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Chapter 7

Federal Taxes. What is this picture depicting?. Chapter 7. What is tax revenue? Money the government collects from its citizens and businesses. What is the largest source of government revenue? Income Taxes. Can you list other types of Government taxes that provides revenue?

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Chapter 7

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  1. Federal Taxes What is this picture depicting? Chapter 7

  2. What is tax revenue? Money the government collects from its citizens and businesses. What is the largest source of government revenue? Income Taxes

  3. Can you list other types of Government taxes that provides revenue? Social security taxes Unemployment insurance taxes Inheritance and estate taxes Excise taxes Import duties Personal property taxes

  4. What is the “ability-to-pay” principle? Individuals with high incomes should pay more taxes than people with low incomes. Label these definitions as Progressive, Regressive, or Proportional (flat taxes)

  5. 1 – Taxes for which the rate stays the same regardless of the income. • 2 – Taxes that take a larger share of income as the amount of income grows. • 3 – Taxes that take a smaller share of income as the amount of income grows.

  6. Federal income taxes are an example of what type of tax? Progressive (someone with a low income may only pay 15% while someone with a high income pay 28%) Sales taxes are an example of what type of tax? Regressive. (people with lower incomes pay a larger % for sales tax)

  7. What is an excise tax? Sales taxes imposed on specific goods and services such as gasoline, cigarettes, alcoholic beverage, air travel, and telephone service. What type of tax is an excise tax? Regressive

  8. IRS stands for what? Internal Revenue Service • How many regional offices does the IRS have? 7

  9. What is property tax? Is this a progressive, regressive, or proportional tax? Proportional, all people owning property in the same community pay relatively close to the same rate.

  10. What are some provisions we experience on a local level as a result of taxes? Education Parks playgrounds’ Roads Police,fire, and health depts

  11. What are some provisions on the national level? Salaries for Congress, funds for national defense, highways, wildlife refuges, welfare, foreign aid, and other services.

  12. Although there are nearly 400 Federal Tax Forms, all taxpayers must use one of three basic forms when filing their return. • What are these three forms? Tax Forms

  13. 1040 EZ • 1040A • 1040 Three Basic Tax Forms

  14. If you have no deductions or credits, less than $1500 in interest income, and no dependents… • What tax form should you use?

  15. You should use form 1040 EZ • If you qualify for deductions or credits, you can use one of 2 basic tax forms. What are these 2 different forms?

  16. 1040A • 1040

  17. What is a deduction? On a tax return these are expenses the law allows you to subtract from your Income.

  18. What is a tax credit? An amount subtracted directly form tax owed.

  19. What amount do you plug into a tax table to determine you tax owed? Gross Income? Adjusted Gross Income? Taxable Income?

  20. 3 basic components of our tax system: The IRS Congress and the Power to Levy Taxes Each taxpayer

  21. What does IRS stand for (Internal Revenue Service) What are the main functions of the IRS? 1 – Collect income taxes 2 – Enforce tax laws What are some of the services it provides to taxpayers?

  22. - Assist in finding information and forms • - Prints pamphlets to aid taxpayers • - furnishes tax information and instruction booklets free to schools and colleges • -maintains a website where people can download tax forms, and file their taxes electronically.

  23. How many regional offices does the IRS have? 7 Each regional office oversees at least how many district offices? 10

  24. The power to levy taxes rests with who? Congress Proposals to increase or decrease taxes may come from who and what bodies? The President, Dept of Treasury, or a member of Congress.

  25. Revenue bills must pass a vote in both the House and the Senate and be signed by the President before becoming a Law. Our Tax System is graduated. What does this mean?

  26. Tax rates increase as taxable income increases. Tax rates apply to income ranges (brackets)

  27. Congress may increase tax rates to bring in more money to balance its budget. When the Government spends more money than it receives in revenue, it creates a what? Deficit (shortage) It must then borrow money to pay its expenses.

  28. Our tax system in based on Voluntary compliance. What does this mean? All citizens are expected to prepare and file income tax returns.

  29. Taxes are due by when of each year? April 15 What are some consequences for not paying your taxes? Interest charges on taxes owed A fine and/or imprisonment

  30. Willful failure to pay taxes is called what? Tax evasion What is an audit? An examination of tax returns . What are the three types of audits?.

  31. OFFICE AUDIT • CORRESPONDENCE AUDIT • FIELD AUDIT

  32. Office Audit – Taxpayer sits down with Auditor to answer questions. • Correspondence Audit – IRS sends a letter, asking the taxpayer to respond to specific questions or produce evidence

  33. Field Audit – IRS Agent visits the taxpayer

  34. AGI stands for? • IRS stands for?

  35. Single Person (not married) • Married Person filing a joint return(even though only one spouse has earned income) • Married person filing separately • Head of Household • Qualifying Widow (er) with dependent child Filing Status Options

  36. What is an exemption? The amount you may subtract from your income for each person who depends on your income to live. As a taxpayer you are automatically allowed 1 exemption for yourself unless someone else (like a parent) claims you as his/her dependent.

  37. Who qualifies as a dependent? • A person who lives with you and receives more than half of his or her living expenses from you. Dependents can include children, spouse, elderly parents, or disabled relatives living with you.

  38. On tax returns, deductions, are expenses the law allows you to subtract from your AGI(Adjusted Gross Income) to determine your taxable income. • Remember, Deductions are subtracted from your AGI

  39. To attain the best tax benefit, a tax payer may need to itemize(to list) their deductions as the total of their itemized deductions is greater than the standard deduction. • What is the standard deduction?

  40. Standard Deduction: A stated amount that you may subtract from your AGI instead of itemizing your deductions.

  41. Since your tax is based on your taxable income, anything that reduces taxable income, also reduces your tax.

  42. To itemize deductions, you must use a Schedule A and a Form 1040 • Some common expenses you may deduct: • Medical and dental expenses • State and local income taxes • Property taxes • Home mortgage interest paid • Charitable contributions • Moving expenses

  43. However, if you don’t have many deductions to list, it will likely be more advantageous to claim the Standard Deduction rather than itemizing.

  44. Deductions • Subtracted from your Adjusted Gross INcome • Credits • Subtracted directly from taxes owed

  45. You must file a tax return if you earned more than a certain amount specified by the Government. (this threshold amount may change from year to year). • If you did not earn enough to owe taxes but had money withheld from your paycheck, you will have to file to get your refund

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