service that advertises “low prices, bigger deductions, and fastest refunds.” 4. Using a tax preparation service that is more conservative, and probably more expensive than the one that advertises. 5. Using a practicing accountant. 6. Using your cousin Murray, who is an accountant. He won’t charge you but he’ll remind you of that fact often.