1. TAXES Chapter 5

3. Used For n Sanitation n Prisons n Public Org. - Library, Fire, School n National Defense n Street/Park n Social programs - FICA (Federal Insurance Contributions Act) is the law that requires you to contribute to social security and Medicare.

5. Voluntary compliance n You are responsible for filing, keeping records, file on time and pay n Failure to do so = penalties n Pay-as-you-go method - must pay as receive income. Too hard to pay all at once

6. Direct/Indirect Tax n Direct – Income/Property/Sales – know how much your paying n Indirect (Excise) – Hidden in the price – alcohol, cigarettes, gasoline, utilities WHY?

7. Types of Tax n Progressive - based on your ability to pay - depends on how much you make (Income) n Regressive - Person with a higher income pays a lower % of income in taxes than a lower income person (Sales tax) n Proportional - flat tax - remains constant (property - community pays same)

8. TAXES n Income – Gov’t leading source of revenue – IRS collects – Pay-as-you-go n Sales – Proportional with a regressive effect. (constant but higher income pays a lower %) n Property – Main source of revenue for local government. n SS – Pensions/disability/medicare (65) n Estate Tax – Pass on (inherit) pay taxes on n Gift Tax – Over $10,000 is taxed

9. TERMS YOU SHOULD KNOW n IRS n Tax Evasion n Allowances n Dependent – relies for support n Standard Deduction – An fixed amount based on filing status and age n W2 Form (Jan. 31) n 1099 INT (unearned income) n Tariff n Tax liability – what you owe on income received