3/24/14 “Deductions, credits, & dependents” 1.What is the difference between a tax deduction and a tax credit? 2.What is a dependent & how do they effect.

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3/24/14 “Deductions, credits, & dependents” 1.What is the difference between a tax deduction and a tax credit? 2.What is a dependent & how do they effect your taxes? On desk: Deductions & credits wksht.

Earn: $50,000Owe in taxes: $10,000 Deductions reduce amount $$ you are TAXED ON. Credits reduce amount $$ you OWE in taxes.

What is a dependent & how do they effect your taxes? dependent: Someone who depends on you to live (child, grandma, cousin, etc.) The more dependents you can claim, the more money you save on your taxes! (dependent credits)

How much would your standard deduction be if you filed your taxes today? Single = $6,100 Married = $12,200 What is the difference between nonrefundable tax credits and refundable tax credits? Nonrefundable: can reduce tax liability to zero, but not below Refundable: can reduce tax liability below zero, which means…? Govt. can end up owing you money!

Deductions ($ reduces income subject to tax) Credits ($ reduces amt. of tax owed)

3/24/14 Econ. Agenda 1.How to file your taxes, part one (class notes) 2.Adjusted Gross Income tax problems HW: finish AGI tax problems # 1 – 3

3/24/14Class notes – how to file your taxes Need at least 3 things: 1.Personal info. for you and your dependents (SSN, date of birth, address, etc.) 2.W-2 form – statement of your wages for past year 3.Correct tax form Need to file BOTH Federal & State tax forms every year! Tax due date? April 15 th !

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3/24/14Class notes – how to file your taxes Adjusted Gross Income (AGI) Amount of income you are taxed on (basically) Total income minus all of your deductions Income = $50,000 Standard deduction = $6,100 Student loan interest deduction = $1,500 Charitable contribution to RIPR = $150 Total amount in deductions? = $7,750 AGI = $50,000 – $7,750 = $42,250

3/24/14Class notes – how to file your taxes What form do I need to file my taxes? 3 forms to choose from (federal taxes): EZ Shortest, least complicated: Under $100,000 income, no dependents, under age 65, single or married filing jointly… A Medium length, more complicated: Same as 1040EZ but…any age, can claim dependents, owning stocks & other investments…

3/24/14Class notes – how to file your taxes What form do I need to file my taxes? 3 forms to choose from (federal taxes): Longest, most complicated: Any marital status, over $100,000 income, sold property, self employed, greater than $1500 in interest earned… How do I file my taxes? Online or paper (online refund comes faster) Self with tax forms, pay a professional, or pay TurboTax, etc.

1040-EZ Short Marital status – Single, married filing jointly Age – >65 Dependents – none Interest income – <$1,500 Taxable income – <$100, A Medium Marital status – Single, married filing jointly Age – Any Other – Retirement payments – Own stocks – Student loans Dependents – yes Interest income – <$1,500 Taxable income – <$100, Long Marital status –married filing separately, divorced Other –Self-employed –Sold property –Own stocks –YES itemized deductions Interest income –>$1,500 Taxable income –>$100,000

If taxable income is more than … but not more than … the tax is … $0$8,92510% of the taxable income $8,925$36,250 $ plus 15% of the amount over $8,925 $36,250$87,850 $4, plus 25% of the amount over $36,250 $87,850$183,250 $17, plus 28% of the amount over $87,850 $183,250$398,350 $44, plus 33% of the amount over $183,250 $398,350$400,000 $115, plus 35% of the amount over $398,350 $400,000no limit $116, plus 39.6% of the amount over $400,000 Single Adjusted Gross Income Federal Tax Rates, 2013

Example: You are single and earn $89,000 as a plumber. You get the standard deduction amount of $6,100 and a child tax credit of $1,000. What is your AGI and how much money do you owe in taxes? Income =$89,000 Deductions? $6,100 AGI = $89,000 - $6,100 AGI = $82,900 Amount of tax owed? AGI = $82,900 $4, plus 25% of the amount over $36,250 $4, $36,250 $46,650 X.25 $11, $11, Tax owed = $15, $16, Tax credits? $16, $1,000.00