1. Standard 2.1.5 Mrs. Morrey Financial Literacy Riverton High School
Unit 8: Taxes
Standard 2.1.5
Mrs. Morrey
Financial Literacy
Riverton High School

2. Objective Understand the effects of FEDERAL and state income taxes.
Learn about other taxes Americans are subject to paying.
Determine the difference between GROSS income and NET income.

3. Progressive Tax
The Federal income tax is a progressive tax, in which the tax rate increases as the taxable amount increases.
This means the higher your income, the more you are paying in taxes, both as a total amount and as a percentage.

4. Tax Freedom Day
Tax Freedom Day is the first day of the year (MAY 4th) in which a nation as a whole has theoretically earned enough income to pay its taxes.
Almost FOUR months of your yearly income goes to pay various taxes—IN OTHER WORDS, 30% OF YOUR INCOME GOES TOWARDS PAYING TAXES!

5. 2015 Federal Income Tax Brackets
Tax Brackets are income ranges in which the same
tax rates apply!

6. EXEMPTIONS
Personal Exemption: An allowed reduction in your income BEFORE taxes are computed.
You get one EXEMPTION for you, your spouse, and each dependent.
An individual may only be used as and EXEMPTION ONCE!
$4,000 (2015 Exemption)

7. Dependent Qualifying Relationship
Must have a qualifying relationship—child, grandchild, parents, uncle, aunt, niece/nephew.
Dependent can’t earn more than the exemption amount.
Up to 19 years old or 24 and full-time student.
Must provide more than half of the dependents financial support.

8. DEDUCTIONS Deductions: Expenses that reduce your taxable income.
Medical Expenses & Dental Expenses
Exceed 10% of your gross
Mortgage Interest Paid
Charitable Contributions
Religious Institutions
Educational Institutions
Medical Institutions/Causes
Humanitarian Funds
Student Loan Interest
A DEDUCTION WILL LOWER YOUR TAXABLE INCOME, BUT NOT DOLLAR FOR DOLLAR!

9. DEDUCTIONS ITEMIZING DEDUCTIONS STANDARD DEDUCTION
Itemized deductions are eligible expenses that individual taxpayers can claim on federal income tax returns and which decrease their taxable income, and is claimable in place of a standard deduction.
Listing all of your expenses individually!
Standard deduction is a set deduction allowed by the IRS, regardless of your actual expenses.
You can ITEMIZE or take the STANDARD DEDUCTION, but you CANNOT take both!

10. Calculating Your Taxable Income
Gross Income
(Total Wages)
LESS
Exemptions
(You, Your Spouse, Your Dependents)
Deductions
(Itemized or Standard Deductions)
EQUALS
TAXABLE INCOME

11. Who has to file a tax return?
Single: Gross income is greater than $10,300
Married: Combined gross income is greater than $20,600
IF YOUR INCOME IS LESS  you do not legally need to file your income taxes, however, if you had more taxes withheld than necessary, you will NOT receive a tax refund if you do not file!

12. Filing Status
SINGLE
You are single at then end of the year with NO dependents!

13. Filing Status MARRIED FILING JOINTLY
You are married at the end of the year and you and your spouse combine your incomes.

14. Filing Status MARRIED FILING SEPARATELY
You are married at the end of the year and you and your spouse file separate returns.

15. Filing Status HEAD OF HOUSEHOLD
You are unmarried at the end of the year but you have at least one dependent living with you.

16. Calculating Your Income Tax
After you find your taxable income, taxes owed are calculated by using the tax tables.
Tax brackets are already built into the tax tables.
Once taxes owed have been calculated, CREDITS can be deducted.

17. Tax Credits will lower your taxable income, DOLLAR for DOLLAR!
Child Tax Credit
Intended to off-set the cost of raising a child.
$1,000 per child up to the age of 17

18. American Opportunity Tax Credit
TAX CREDITS
American Opportunity Tax Credit
A tax credit for tuition, up to $2,500 of the first $4,000 of educational expenses for the first four years of post- high school education.

19. Child and Dependent Care Tax Credit
TAX CREDITS
Child and Dependent Care Tax Credit
If you paid someone to care for your child, spouse, or dependent last year, you may be able to claim the Child and Dependent Care Credit on your federal income tax return.

20. Earned Income Tax Credit
TAX CREDITS
Earned Income Tax Credit
A tax credit for low income families WITH children.
$20,000 to $40,000 annual gross income.
Living around the level of “poverty”.

21. Picking a Tax Form 1040EZ No dependents
Taxable income less than $50,000
No itemizing—taking the Standard Deduction

22. Picking a Tax Form 1040 EVERYONE ELSE Itemizing Dependents
No income limit

23. Other Mandatory Taxes Social Security (FICA) Medicare
Government funded program to help subsidize the wages of the elderly and the disabled.
6.2% of gross income
Medicare
Government funded program to help cover insurance costs for the elderly and disabled.
1.45% of gross income

24. Sales Tax

25. Other Taxes You Pay Gas Tax 24.5 cents per gallon in Utah
42.4 cents per gallon in New York
7 cents per gallon in Georgia
Alcohol Taxes
$12.18 per gallon in Utah
$35.22 per gallon in Washington
$1.89 per gallon in West Virginia
Cigarette Taxes
$1.70 per pack in Utah
$3.75 per pack in Rhode Island

26. Other Taxes You Pay Restaurant Tax Gift Taxes Estate Taxes 8.1%
Gifts valuing over $14,000 are taxed at 40%
Estate Taxes
40% tax rate