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Federal Income Tax

Federal Income Tax. Chapter #2. Our Tax System. Section #2.1. Section Goals. Discuss the purpose of taxes and different types of taxes in the United States. Describe components of the United States tax system. Types of Taxes. Revenue:

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Federal Income Tax

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  1. Federal Income Tax Chapter #2

  2. Our Tax System Section #2.1

  3. Section Goals • Discuss the purpose of taxes and different types of taxes in the United States. • Describe components of the United States tax system.

  4. Types of Taxes • Revenue: • Money collected from citizens and businesses in the form of taxes that is spent as specified by Congress. • The Types of Taxes: • Progressive Taxes: • Taxes that take a larger share of income as the amount of income grows. • Regressive Taxes: • Taxes that take a larger share of income as the amount of income grows. • Proportional Taxes: • Taxes for which the rate stays the same regardless of income.

  5. Components of the Tax System • The IRS is the government agency in charge or collecting taxes, enforcing tax laws, and supplying information to help taxpayers prepare their tax returns. • Tax Evasion: • Willful failure to pay taxes. • Audit: • An examination of a tax return.

  6. Paying Your Fair Share • The income tax system is graduated. • Different tax rates apply to different income ranges. • Tax Brackets: • Income ranges.

  7. Filing Tax Returns Section #2.2

  8. Section Goals • Define tax vocabulary. • Prepare tax Forms 1040EZ and 1040A.

  9. Definitions of Terms • Gross income consists of taxable income received from all sources. • Gross Income: • All taxable income your receive. • Gross Income Includes: • Child Support: • Money paid to a former spouse for support of dependent children. • Alimony: • Money paid to support a former spouse. • Adjusted Gross Income: • Reduce your income that is subject to tax, and reduces your total tax.

  10. Definition of Terms (Continued) • Exemption: • An amount you may subtract from your income for each person who depends on your income to live. • Tax deductions are subtracted from the income and used to figure the tax. • Deductions: • Expenses the law allows you to subtract from your adjusted gross income to determine your taxable income. • Itemize: • Listing all allowable expenses on your tax return. • Standard Deduction: • A stated amount that you may subtract from adjusted gross income instead of itemizing your deductions. • Tax credits are subtracted from the tax owed. • Tax Credits: • An amount subtracted directly from the tax owed. • To determine taxable income, subtract adjustments, deductions, and exemptions from gross income. • Taxable Income: • The income on which you will pay tax.

  11. Preparing to File • File the short form, 1040EZ, if your income is less than $50,000 and you have no dependents. • File Form 1040A if you do not have enough deductions to itemize and have less than $50,000 of income.

  12. Refund or Amount Owed? • If the amount withheld from your paychecks exceeds your total tax, you will receive a refund. • If the amount withheld is less than your total tax, you must pay the difference when you file your tax return.

  13. Bibliography • Ryan, J.S. (2006). “Managing your personal finances; 5th ed.” Thomson South-Western; Mason, Ohio.

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