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8.3 Paying Income Taxes

8.3 Paying Income Taxes. 2 income tax responsibilities: Complete a w-4 when you start a job. File a tax return at least once a year and pay any additional tax owed. Purpose: Determines how much tax to take out of your paycheck. Completed at hire.

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8.3 Paying Income Taxes

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  1. 8.3 Paying Income Taxes • 2 income tax responsibilities: • Complete a w-4 when you start a job. • File a tax return at least once a year and pay any additional tax owed.

  2. Purpose: Determines how much tax to take out of your paycheck. Completed at hire. Higher allowances- Less taxes taken out of paycheck. Allowances: USE W-4(w-4 before you start work.)

  3. When can you change # of allowances on w-4? • Anytime • Ex: when you have a baby or get married.

  4. Dependent: • Anyone supported by tax payers income. • Why should you have fewer taxes taken out if you have more dependents?

  5. Three Sets Of Twins Born In Different Years Over New Year's Weekend

  6. Would you like no federal taxes taken out of your check? • The Standard Deduction for individual is $6100 for 2013. • If you expect to earn less than that amount and did not have any tax liability in 2012, you can write “EXEMPT” on line 7 on your W-4. • No FEDERAL taxes will be taken our of your check. You will not have to file a 1040EZ tax return. Statetaxes and FICA will still be deducted from you check.

  7. WHICH IS BETTER? • Big refund? • Bigger paychecks throughout the year?

  8. Average tax refund $3000. • "All a tax refund is, is the government saying to you, 'You've overpaid and here's your change,' " explains Charles Enis, an accounting professor at Penn State University. • Uncle Sam is getting an interest-free loan from you.

  9. What do you need to file the 1040EZ tax return? • W-2 and form 1099 if you have: savings account or other taxable income. • ie: prize winnings.

  10. When to you get w-2? • Has to be mailed to you by JAN. 31st. • What is it? • See example on back of W-4 worksheet. • Shows how much you made from job, how much was taken out in deductions. • Should match your last pay stub of the year • How many will you get?

  11. Tax Deductions: • What do they do?

  12. Tax Deduction • Something that reduces the amount of taxes paid. • 2 types of deductions- Choose one or the other…

  13. Itemized vs. Standard Tax Deduction – Which One Should You Take?

  14. standard tax deduction is easiest. it’s simply a fixed number set each year just have to write it down on your tax form . Nearly 2 out of 3 taxpayers take the standard deduction Get to use the short tax form, 1040EZ. Single   $6,100 Married, Filing Jointly    $12,200 Married, Filing Separately   $6,100 Head of Household  $8,950 Blind or over 65 and married add:   $1,200 Blind or over 65 and single/head of household add:     $1,500 2013 Standard Tax Deduction

  15. But if you think you may have tax deductions bigger than the standard deduction it may make sense to itemize, even though it will require better record keeping and a little more work Can not use 1040EZ tax form if itemizing deductions. 2013 Itemized Tax Deductions:

  16. Itemized Tax deductions: Examples include: • Mortgage interest. • Charitable contributions. • Property taxes. • State and local income taxes. • Medical expenses that exceed 7.5% of your adjusted gross income. • Various miscellaneous expenses that exceed 2% of your income such as: union dues, tools and supplies needed for work, tax preparation fees, some legal fees, and many more.

  17. Single person • For 2013: You could take Standard Deduction of $6,100 • Or show receipts for Itemizeddeductions greater than $6,100. **Must use one or the other, not both.

  18. Missed deductions can be the most costly…. • About 48 million of us itemize on our 1040s -- claiming more than $1 trillion worth of deductions. • $1,000,000,000,000 • Another 92 million taxpayers claim about $700 billion worth using standard deductions • $700,000,000,000 • http://www.kiplinger.com/features/archives/the-mostoverlooked-tax-deductions.html#ixzz1XEFxeqJH

  19. Tax Credits = bonuses • Examples: • $500 tuition credit • 10% of cost of some Energy Star Appliances. • American Opportunity Tax Credit • up to $2,500 on the first $4,000 of qualifying educational expenses, which include course materials as well as tuition. • First time homebuyers tax credit • Up to $8000 credit extended to 2010 taxes.

  20. EX: how tax credit works: • Owe $345 in taxes. • tax credit +$500 ________________________ • Now get a $155 refund instead of paying.

  21. American Opportunity Tax Credit up to $2,500 on the first $4,000 of qualifying educational expenses, which include course materials as well as tuition. Will be good for 2013-2017 years ($10,000 total) Families who earn too much can’t claim the credit. The income phase-out for claiming the AOTC is $160,000 – $180,000 of modified adjusted gross income on joint tax returns ($80,000 – $90,000 for single tax filers and head of household). The amount of the credit is calculated as 100% of the first $2,000 in qualified tuition and fees costs paid, plus 25% of the next $2,000 paid for such fees. For lower income taxpayers who don’t owe $2,500 in tax, up to $1,000 of the credit is refundable. (The credit is not refundable on a dependent child’s return).

  22. Why are tax credits better than tax deductions?

  23. 2013 tax returns: • Why is it important for you parents to get their taxes completed quickly this year? • FAFSA should be submitted by FEB 28th. • Need 2013 tax info to complete the form.

  24. Next, we will complete a 1040EZ tax form.

  25. 1040EZ “Easy Form” • Use the 1040EZ if: • • Your taxable income is below $100,000 • • Your filing status is Single or Married Filing Jointly • • You and your spouse – if married -- are under age 65 and not blind • • You are not claiming any dependents • • Your interest income is $1,500 or less • Using Standardized Deduction.

  26. When do you get your money? Check the Status Online The fastest and easiest way to find out about your current year refund is to go to IRS.gov and click the “Where’s My Refund?” link at the IRS.gov home page. To check the status online you will need your Social Security number, filing status and the exact whole dollar amount of your refund shown on your return. Check the Status By Phone You can check the status of your refund by calling the IRS Refund Hotline at 800–829–1954. When you call, you will need to provide your Social Security number, your filing status and the exact whole dollar amount of the refund shown on your return.

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