Paying Your Income Taxes Advanced Level
What are taxes? A sum of money demanded by a government for support of itself and specific programs and services; paid by taxpayers Take Charge Today February 2017 Paying Your Income Taxes Slide 2
When do we pay taxes? Sales tax When we make a purchase Income tax Gasoline tax Property tax When we put gas in the car When we get a paycheck When we buy a car Take Charge Today February 2017 Paying Your Income Taxes Slide 3
Did you know U.S. citizens have been paying income taxes for over 100 years? 1862 Congress enacts first income tax law in effort to support the Civil War 1913 16 th Amendment to the Constitution passes making income tax on individuals & businesses permanent It s your civic duty, your responsibility as a citizen of the U.S., to pay your income taxes. Take Charge Today February 2017 Paying Your Income Taxes Slide 4
Without taxes, you would not receive these benefits 2.2.7.G1 Take Charge Today February 2017 Paying Your Income Taxes Slide 5
What are tax revenues? Outlays refer to the spending or disbursements of money. Congress determines the allocation of money to support the programs and services our citizens need. Revenue is money collected from income taxes which allow our government to create an anticipated budget... Take Charge Today February 2017 Paying Your Income Taxes Slide 6
What is Tax Day? The deadline to compare This process is called reconciling your taxes Take Charge Today February 2017 Paying Your Income Taxes Slide 7
So where does reconciling begin? With completing a Form W-4 when you get hired The W-4 tells your employer: Your filing status The number of allowances you are claiming How much additional income to withhold and send to the IRS Take Charge Today February 2017 Paying Your Income Taxes Slide 8
What are allowances? Allowances are a number that corresponds to the amount of tax withheld from your paycheck. You can claim allowances for 0 1 2 3 4 5 6 7 8 9 Rule of Thumb: the greater the number of allowances, the less money is withheld from your paycheck Yourself Your spouse Dependents, such as a child Take Charge Today February 2017 Paying Your Income Taxes Slide 9
How often do I complete a W-4? Every time a major life event happens Take Charge Today February 2017 Paying Your Income Taxes Slide 10
How does your employer know how much to withhold from your paycheck? The IRS provides an income tax withholding table that is updated annually Take Charge Today February 2017 Paying Your Income Taxes Slide 11
If José Santiago is single, claims 2 allowances on his W-4 when he is hired, and his weekly pay is $663.00, how much would his employer withhold for income taxes? Number of allowances His employer would withhold $61 each week. is 2 2.2.7.G1 Weekly pay is $663 Take Charge Today February 2017 Paying Your Income Taxes Slide 12
How do you know how much income tax has been withheld during the year? 2.2.7.G1 The year-todate number is the sum for the entire year Just look at your paycheck stub Take Charge Today February 2017 Paying Your Income Taxes Slide 13
What is a W-2? A government form which shows a summary of your income and deductions for one employer for the calendar year If you had more than one employer, EACH employer will provide a W-2 Employers are required to provide you with a copy of your W-2 each year. Take Charge Today February 2017 Paying Your Income Taxes Slide 14
What if I was classified as an independent contractor instead of an employee? Independent Contractors provide goods or services but do not have income tax withheld from payment. In this case, you will receive a Form 1099 and may be responsible entirely for calculating and submitting your own income taxes to the IRS Take Charge Today February 2017 Paying Your Income Taxes Slide 15
What s the purpose of a W-2? The identifying information on a W-2 allows the IRS to track your income Employer s name and address Your name and address Your wage, tax, and deduction information for the year You will use a W-2 to prepare your income taxes Take Charge Today February 2017 Paying Your Income Taxes Slide 16
How do I reconcile my income taxes? Gather your documents Decide which tax form to use Fill out the tax form Reconcile Sign your tax form Submit your tax form (and any owed taxes) Take Charge Today February 2017 Paying Your Income Taxes Slide 17
How do I reconcile my income taxes? Step 1: Gather your documents 2.2.7.G1 Take Charge Today February 2017 Paying Your Income Taxes Slide 18
How do I reconcile my income taxes? Step 2: Decide which tax form to use 2.2.7.G1 Form 1040EZ USE FORM 1040EZ WHEN Your filing status is Single or Married Filing Jointly You claim no dependents You, and your spouse if filing a joint return, are under age 65 and not blind Your taxable income is less than $100,000 Wages, salaries, tips, taxable scholarship and fellowship grants, unemployment compensation, and your taxable interest was not over $1,500 Take Charge Today February 2017 Paying Your Income Taxes Slide 19
How do I reconcile my income taxes? Step 2: Decide which tax form to use 2.2.7.G1 Form 1040A USE FORM 1040A WHEN Income is only from wages, salaries, tips, interest, ordinary dividends, taxable scholarships... Adjustments to income are student loan interest deduction, the educator expenses deduction, and the tuition and fees deduction... You do not itemize deductions Your taxable income is less than $100,000 Only credits you are claiming are child & dependent care expenses, education credits, the retirement savings contributions credit, earned income credit... Take Charge Today February 2017 Paying Your Income Taxes Slide 20
How do I reconcile my income taxes? Step 2: Decide which tax form to use 2.2.7.G1 Use FORM 1040 Most complex of the 3 major individual tax forms Offers tax breaks that aren t available on the simpler Form 1040EZ or Form 1040A. Report all types of income, expenses, and credits on a 1040. Form 1040 Take Charge Today February 2017 Paying Your Income Taxes Slide 21
