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8.3 Paying Income Taxes8.3 Paying Income Taxes 2 2 income tax income tax responsibilities:responsibilities: Complete a W-4 when you start a job.Complete a W-4 when you start a job.
(W-4 B4 start working)(W-4 B4 start working)
File a tax return at least once a year, if File a tax return at least once a year, if required and pay any additional tax required and pay any additional tax owed.owed.
Allowances: USE Allowances: USE W-4W-4
Determines how Determines how much tax to take out much tax to take out of your paycheck.of your paycheck.
Completed at hire.Completed at hire. P. 201P. 201
Allowances: USE Allowances: USE W-4W-4
****Higher allowances- Higher allowances- Less taxes taken out Less taxes taken out of paycheck.of paycheck.
““1” = bigger check1” = bigger check ““0” = smaller check0” = smaller check
What if you need to What if you need to change allowances??change allowances??
You can change your W-4 Allowances at You can change your W-4 Allowances at any time during employment.any time during employment.
Ex: get married, have a babyEx: get married, have a baby
Get a bigger check?Get a bigger check? As of 2014 the standard deduction equals $6,200. As of 2014 the standard deduction equals $6,200.
Therefore, Therefore, if a teenager expects to earn less than if a teenager expects to earn less than the standard deduction amount, and did not have the standard deduction amount, and did not have any tax owed for the prior year, the teen can write any tax owed for the prior year, the teen can write "exempt""exempt" on line 7 of the Form W-4 and no on line 7 of the Form W-4 and no federal income tax will be withheld.federal income tax will be withheld.
You will still have to You will still have to Social SecuritySocial Security and and Medicare Medicare deducted from paychecksdeducted from paychecks. Do not have to file . Do not have to file 1040ez. 1040ez. Read more: Read more: Do Teenagers Have to Withhold From Paychecks? | eHow.com http://www.ehow.com/info_8718274_do-teenagers-withhold-paychecks.html#ixzz2K41Rm2xj
Would you rather have more Would you rather have more taxes taken out of checks & taxes taken out of checks & Get bigger refund?Get bigger refund?
Or have less taken out of Or have less taken out of paychecks with less of a refund or paychecks with less of a refund or possibly have to pay more taxes possibly have to pay more taxes after your return is filed?after your return is filed?
Avg. Tax Refund Avg. Tax Refund $3000.00$3000.00
Financial advisors argue the point that by Financial advisors argue the point that by allowing the government to knowingly allowing the government to knowingly collect more in tax from you during the collect more in tax from you during the year, you are, in effect, year, you are, in effect, giving Uncle Sam giving Uncle Sam an interest free loan. an interest free loan.
A more wise investment A more wise investment may pay off later…may pay off later…
For example, For example, reducing your withholding by $3,000 reducing your withholding by $3,000 annually means that for the average taxpayer, you annually means that for the average taxpayer, you will not receive a refund, but you will not owe any will not receive a refund, but you will not owe any taxes eithertaxes either. .
That's an extra $58 per week, or about $250 per month That's an extra $58 per week, or about $250 per month you have access to. you have access to.
Investing that money into a mixture of stocks, bonds or Investing that money into a mixture of stocks, bonds or precious metals, with an average return of 6 percent, precious metals, with an average return of 6 percent, would yield an inflation-adjusted amount of $70,000 after would yield an inflation-adjusted amount of $70,000 after just 10 years. just 10 years.
Why let the gov’t borrow your money interest Why let the gov’t borrow your money interest free?free?
Dependent:Dependent: Anyone supported by taxpayer’s income.Anyone supported by taxpayer’s income. Why should you have fewer taxes taken Why should you have fewer taxes taken
out if you have more dependents?out if you have more dependents?
2010-2011--Three Sets Of Twins Born In Different Years 2010-2011--Three Sets Of Twins Born In Different Years * before midnight on new years eve /after midnight- new * before midnight on new years eve /after midnight- new years dayyears day
How does this affect parent’s tax return? How does this affect parent’s tax return?
What do you need to file What do you need to file 1040ez tax return?1040ez tax return?
W-2W-2– How many will you receive?– How many will you receive?
Do you have a savings account?Do you have a savings account? Then you will also get a Then you will also get a FORM 1099FORM 1099.. Misc. income reported.Misc. income reported.
Interest from accountInterest from account Prize valuePrize value
Tax DeductionTax Deduction
What do they do? What do they do? reducesreduces the amount of taxes owed. the amount of taxes owed.
Ex: Make $60,000. Gave $5000 to Ex: Make $60,000. Gave $5000 to charity. You are taxed on $55,000.charity. You are taxed on $55,000.
2 main types of deductions- 2 main types of deductions- Choose one or the other…Choose one or the other…
ItemizedItemized vs. vs. StandardStandard Tax Deductions – Tax Deductions –
Which One Should You Take?Which One Should You Take?
2014 2014 StandardStandard Tax Deduction Tax Deduction
standard tax deduction is standard tax deduction is easier easier
method.method. it’s simply a fixed number it’s simply a fixed number
set each year just have to set each year just have to write it down on your tax write it down on your tax form . form .
