3/24/14 “Deductions, credits, & dependents”

3/24/14 “Deductions, credits, & dependents” What is the difference between a tax deduction and a tax credit? What is a dependent & how do they effect your taxes? On desk: Deductions & credits wksht.

Earn: $50,000Owe in taxes: $10,000 Credits reduce amount $$ you OWE in taxes. Deductions reduce amount $$ you are TAXED ON.

What is a dependent & how do they effect your taxes? • dependent: • Someone who depends on you to live (child, grandma, cousin, etc.) • The more dependents you can claim, the more money you save on your taxes! (dependent credits)

How much would your standard deduction be if you filed your taxes today? • Single = $6,100 • Married = $12,200 • What is the difference between nonrefundable tax credits and refundable tax credits? • Nonrefundable: • can reduce tax liability to zero, but not below • Refundable: • can reduce tax liability below zero, which means…? • Govt. can end up owing you money!

Deductions ($ reduces income subject to tax) Credits ($ reduces amt. of tax owed)

3/24/14 Econ. Agenda How to file your taxes, part one (class notes) Adjusted Gross Income tax problems HW: finish AGI tax problems # 1 – 3

3/24/14 Class notes – how to file your taxes • Need at least 3 things: • Personal info. for you and your dependents (SSN, date of birth, address, etc.) • W-2 form – statement of your wages for past year • Correct tax form • Need to file BOTH Federal & State tax forms every year! • Tax due date? • April 15th!

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3/24/14 Class notes – how to file your taxes • Adjusted Gross Income (AGI) • Amount of income you are taxed on(basically) • Total income minus all of your deductions • Income = $50,000 • Standard deduction = $6,100 • Student loan interest deduction = $1,500 • Charitable contribution to RIPR = $150 • Total amount in deductions? • = $7,750 • AGI = $50,000 – $7,750 = $42,250

3/24/14 Class notes – how to file your taxes • What form do I need to file my taxes? • 3 forms to choose from (federal taxes): • 1040 EZ • Shortest, least complicated: • Under $100,000 income, no dependents, under age 65, single or married filing jointly… • 1040A • Medium length, more complicated: • Same as 1040EZ but…any age, can claim dependents, owning stocks & other investments… • 1040

3/24/14 Class notes – how to file your taxes • What form do I need to file my taxes? • 3 forms to choose from (federal taxes): • 1040 • Longest, most complicated: • Any marital status, over $100,000 income, sold property, self employed, greater than $1500 in interest earned… • How do I file my taxes? • Online or paper (online refund comes faster) • Self with tax forms, pay a professional, or pay TurboTax, etc.

1040-EZ Short Marital status Single, married filing jointly Age >65 Dependents none Interest income <$1,500 Taxable income <$100,000 1040A Medium Marital status Single, married filing jointly Age Any Other Retirement payments Own stocks Student loans Dependents yes Interest income <$1,500 Taxable income <$100,000 • 1040 • Long • Marital status • married filing separately, divorced • Other • Self-employed • Sold property • Own stocks • YES itemized deductions • Interest income • >$1,500 • Taxable income • >$100,000

Adjusted Gross Income Federal Tax Rates, 2013 Single

Example: You are single and earn $89,000 as a plumber. You get the standard deduction amount of $6,100 and a child tax credit of $1,000. What is your AGI and how much money do you owe in taxes? AGI = $89,000 - $6,100 Income = $89,000 Deductions? $6,100 AGI = $82,900 Amount of tax owed? $4,991.25 plus 25% of the amount over $36,250 AGI = $82,900 - $36,250 $4,991.25 Tax credits? $46,650 + $11,662.50 $16,653.75 X .25 $16,653.75 - $1,000.00 $11,662.50 Tax owed = $15,653.75

3/24/14 “Deductions, credits, & dependents”