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TAXES!!!. Introduction. It has been proven that 18-25 year olds are historically the most likely age group to forfeit their tax refund by not filing a tax return. What does this mean? They paid MORE taxes than they needed to and didn’t file to get their money back.

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TAXES!!!


Introduction

  • It has been proven that 18-25 year olds are historically the most likely age group to forfeit their tax refund by not filing a tax return.

  • What does this mean?

  • They paid MORE taxes than they needed to and didn’t file to get their money back.

  • Many teens do not understand taxes.


Introduction

  • In this tax unit, you will understand…

  • All different types of taxes

  • When and why you must file a tax return

  • The different forms and what they are used for.


Understanding Taxes

  • There are three levels of government:

    • Federal- Runs the country as a whole.

    • State- Manages the 50 states

    • Local- Governs counties, cities, and towns.

      All of these levels need money to operate, so you must pay taxes to all three.


The More Common Types of Taxes

  • Income Tax

    • You pay taxes on your income (Money you make)

  • Sales Tax

    • Taxed on items you buy

    • This tax goes to the state or local government

  • Property Tax

    • Based on the value of your property

  • Payroll Tax

    • Social Security and Medicare


Types of Taxes: Sales Taxes

  • Sales tax is calculated as a percentage of the price of the item.

  • The tax rate varies from state to state

    • Colorado sales tax is at least 2% but less than 4%

      • As of 2008 it is 2.9%

      • Craig’s sales tax is 2.25%

    • About 75% of the other states have a higher sales tax percentage than Colorado (at least 5%)


Types of Taxes: Property Taxes

  • One of the main source of money for local government is property taxes.

  • These taxes are based on the value of property-generally land and buildings.

  • Property taxes have been raised in Craig in order to pay for the new Middle School and to build a new hospital


Your Role As a Taxpayer

  • Why do we pay taxes?

  • To pay the government’s bills

  • Government provides public goods and services for the community

  • This is why we have TAXES!

  • Taxes shift resources from private individuals, (you and everyone else who works) and businesses to the government.


Understanding Taxes

  • The Internal Revenue Service (IRS): is the agency that collects federal taxes and oversees the federal system

  • Taxes paid to the IRS go into the U.S. Treasury.


Your Role As a Taxpayer


Your Role as a Taxpayer


Where the Money comes from


Where the Money Goes


Different Tax Systems

  • Regressive

  • Progressive

  • Proportional


Regressive Tax

  • Regressive Tax: Everyone, regardless of income, pays the same $ dollar $ amount.

  • What is the problem with this?

  • Lower-income people pay a larger share of their income than wealthier people.


Regressive Tax

  • Example:

  • John makes $10,000

  • Susan makes $50,000

  • They both have to pay the same dollar amount in taxes.

  • Let’s say they have to pay $1,000 in taxes this year

  • That’s 10% of John’s total income

  • It’s only 2% of Susan’s total income


Regressive Tax

  • What are some examples of Regressive Tax?

  • Tobacco, alcohol, gasoline, jewelry, perfume, travel, licenses, parking, admission to museums and parks, tolls for roads and bridges.


Progressive Tax

  • Progressive Tax: takes a larger percentage of income from high-income groups than from low-income groups and is based on the concept of ability to pay.

  • Our federal tax system today is based on the Progressive Tax.


Progressive Tax


Progressive Tax

  • Example:

  • Low-income pays 10%

  • Middle-income pays 15%

  • High-income pays 30%


Proportional Tax

  • Proportional Tax: Each individual pays a fixed rate.

  • Example:

    • Low-income taxpayers would pay 10%

    • Middle-income taxpayers would pay 10%

    • High-income taxpayers would pay 10%

  • What is an example of Proportional Tax?

  • Sales Tax


The Beginning…

  • You all have or will soon have a job.

  • This is the beginning of paying Federal Income Taxes


You’ve Got a Job!

  • What was one of the first things your employer made you fill out when you got your job?

  • W-4 (Employee’s Withholding Allowance Certificate)

  • What is a W-4 used for?


W-4

  • Used for your employer

    • 4-em-ploy-ER

  • W-4 – is a form you fill out as a new employee so that your employer will withhold (keep) the correct amount of federal income tax from your paycheck.

  • Employee’s Withholding Allowance Certificate


W-4

  • The W-4 tells your employer how much he/she should withhold (keep) from your paycheck.

  • Employers withhold payroll taxes and income taxes

  • Employers then send the amounts withheld to the federal government


W-4

  • If you fill out a W-4 incorrectly, you may have to PAY taxes at the end of the year.

    • You owe IRS

    • Too little was taken out of your checks

    • This could happen if you filed for exemption and you ended up making more than the Standard Deduction ($5,450)

  • OR, a mistake could mean too much tax is being taken out of your paycheck

    • IRS owes you

    • Too much was taken out of your checks

  • The closer you are to 0 for a return, the better.

  • Why?


Exempt from withholding?

  • Depending on how much you expect to make for the year, you may not have to pay FEDERAL income taxes.

    • In other words, you would be “EXEMPT” from paying federal income taxes


Exempt from Withholding?

  • You are exempt from withholding if…

  • 1) You weren’t required to pay federal income tax last year

  • AND…

  • 2) You don’t expect to this year either.


Exempt form withholding?

  • Whether you have to pay or not also relies on whether your parents or guardians CAN claim you as a dependent on THEIR tax return.

  • What is a dependent?