Nearly 2 out of 3 taxpayers Nearly 2 out of 3 taxpayers take the standard deductiontake the standard deduction
Single $6200Single $6200 Married, Filing Jointly Married, Filing Jointly
$12,400$12,400 Married, Filing Married, Filing
Separately $6,200Separately $6,200 Head of Head of
Household $9,100 Household $9,100 Blind or over 65 and Blind or over 65 and
married add: $1,150 married add: $1,150 Blind or over 65 and Blind or over 65 and
single/head of household single/head of household add: $1,450 add: $1,450
2014 2014 ItemizedItemized Tax Deductions:Tax Deductions:
But if you think you may But if you think you may have tax deductionshave tax deductions
biggerbigger than the standard than the standard deductiondeduction
it may make sense to it may make sense to itemize, even though it will itemize, even though it will require better record keeping require better record keeping and a little more workand a little more work
Can not use 1040EZ tax form Can not use 1040EZ tax form if itemizing deductions.if itemizing deductions.
Single $6200Single $6200 Married, Filing Jointly Married, Filing Jointly
$12,400$12,400 Married, Filing Married, Filing
Separately $6,200Separately $6,200 Head of Household $9,100 Head of Household $9,100 Blind or over 65 and married Blind or over 65 and married
add: $1,150 add: $1,150 Blind or over 65 and Blind or over 65 and
single/head of household single/head of household add: $1,450 add: $1,450
ItemizedItemized Tax deductions: Tax deductions:
Examples includeExamples include:: Mortgage interest. Mortgage interest. Charitable contributions. Charitable contributions. Property taxes. Property taxes. State and local income taxes. State and local income taxes. Medical expenses that Medical expenses that
exceed 7.5% of your adjusted exceed 7.5% of your adjusted gross income. gross income.
Various miscellaneous Various miscellaneous expenses that exceed 2% of expenses that exceed 2% of your income such as: union your income such as: union dues, tools and supplies dues, tools and supplies needed for work, tax needed for work, tax preparation fees, some legal preparation fees, some legal fees, and many more. fees, and many more.
Single personSingle person
For 2014 You could take For 2014 You could take Standard Standard Deduction of $6200Deduction of $6200
Or show receipts for Or show receipts for ItemizedItemized deductions deductions greater than $6200.greater than $6200.
****Must use one or the other, not both.Must use one or the other, not both.
Missed deductions can be Missed deductions can be the most costly…. the most costly….
About 48 million of us About 48 million of us itemizeitemize on our 1040s -- claiming more than on our 1040s -- claiming more than $1 trillion worth of deductions.$1 trillion worth of deductions.
$1,000,000,000,000$1,000,000,000,000
Another 92 million taxpayers claim about $700 billion worth using Another 92 million taxpayers claim about $700 billion worth using standardstandard deductions deductions
$700,000,000,000$700,000,000,000
http://www.kiplinger.com/features/archives/the-mostoverlooked-tax-deductions.html#ixzz1XEFxeqJH
Tax Credits – “Tax Credits – “bonusbonus” ” ExamplesExamples::
Your tax form shows you owe $9,000 in taxes.Your tax form shows you owe $9,000 in taxes.
tax credit of 500tax credit of 500
Now owe $8500Now owe $8500
Tax Credits – “Tax Credits – “bonusbonus” ” ExamplesExamples::
$500$500 tuition credit (ex: mater dei) tuition credit (ex: mater dei) $1000 credit$1000 credit for each dependent child- for each dependent child-
16 yrs by dec. 31, 2014.16 yrs by dec. 31, 2014. American Opportunity Tax CreditAmerican Opportunity Tax Credit
up to $2,500 on the first $4,000 of qualifying educational up to $2,500 on the first $4,000 of qualifying educational expenses, which include course materials as well as expenses, which include course materials as well as tuition. tuition.
2009-2010 First time homebuyers tax credit2009-2010 First time homebuyers tax credit Up to $8000 creditUp to $8000 credit
What is a W-2?What is a W-2? When do you get them? When do you get them? By Jan 31By Jan 31..
INFORMATION ON W-2 should Match INFORMATION ON W-2 should Match your last pay stub of the yearyour last pay stub of the year. .
Why is it important for Why is it important for your parents (and you) to your parents (and you) to get 2014 taxes get 2014 taxes completed before March completed before March 2015?2015?
1040EZ “Easy Form”1040EZ “Easy Form” Use the Use the 1040EZ1040EZ if: if: • • Your taxable income is below Your taxable income is below
$100,000$100,000
• • Your filing status is Single or Your filing status is Single or Married Filing JointlyMarried Filing Jointly
• • You and your spouse – if married You and your spouse – if married -- are under age 65 and not blind-- are under age 65 and not blind
• • You are not claiming any You are not claiming any dependentsdependents
• • Your interest income is $1,500 or Your interest income is $1,500 or lessless
Using Using StandardizedStandardized Deduction. Deduction.
When do you get your When do you get your money?money?
Check the Status OnlineCheck the Status Online The fastest and easiest way to find out The fastest and easiest way to find out about your current year refund is to go toabout your current year refund is to go to IRS.gov IRS.gov and click the and click the “Where’s My Refund?” link at the IRS.gov home page. To check “Where’s My Refund?” link at the IRS.gov home page. To check the status online you will need your Social Security number, filing the status online you will need your Social Security number, filing status and the exact whole dollar amount of your refund shown on status and the exact whole dollar amount of your refund shown on your return.your return.
Check the Status By PhoneCheck the Status By Phone You can check the status of your refund by You can check the status of your refund by calling the IRS Refund Hotline at 800–829–1954. When you call, you calling the IRS Refund Hotline at 800–829–1954. When you call, you will need to provide your Social Security number, your filing status will need to provide your Social Security number, your filing status and the exact whole dollar amount of the refund shown on your and the exact whole dollar amount of the refund shown on your return.return.