1. Lecture #17: Taxes “The hardest thing in the world to understand is the income tax” ~Albert Einstein

2. Now it is time to watch a video clip on Taxes!!! Click on the link below: http://www.brainpop.com/socialstudies/economics/taxes/ User ID: FSUSD Password: School Make sure you view in Full Screen Make sure the computer speakers are on!

3. American Revolution caused debt The Power to Collect Taxes Tax was necessary to pay debt Article 1, Section 8 of the U.S. Constitution granted Congress power to tax You do not need to copy this slide into your notes!

4. Federal Taxes 1. Personal Income Tax—a tax people pay on their income Paid to federal & most state govts 2. Corporate Income Tax—a tax corporations pay on their profits Paid to federal & most state govts 3. Social Security Tax—a tax paid to the federal govt on income generated from employment ½ paid by employers & ½ paid by employees Remember when taking Cornell Notes you need to come up with at least 3 questions per page! Three Major Federal Taxes

5. 44% comes from Personal Income Tax Where the Money Comes From— for each dollar the Federal Government raises from taxes! 10.3% comes from Corporate Income Tax 38% comes from Social Security tax 7.7% comes from other federal taxes 2005 data

6. You do not need to copy this slide into your notes! The Federal Government Dollar- Where It Goes Homeland Security 1% Medicare, and other Retirement 32% DOD Military 19% Social Security 21% Other 19% Net Interest on the Debt 7%

7. Other Taxes 1. Sales Tax—applied to the purchase of many goods Collected by states only—varies among states 2. Excise Taxes—placed on the purchase of certain goods—such as tobacco & gas Collected by the federal govt & many states 3. Property Tax—homeowners pay a tax on the value of their property Major revenue source for state & local govts Three Other Taxes

8. The State Dollar- Where It Comes From All Other 10% Motor Fuel Sales Tax 4% Property Tax 32% General Sales Tax & Gross Receipts 25% Individual Income Tax 22% Alcoholic Beverages Sales Tax 1% Tobacco Product Sales Tax 1% Motor Vehicle License 2% Corporate Income Tax 3% You do not need to copy this slide into your notes!

9. The State Dollar- Where It Goes Social Services 21% Government Administrative 4% Education 30% Utility Expenditure 7% Transportation 7% Interest on General Debt 4% Public Safety 8% Environment and Housing 7% General Expenditure 5% Insurance Trust Expenditure 7% You do not need to copy this slide into your notes!

10. AMT AMT—a tax that some people have to pay on top of their regular income tax A minimum tax is computed for a given income—if you make that income & pay at least that amount of taxes you don’t pay the AMT. If you pay less than that amount in taxes—you pay the AMT amount. Created in 1969 to prevent persons w/high incomes from paying little or no taxes b/c of tax write-offs. 1969 only 1% of the population paid AMT, today over 3% pay this tax. In 2006, the income was $67,890 for a person filing jointly w/2 children. The Alternative Minimum Tax

11. Taxes Proportional Taxes—everyone pays at the same rate, whatever their income level. A.K.A. Flat tax Progressive Income Tax—people pay higher rates as their income rise. Usually capped. The U.S. has a progressive income tax structure. In 2005, tax rates were 10, 15, 25, 28, 33 & 35 percent Regressive Income Tax—tax rate that decreases as income levels rise. Proportional, Progressive & Regressive Income Taxes

12. Countries with a flat tax structure CountryRateYear Introduced Estonia26%1994 Lithuania331994 Latvia251995 Russia132001 Serbia142003 Ukraine132004 Slovakia192004 Georgia122005 Romania162005 For your information You do not need to write this down!

13. Tax Brackets U.S. Tax Brackets - 2006 Single TaxpayerRate $0-$7,55010% $7,551-$30,65015% $30,650-$74,20025% $74,201-$154,80028% $154,801-$336,55033% $336,551-and above35% You do not need to copy this slide into your notes!

14. Who Pays the Most Tax in the United States? Income Group Income Split Point Group’s share of total U.S. income Group’s share of federal income taxes Top 1%Above $285,42416.12%33.71% Top 5%Above $126,52530.55%53.80% Top 10%Above $92,66341.77%65.73% Top 25%Above $56,40164.37%83.90% Top 50%Above $28,65485.77%96.50% Bottom 50%Below $28,65414.23%3.50% Source: IRS 2003 For your information. You do not need to write this down!

15. The following slides are about the IRS & Filing taxes! You do not need to write down this information in your notebooks. This information will help you with Part 6 of your Game of Life project!

16. Voluntary Compliance Keep necessary records Report income accurately Correctly calculate tax liability File returns on time

17. Pay-As-You-Go Withholding Taxes are paid as income is earned Taxes are withheld based on Form W-4 information

18. Form W-2 Shows how much employees earn Copy must be attached to tax return

19. Financial Record Keeping

20. Save: Paycheck stubs Bank statements Completed tax returns and forms Warranty information Receipts Credit card statements

21. Store items in: Financial Record Keeping Envelopes or accordion file Filing cabinets Computer Safety deposit boxes

22. Tax Liability

23. Three Methods of Tax Return Preparation Electronically Tax Preparation Software Manually

24. Electronic Tax Preparation and Transmission

25. Methods of Electronic Tax Preparation and Transmission Telefile Personal Computer Tax Professional

26. Refunds

27. HOURS AND EARNINGS HoursEarnings TAXES AND DEDUCTIONS DescriptionAmount 20200.00 FICA Federal State City Total Taxes 15.20 10.25 5.10 1.00 31.55 TOTAL Taxable Wages 200.00 Less Taxes 31.55 Net Pay 168.45 Exemptions are set amounts that you subtract from your gross income for yourself, your spouse, and any dependents. Deductions are variable amounts that you can subtract from your gross income. Filing a Tax Return A tax return is a form on which you declare your income to the government and determine your taxable income. Taxable income is a person’s total (or gross) income minus exemptions and deductions. You do not need to copy this slide into your notes!

28. Let’s practice! Filling out a W-4 form Filling out a 1040EZ form

29. Review—True or False 1. There are 5 major taxes at the federal government level. 2. The federal government and some states apply an excise tax on some items. 3. The alternative minimum tax is a tax that everyone pays on top of their regular income tax. 4. With a proportional income tax, everyone pays at the same rate.

30. Review—True or False 1. There are 5 major taxes at the federal government level. FALSE 2. The federal government and some states apply an excise tax on some items. TRUE 3. The alternative minimum tax is a tax that everyone pays on top of their regular income tax. FALSE 4. With a proportional income tax, everyone pays at the same rate. TRUE