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Personal Finance Federal Taxes
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I. Vocabulary Adjusted Gross Income (AGI) Dependents
Specific deductions, such as self-employment, alimony, retirements, and tuition. Determines tax bracket. Dependents Children until they are 19 years old If they are in college and under 24 years of age. After 24, dependents are referred to as “qualifying relatives.” Must provide at least 50% of their support.
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I. Vocabulary Allowances Exemptions
The more allowances you claim, the less money your employer will withhold for taxes. You get one allowance for yourself, one for your spouse, and one for each dependent you report on your tax return. Exemptions This the amount that a taxpayer can claim for himself or herself, spouse, and eligible dependents. The total of your exemptions is subtracted from your adjusted gross income before tax is figured on your remaining taxable income.
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I. Vocabulary Deductions Standard Deduction
Reduces the amount of taxable income. Example: Make $50,000 a year, after $5,000 deduction there is $45,000 taxable income. Standard Deduction Eliminates the need to itemize things like medical payments and charity.
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I. Vocabulary Credits Reduces the amount of taxes owed.
Example: Out of the $45,000 taxable income you owe $1,500. You get $500 worth in credits, which reduces your taxes to $1,000. Child tax credits for those who make less than $100,000 is one that is commonly used. Credits make it possible for those who make very little to actually get more than they ever put into taxes.
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Withholding I. Vocabulary
The amount held back from your wages each payday to pay your income and Social Security taxes for the year. The amount withheld is based on the size of your salary and the W-4 form you file with your employer.
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II. Pre-Filing Paperwork
Determines the amount of income withheld from pay. Filled out when you are hired before you start work. Allowances: One for you, a spouse, and each dependents. Make sure you update with any changes throughout the year so you don’t owe too much when filing.
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II. Pre-Filing Paperwork
Provided by employers by January 31st Only employees and the IRS get a W-2. Shows how much an employee paid in taxes the following year. Businesses get a 1099 from the bank to file their taxes.
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1040ez III. Forms Briefest of the 1040 forms
Can’t itemize deductions or claim any adjustment to income or tax credits. To file you must not have income from self-employment, alimony, dividends, or capital gains.
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III. Forms Requirements to file a 1040ez: Earn less than $100,000
Single or married and joint filing No dependents Under age 65 and not blind Taxable interest is $1,500 or less Not a debtor
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III. Forms 1040A Longer than 1040ez
Covers deductions from interest, ordinary dividends, capital gains, pensions, annuities, IRAs, unemployment, social security, or railroad benefits. Covers credits for childcare, the elderly and disabled, education, retirement, and savings.
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1040 III. Forms Most complicated for the 1040’s
Allows tax payer to itemize their deductions and credits (which typically will save you money if you have a lot of deductions and credits).
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III. Forms 1099-INT Provided by the bank by January 31st to you and the IRS. Shows the interest on income. May not have to pay taxes on interest if you haven’t made enough, but you must report. There are other 1099 forms for incomes without working, such as retirement and social security.
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