  • Dependent: a person who relies on another taxpayer for at least half of his or her support

  • Support includes food, shelter, clothing, medical, dental care, and education.


Exempt from withholding?

  • Most high school students can be claimed.

  • If you live with your parents/guardians, AND

  • You’re under 19 years of age,

  • You CAN be claimed

  • It’s NOT whether your parents/guardians claim you, it’s whether they CAN if they want to.

  • MOST CASES THEY CAN


Exempt from withholding?

  • So…

  • If your parents CAN claim you

  • You are UNDER 19 years old

    • Or 19-24 and FULL-time student

  • You EXPECT to make LESS than $5,450

  • You can file for exemption!!!

  • $5,450 is a standard deduction

    • The government allows you to deduct (subtract) $5,450 from your income.


STANDARD DEDUCTION

  • Example:

  • You made $4,000 this year

  • Standard Deduction says you don’t have to pay taxes on $5,450 of your income (TAX FREE)

  • Since $5,450 is LARGER than what you made, you won’t have to pay taxes

  • (This doesn’t mean you will get a refund of $1,450 either)


No Way Around All Tax

  • No matter if you filed and qualified for exemption (free from federal income tax) or not, you STILL have to pay some taxes from your paycheck.

  • These taxes are called PAYROLL TAXES


Payroll Taxes

  • They include Social Security (FICA) tax and Medicare Tax

  • THESE TAXES ARE NON-REFUNDABLE

  • You will not see any of this money until you start receiving the benefits of them at age 65

  • (You may also not have social security when you’re that old)


Payroll Taxes

  • Payroll taxes include…

  • 1) Social Security tax (FICA tax)

  • Social security provides the following:

    • Retirement benefits

    • Benefits for people dependent on retired workers

    • Benefits for the disabled and their dependents


Payroll Tax

  • Payroll tax also includes…

  • 2) Medicare Tax

  • Used to provide medical benefits for certain individuals when they reach the age of 65


Your Pay-Stub

  • If you work 5 hours for $10/hour you would make $50

  • This is called your __________ income

  • GROSS (Before Taxes)

  • On payday you realize you get a check for less than $50

  • The money you received is called your _______ income.

  • NET (After Taxes)

  • We have a “pay-as-you-go” tax system


?

?


NEXT SECTION…more forms!!!

  • So far we have covered one form for taxes…

  • W-4

  • Review…What is the W-4 for?


W-2 and 1099-INTs

  • If you had a job in 2008, you WILL receive a W-2

  • W-2 – is a form from employer explaining how much you made in the year.

  • YOU RECEIVE A W-2 FROM EVERY EMPLOYER YOU HAD THIS YEAR.

  • Remember:

  • W-4 = 4 employer

  • W-2 = For you


1099-INTs

  • 1099-INTs – Form explaining how much money you made with interest this year

  • Example: You put $1,000 in a savings account last year.

  • You notice that you now have $1,020 in the account

  • You made $20 of unearned income

  • You will get a 1099-INT form this month explaining you made $20 of unearned income.


January 31st

  • You should have all your forms by January 31st

    • W-2, 1099INTs, 1099DIV, Student loan interest, etc…


Which Form Do You Use?

  • There are 3 possible forms to use.

  • 1040EZ

  • 1040A

  • 1040


1040EZ

  • The simplest IRS form (EASY)

  • You can use this form if…

  • 1) Your filing status is single or married filing jointly

  • 2) You’re younger than 65

  • 3) You or your spouse are not legally blind

  • 4) You have no dependents

  • 5) Your interest income is less than $1,500

  • 6) Your income is less than $100,000


1040EZ (Good and Bad)

  • Good – Very easy and it’s only one page

  • Bad – Limits the number of ways to save on your tax bill


Next one…1040A

  • Has more options to reduce your taxable income than the 1040EZ but is a little longer.

  • Some of them include…

  • Certain IRA contributions

  • Student loan interest

  • Some college tuition and fees

  • Etc…

  • You can’t do this on the 1040EZ


How the EZ could cost you

  • The case of Joe:

  • Finished college last year and got a full-time job making $35,000.

  • He’s single, renting, and has no investment income

  • Perfect person for the 1040EZ…

    • For Uncle Sam he is

  • Filing the 1040EZ, Joe will likely overpay his taxes


How could the EZ cost you

  • The 1040EZ doesn’t offer the same tax breaks found on the other forms

    • The more complicated the forms, the more tax breaks.

  • Since Joe just graduated college, he has a student loan ($2,500)

  • He also started a Traditional retirement account which he put in $3,000.


How the EZ could cost you

  • 1040 EZ

  • Joe owes taxes on $35,000

  • Joe falls into the 25% tax bracket

  • Joe overpaid a lot on his taxes

  • 1040A

  • Joe owes taxes on $29,500

  • Joe falls into the 15% tax bracket

  • Joe saved a lot on taxes


How to fill out the 1040EZ

  • First fill out your name and other personal information

  • Once you do this once, the IRS will send you a booklet and peel off label with the information you used


How to file

  • Line 1:

  • Enter the amount from box one on your W-2

    • More than one W-2…Add both numbers from box 1 together and enter that number

  • Line 2:

  • You will get this number from the bank or other financial institution

    • 1099-INT

    • 2 or more you would add together


How to file

  • Line 3:

  • Will almost never apply to you…leave blank

  • Line 4:

  • Just add lines 1, 2, and 3

  • Adjusted Gross Income: Sum of your wages and taxable interest


How to file

  • Line 5: Determine if you can be claimed as a dependent


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