2. Basic Concept of Taxes Tally all income subject to taxes Reduce the total by: –adjustments –deductions –exemptions Choose the right filing status Claim all proper credits

3. Who must file depends on Amount of gross income Marital status Age

4. Which form should you use? 1040 EZ 1040 A (short form) 1040 (long form)

5. Choose a filing status Single Married filing joint return Married filing separate return Head of household Qualifying widow(er) with dependent child

6. Exemptions and Dependents W-4 Form - helps an employer determine how much to withhold from paycheck –More exemptions, lower your taxes –Allowed to claim one exemption for :self, spouse if married, dependents –Dependents usually children –Others may qualify as a dependent

7. Taxable Income Wages, Salaries, Tips Interest Income Dividends Alimony Received

8. Separately Scheduled Income Business Income or Loss Capital Gains and Losses Pensions, etc. Miscellaneous Taxable Income

9. Adjustments to Income Payments to IRA plans Medical deductions Moving expenses Alimony paid

10. Total Income - Adjustments = Adjusted Gross Income

11. If true deductible expenses exceed the standard deduction amount - ITEMIZE

12. Deductible Expenses Medical/Dental Taxes –real estate –personal property Interest Contributions Casualty/Theft losses

13. Deductible Expenses Depreciation Union dues Professional organization dues Work uniforms if paid out of own pocket

14. Non Deductible Expenses Commuting to/from work Life insurance premiums Property insurance premiums Hobby expenses Social Security taxes Attorney fees

15. Non Deductible Expenses Attorney fees Home-related expenses such as children’s allowances, clothing, utility expenses Home repair and maintenance Losses incurred on the sale of home

16. Tax Cutting Strategies Tax-exempt vs. tax deferred Calculate allowances correctly on W-4 form Year-end strategies: –estimate tax liability for this year compared to next –shift income –tax shelters

17. 2001 Tax Law Overview Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 signed into law on June 7, 2001 Provisions phase in from 2002 through 2010 (some delayed beyond 2002) “Sunset Provision” after 2010 Biggest tax cut in 20 years 1.35 trillion federal tax cut Phased in over the next decade

18. Summary of Major Provisions Individual income tax rate reductions Child-related tax provisions “Marriage penalty” relief Education provisions Estate and gift tax reductions Pension and IRA provisions

19. Summary of Individual Income Tax Rate Reductions Example: Single Taxpayers

20. Summary of Child-Related Tax Provisions Before new law - $500 tax credit per child Under new law, child tax credit is increased to $1,000 phased in over 10 years, starting in 2001 2001-2004 - $600.00 per child 2005-2008 - $700.00 per child 2009 - $800.00 per child 2010 and after - $1,000.00 per child

21. Summary of Marriage Penalty Provisions Effective 2005 Increases the basic standard deduction for joint filers to twice the basic standard deduction for an unmarried person filing a single return.

22. Summary of Education Provisions Increases annual limit to $2,000 (from $500) Includes grades K-12, tuition, uniforms, etc. Increases range for married taxpayers Can contribute to an Education IRA and state plan

23. Summary of Gift and Estate Taxes Increased from $675,000 to $1 million in 2002 There will be no estate taxes 2010 Will go back to 675,000 in 2011 Able to give $10,000 per person without tax - created a $1 million lifetime gift bucket Will use this to get $ out of estate and into next generation

24. Summary of Pension and IRA Provisions Increased contributions to tax deferred plans Increased IRA contribution limits Offers catch-up IRA contributions for those over 50 years old Higher Keogh limits Expanded pension portability - rollovers

25. Summary Basic concept of taxes Deductible/Non Deductible Expenses Tax cutting strategies 2001 Tax Law Overview