How do I reconcile my income taxes? Step 3: Fill out the tax form 2.2.7.G1 Use details from your W-2 to complete the personal information on your tax form Take Charge Today February 2017 Paying Your Income Taxes Slide 22
How do I reconcile my income taxes? Step 3: Fill out the tax form 2.2.7.G1 1. Use information from your W-2 for the income section on your tax form 2. Then follow the directions on the tax form to add, subtract, and determine your taxable income Taxable Income Take Charge Today February 2017 Paying Your Income Taxes Slide 23
How do I reconcile my income taxes? Step 3: Fill out the tax form 2.2.7.G1 You are a dependent if someone provides the majority of your support during the year Follow the directions on the back of the form to determine the number that will go on Line 5. Take Charge Today February 2017 Paying Your Income Taxes Slide 24
How do I reconcile my income taxes? Step 3: Fill out the tax form 2.2.7.G1 1. Use information from your W-2 to show how much income tax your employer has withheld during the year. 2. Then follow the directions on the form to add, subtract, and determine your total payments and credits Total payments and credits Take Charge Today February 2017 Paying Your Income Taxes Slide 25
How do I reconcile my income taxes? Step 3: Fill out the tax form 2.2.7.G1 When you get to the word TAX, that is your cue to look at the tax table provided by the IRS to determine how much tax you should have paid during the year. Take Charge Today February 2017 Paying Your Income Taxes Slide 26
How do I read a tax table? Locate your filing status single or married? Locate the range where your taxable income falls The place where those two items intersect identifies your tax liability for the year Take Charge Today February 2017 Paying Your Income Taxes Slide 27
What is Robin s tax liability? Robin is single Her taxable income is $54,820.97 So her tax liability is $9,500.00 $9500 Take Charge Today February 2017 Paying Your Income Taxes Slide 28
How do I reconcile my income taxes? Step 3: Fill out the tax form 2.2.7.G1 Total Tax 1. Put the number from the tax table on the TAX line 2. Then follow the directions on the form to add and determine your total tax Take Charge Today February 2017 Paying Your Income Taxes Slide 29
How do I reconcile my income taxes? Step 4: Reconcile 2.2.7.G1 Is line 9 larger than line 12? YOU GET A REFUND Compare the amount of income tax already paid with the amount you should have paid Take Charge Today February 2017 Paying Your Income Taxes Slide 30 Is line 12 larger than line 9? YOU OWE
What happened when Robin reconciled? Line 12 was larger than Line 9 She has not yet met her tax liability for the year and will need to send money to the IRS to pay taxes due Take Charge Today February 2017 Paying Your Income Taxes Slide 31
How do I reconcile my income taxes? Step 5: Sign your tax form 2.2.7.G1 Sign the form Use today s date Include your occupation Include a phone number the IRS can reach you at if there are questions Take Charge Today February 2017 Paying Your Income Taxes Slide 32
How do I reconcile my income taxes? Step 6: Submit your tax form 2.2.7.G1 (and any owed taxes) The state in which you live in determines where you mail your income tax paperwork Take Charge Today February 2017 Paying Your Income Taxes Slide 33
Why should I prepare my own tax return? 1. You can save money. a. The IRS does not charge to file taxes. b. The IRS provides free filing software for taxpayers with income under $60,000 c. The IRS provides free fillable forms online 2. You are ultimately responsible for your own taxes. Take Charge Today February 2017 Paying Your Income Taxes Slide 34
When should I prepare my tax return myself? 1. When your life is simple no dependents, investments, significate assets, or charitable contributions, and you don t own a business. 2. You have the time and patience to complete the paperwork 3. You want control over your money. Take Charge Today February 2017 Paying Your Income Taxes Slide 35
Let s Practice with a partner or in small groups Use the information on the following slides to practice completing a tax return using IRS Form 1040EZ Take Charge Today February 2017 Paying Your Income Taxes Slide 36
Darcie and Jeff Naylor 2.2.7.G1 Darcie teaches cooking at the Cook Shop. Jeff is a computer networking technician for Technology Tools. Their W-2s are shown. Their combined bank interest is $1000. If they get a refund, they want the money to be deposited into their checking account (number 89764251) with routing number 11227755. Complete their 1040EZ. Since this is a joint return (husband and wife filing together), you will add their income and taxes to get the sum. Take Charge Today February 2017 Paying Your Income Taxes Slide 37
Take Charge Today February 2017 Paying Your Income Taxes Slide 38 2.2.7.G1
Take Charge Today February 2017 Paying Your Income Taxes Slide 39 2.2.7.G1
IRS Tax Table Take Charge Today February 2017 Paying Your Income Taxes Slide 40
Personal Information: The Naylors Take Charge Today February 2017 Paying Your Income Taxes Slide 41
Income Section Take Charge Today February 2017 Paying Your Income Taxes Slide 42
Payments, Credits, and Tax Section Refund or Owe? 18,043 18,043 4,699 Take Charge Today February 2017 Paying Your Income Taxes Slide 43
Signature Section Jeff D Naylor x/x/xx Darcie I Naylor x/x/xx Take Charge Today February 2017 Paying Your Income Taxes Slide 44
Any Questions? Take Charge Today February 2017 Paying Your Income Taxes Slide 45
Performance Task Given a scenario, you will now complete a tax form on your own to demonstrate the ability of Paying Your Income Taxes