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Chapter 2, Sec. 2-2

Chapter 2, Sec. 2-2

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Chapter 2, Sec. 2-2

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  1. Chapter 2, Sec. 2-2 Federal Income Taxes

  2. I can… • Calculate the adjusted gross income and taxable income • Calculate the income tax due • Calculate the income tax refund for single dependents

  3. Gross Income • Total income in a year that includes: • Wages • Salaries • Commissions • Bonuses • Tips • Interest earned from investments • Dividends • Prizes • Pensions • Business profit

  4. Do I have to report that total to the government? • YES! But they do allow you to make some “adjustments” to your income before you do! • This is great because it results in your paying LESS IN TAXES! • For example: • If your business loss money • If you put money towards retirement • If you paid alimony (money to an ex) • Gross income-adjustments=adjusted gross income

  5. So how do I figure up my total taxable income? • Next, the government allows you to subtract deductions. • Deductions are a GREAT thing! They are expenses that you’ve paid that reduce the amount of your taxable income. • Examples: • Interest paid on mortgages • Property taxes • State and local income taxes • Medical/dental expenses • Contributions to charities

  6. What if I don’t have any deductions? • The government allows you to claim what they call a “standard deduction.” • Single: $5450 • Married filing jointly: $10,900 • So if I made $30,000 the government would only tax me on $24,550 ($30000-5450). • If your deductions are more than the standard deduction you can list yours under what’s called an “itemized deduction.”

  7. So is there anything else I can do to reduce the amount of taxes I pay? • YES! • You can claim “exemptions.” • An exemption is an amount of income per person that is free from tax.

  8. So how many exemptions can I claim? • You can claim 1 for yourself (unless someone else claims you…like your parents). • You can claim 1 for your spouse. • You can claim 1 for each dependent. • So if you’re married with two kids you can claim 4 exemptions! • Each exemption is worth $3500! • So if you make $30,000/year you’re only taxed on $26,500! 

  9. So my taxable income is… • Adjusted gross income-deductions/exemptions • P.48, example 1 • P. 49, check your understanding • P. 52, 11-16 (omit 15)

  10. So when are my final income taxes due? • Income taxes are due to the Internal Revenue Service by April 15th. This is based on what you earned up until December of that year.

  11. So how do I know if I paid too little or too much in taxes each paycheck? • You are required to complete a tax return to see if you withheld too little or too much (depending on how many withholding allowances you claimed). • If you paid too much the government will give you a REFUND!  • If you didn’t pay enough you will have to pay the government! 

  12. So where do I look to see if I paid too little or too much? • The government created tax tables for incomes less than $100,000 based on gross wages. • You just look it up there and fill it in on your tax return.

  13. To find out if I get a refund or if I have to pay… • Look up your taxable income and your income tax due • Subtract the total amount of money withheld from your paychecks • If your income tax due is greater than what was withheld—you owe government! • If your income tax due is less than what was withheld—the government owes you a refund!

  14. So what if my parents claim me? Do I get any money back if I have a job? • YES! • Usually more is withheld from your paycheck than what you will owe in taxes. • So—you get a refund! • Two types of income: earned and unearned. • Earned is from a job. • Unearned is money you get from interest (like money earned off a savings account)

  15. So how much money will I get? • A single dependent who is not blind and under 65 can claim a standard deduction the higher of these 2 amounts: • $850 • The amount of earned income, plus $300, up to $5450 (typical standard deduction).