© 2010 South-Western, Cengage Learning Chapter © 2010 South-Western, Cengage Learning Federal Income Tax 7.1Our Tax System 7.2Filing Tax Returns 7

© 2010 South-Western, Cengage Learning Chapter 7 2 Lesson 7.1 Our Tax System GOALS ■Explain the purpose of taxes and describe the different types of taxes. ■Describe the U.S. tax system and explain how it works.

© 2010 South-Western, Cengage Learning Chapter 7 3 Purpose of Taxes ■Revenue: Money the government takes in from taxes is called. ■The government spends the revenues received according to priorities set by Congress.

© 2010 South-Western, Cengage Learning Chapter Progressive taxes take a larger share of income as the amount of income grows. Reflected in tax brackets  System US has --Regressive taxes take a smaller share of income as the amount of income grows.  Sales tax is regressive --Proportional taxes: or flat taxes, are taxes for which the rate stays the same, regardless of income.  Property taxes are proportional

© 2010 South-Western, Cengage Learning Chapter 7 5 Components of the Tax System ■The IRS had the power to tax ■Tax rates apply to income ranges, or tax brackets. ■The IRS conducts audits which are an examination of tax returns. ■Types of audits  Office audit  Correspondence audit  Field audit **Correspondence is MOST common

© 2010 South-Western, Cengage Learning Chapter 7 6 Filing Status- Tax Returns ■Filing status describes your tax-filing group. ■You must mark one of the following on your tax form: ■Single person, Married person filing a joint return, Married person filing a separate return, “Head of household”, Qualifying widow(er) ■Filing status is based on MARITAL STATUS!!

© 2010 South-Western, Cengage Learning Chapter 7 7 Exemptions ■An exemption is an amount you may subtract from your income for each person who depends on your income to live. ■Each exemption reduces your taxable income and thus your total tax. ■Example of dependents: Children