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Federal Income Tax Personal Finance

Federal Income Tax Personal Finance. 1. The IRS. Internal Revenue Service Its main purposes are to collect income taxes and enforce tax laws. 2. The Government’s Largest Source of Revenue. Income Taxes (taxes withheld from a worker’s paycheck). 3. Why taxes are paid….

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Federal Income Tax Personal Finance

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  1. Federal Income TaxPersonal Finance

  2. 1. The IRS • Internal Revenue Service • Its main purposes are to collect income taxes and enforce tax laws

  3. 2. The Government’s Largest Source of Revenue • Income Taxes (taxes withheld from a worker’s paycheck)

  4. 3. Why taxes are paid… • Government can pay its bills • Public goods and services can be provided such as… • National defense, veterans, and foreign affairs • Community development • Social programs • Law enforcement and general government • Social Security, Medicare, and other retirement

  5. 4. Voluntary Compliance • The U.S. tax system believes that taxpayers hold the responsibility of reporting income to the government

  6. 5.Tax Evasion vs. Tax Avoidance • Tax Evasion is when individuals or businesses avoid reporting all or some of their income. This is ILLEGAL! • Tax Avoidance is an action taken to lessen tax liability or maximize after-tax income by taking advantage of benefits the government offers. This is perfectly LEGAL!

  7. 6. Taxpayers’ Rights! • The right to privacy of financial information • Only authorized personnel may examine or audit a tax return

  8. 7. Progressive Tax • The more income you make…the more you will be taxed

  9. 8. The Benefits of Having Taxes Withheld from Paycheck • Taxpayers would avoid the difficulty of having to save enough money to pay the government by the end of the year • Government services would not be interrupted due to the continuous funding throughout the year

  10. 9. The Result of Too Many Taxpayers Taking Advantage of Tax Breaks • Government revenue declines leading to tax increases and/or cut backs on government services

  11. 10. How Taxpayers Report Income to see if enough money was paid to the government throughout the year • By filing a tax return • Deadline to file: April 15th

  12. 11. How to File a Return • File electronically through the IRS e-file program • Use a tax preparation software to do your own taxes • Hire a professional tax preparer

  13. 12. Types of Tax Returns • 1040EZ (short form) • 1040A (short form) • 1040 (long form)

  14. 13. What’s Needed to File a Tax Return • Form W-2: Wage and Tax Statement (must be received by January 31)

  15. READ THIS SLIDE ONLY Completing a tax return can be challenging. A great deal of information goes into completing a tax return. The information presented on a tax return must be complete and correct. After we complete the lesson on Federal Income Tax, you will know how to fill out a tax return. MOVE TO LAST SLIDE

  16. 14. Once the tax return is completed a taxpayer will see… • If s/he has overpaid the government in taxes (a refund is expected) • OR • If s/he has not paid enough to the government in taxes (a tax liability will incur and it must be paid)

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