1. TAXES
By Stevie VanDeVelde

2. Topics Purpose of taxes Different types of taxes
What taxes you can expect to pay
How to calculate the amount of federal income tax you owe
Complete a 1040EZ

3. What is the purpose of taxes
Support schools
Support building
Maintain roads
Provide for the nation’s defense

4. Tax Required contribution of money Ultimately paid to the government
Raise revenue to pay the cost of government

5. Direct Tax Paid directly to the government
Examples: income tax and property tax

6. Indirect Tax Shifts the tax burden
Example buy gasoline, cigarettes – then pay tax on them

7. Direct Tax Can Become An Indirect Tax
Landlords property taxes increase (direct tax)
Your rent increases due to it (indirect tax)

8. Types of Taxes Income Tax
Paid based on the money you earn and profits a business makes
Paid to Federal, State and sometimes Local Government
Paid on salary, wages, tips and savings and investment income
Pay for the overall costs of governments

9. Types of Taxes - Continued
Payroll Tax
Paid to support Soc. Security taxes
Both you and your employer make a contribution
Help provide you with retirement income/benefits
Some occupations (teachers and government workers) pay into a state retirement program rather than Soc. Security

10. Types of Taxes - Continued
Sales Tax
State and Local Governments
Tax is added to the cost of the items
Sales tax in Illinois is 6.25%

11. Types of Taxes - Continued
Estate, Inheritance and Gift Tax
Estate tax – assessed on the value of the deceased’s property before it is passed on
Inheritance tax – taken out of each person’s share of the will
Federal – Estate Tax
State (some) – both Inheritance and estate tax
Gifts up to a certain amount are tax free. Over that amount a gift tax is imposed

12. Income Tax History 1913 – Federal Income tax imposed
The 16th amendment gave the government the right to tax
Wisconsin – 1st state to administer an income tax
By mid-1970’s – almost all states have an income tax

13. Federal Income Tax Who Must Pay? Individuals Corporations Trusts
Estates
Business owners (pay through their individual income taxes)
Citizens of other countries who earn income in the U.S.

14. Federal Income Tax Who Doesn’t Have to Pay? Low Income Families
Nonprofit Organizations (churches, charities)
Some hospitals

15. Federal Income Tax Part of being a good citizen Graduated income tax
Seen as fairest type of tax
Those who earn more – pay a higher percentage

16. Graduated Income Tax

17. State Income Tax Most have a graduated income tax Some use a flat rate
Your income is $25,000 and your spouse’s income is $35,000, therefore, you would pay 6% on all income or $3,600

18. Taxable Income Your total income -
Adjustments to Income (paid alimony, contributions to IRA) =
Your adjusted gross income
Deductions and Exemptions
Taxable Income

19. Reduction of Income Tax
Tax laws: Those who meet certain requirements can reduce the amount of income which is taxed

20. Determining Your Deductions
Mortgage Interest
Property Taxes
Contributions to Charities and Churches

21. Tax-Free Income Allows a certain level of tax-free income Thus,
Marital status
Number of dependents
Thus,
Larger families generally pay less tax
Married couples generally pay less tax

22. Determining Your Exemptions
Yourself (if not claimed by your parents)
Any Dependents

23. Taxable Income Your total income -
Adjustments to Income (paid alimony, contributions to IRA) =
Your adjusted gross income
Deductions and Exemptions
Taxable Income

24. Taxable Income and Tax Table
Use Taxable Income
Determine the Amount of Tax you Owe

25. Taxable Income and Tax Table
$15,235
Tax (single)
$1,919

26. Your Turn
Based on the table, how much tax does a married couple filing jointly owe on an income of $15,742?
How much does a single person owe on the same amount?

27. Tax Credits May Reduce Your Figure from the Tax Table
Amount of tax due may reduce by any tax credits
Child Care

28. Compare Tax Owe to Tax Paid If too much withheld – refund
If too little withheld –
owe difference

29. Tax Form
Due April 15
Sign
Interest and Penalty if late

30. “Filing” Process of completing and submitting an income tax return
Can be simple or complex
Not Filing = Tax Evasion

31. Eligibility for filing a 1040EZ
Filing status – single or married filing jointly
No dependents
No student loan interest deduction or an education credit
Not age 65 or over (you or your spouse)
Taxable Income less than $100,000

32. Eligibility for filing a 1040EZ – Cont.
Only had wages, salaries, tips and taxable scholarships, unemployment compensation, qualified state tuition program earnings or Alaska Permanent Fund dividends
AND your taxable interest income was not more than $1,500.
Did not receive any Advance earned income credit payments
Did not owe any household employment taxes on wages you paid to a household employee

33. Filing a 1040EZ
On paper
Telephone
Computer

34. IRS Web Site

35. John Nye – Class Activity
Preparing a 1040EZ

36. Introduction
In 2005, John Nye worked after school and all day Saturday at Rudden’s Ice Cream Parlor.
In late January 2006, John received a W-2 Wage and Tax Statement from his employer.
John went to the post office and picked up a Form 1040EZ and the instructions for completing this form. (You can also download them from the web site).

37. Introduction - Continued
John also received a 1099-int – Interest income earned from from his local bank. He had earned $63.00 in interest income.
With this information he was able to complete his 1040EZ.

38. John’s W2

39. John’s 1040EZ

40. Other Types of 1040’s 1040A 1040 Dividend and Capital Gains from Stock
Deductible Student Loan Interest
1040
Itemize rather than taking the standard deductions
Receive income from rental property

41. Let’s Do Some Calculations!
Suppose you make $370 a week. Each year you pay $2,884 in federal income tax, $578 in state income tax, $262 in sales tax, $88 in property tax, $1,472 in FICA tax, and $158 for other taxes. How much do you pay for taxes during the year? How many weeks must you work just to pay taxes?

42. Calculation #2
Suppose you earned an annual salary of $27,000 and your spouse earned $32,000. If there were a flat tax on income of 5%, how much income tax would your family have to pay?

43. Calculation #3
Using the tax table, determine the amount of tax you owe, if your wages were $15,178.00, tips were $1, and interest income was $ The amount of tax withheld from your employer was $1,

44. Review Questions What do taxes pay for? Name some types of taxes
What is it called if you have earned income and fail to file an income tax return?
If you are married, can you use form 1040EZ to file your federal income tax return?
What is a Graduated Income Tax?

45. Review Questions - Continued
What is a flat rate tax?
What are deductions?
What are exemptions?
What date must you file your taxes by?