1. Federal Income Taxes http://apps.irs.gov/app/vita/
Introduction to Taxes
Federal Income Taxes

2. Why do we pay taxes?
Main source of income for federal, state, and local governments
Pay for buildings, highways, public education, military, government employees, and services
Based upon income

3. How do you pay taxes? For most people, Gross pay vs. Net pay
Taxes are taken out of your pay check, by your employer, before you receive your check
Gross pay vs. Net pay
Employer determines how much to pay for you based on your W-4

4. Form W-2 Summary of earnings Amount of tax withheld
Federal
State
Necessary for filing taxes
If you have more than one employer, you will receive a W-2 from each.

5. 1099 forms 1099-INT (Interest) 1099-DIV (Dividends)
1099-B (Sale of stock)
1099-R (Distributions from Retirement Plans)
1099-MISC (Miscellaneous Income)
1099-G (Unemployment)
W-2G (Gambling Winnings)

6. Form 1040
1040 EZ, 1040A, 1040
Main document used when filing your federal tax returns
We will be using form 1040
Used to determine your actual tax
Determines how much you owe or will receive in a refund

7. 1040 Overview Filing Status Exemptions Income Adjusted Gross Income
-- Deductions=
Adjusted Gross Income
-- Standard or Itemized deductions
-- Exemptions=
Taxable Income
Tax (Based on taxable income)
--Tax Credits
Amount you actually owe
Payments
Refund or owe
Tax Deductions
Tax Credits

8. Tax Deduction vs. Tax Credit
Reduces your Taxable Income
Tax Credit
Reduces your Tax
Which would you rather have?
$5,000 Tax Deduction or
$5,000 Tax Credit
(See Scenario on next slide)

9. Without Deduction or Credits
Income
$50,000
Taxable Income
50,000
Tax owed
$8,850
Simplified Scenario
Tax Credit
Income
$50,000
- Deduction
Taxable Income
50,000
Tax
8,850
- Credit
5,000
Actual Tax Owed
$3,850
Actual Tax Savings
$5,000
Tax Deduction
Income
$50,000
- Deduction
5,000
Taxable Income
45,000
Tax
$7,600
- Credit
Actual Tax Owed
Actual Tax Savings
$1,250

10. Terms: Liability Adjusted Gross Income Taxable Income Tax Deduction
Responsibility
Adjusted Gross Income
Gross income minus adjustments to income
Important benchmark determining certain other allowed benefits
Taxable Income
Amount of income used to determine tax liability
Tax Deduction
Reduces Taxable income
Tax Credit
Reduces tax liability

11. Terms: Exemption Alimony Charitable contributions Child care expenses
Exemption from certain taxes that you would normally pay (i.e. dependents)
Alimony
Amount of money one spouse pays to the other, by court order, for support and maintenance. (Divorce)
Charitable contributions
Child care expenses
Expenses for child care when you are required to work or look for work

12. Terms: Estimated tax payments Sale of Stock, Bonds, Real Estate
Payments of taxes in advance
Sale of Stock, Bonds, Real Estate
Profit or loss from any of these sales
Pension, Annuities, IRA
Contributions or disbursements to/from retirement accounts
Social Security
Payments from federal government to aid people in old age (65 years)
Home Mortgage payments
Interest from mortgage payments are tax deductable