Taxes

1. Taxes

2. Taxes • Taxes are expenses that you pay everyday that are used by the local, state and federal government to provide important services such as: police and fire protection, public schools, road maintenance, parks, libraries, military, Medicare and Medicaid, etc.

3. Types of Taxes • Sales Tax – tax on products you purchase. • Excise Tax – may be charged on such items as automobiles, gasoline, air travel • Property Tax: tax on value of land and buildings (home). This is a major source of income to your local government. As the value of the property increases, so does the tax.

4. Types of Taxes (cont) • Gift tax – applies to money or property valued at more than $11,000 given by one person to another. (amount subject to change by federal government at any time).

5. Income tax • Taxes on wages, salaries, and self-employed earnings. It is the main source of income for the federal government. • Wages – money received from hourly work. • Salary – money received for weekly or monthly work, regardless of the number of hours worked.

6. Taxes on Wealth • Estate tax – federal tax collected on the value of a persons property at the time of their death. • Inheritance tax- this is a tax charged to heirs of a will and must be paid before the heirs can collect the inheritance.

7. Earned/Unearned Income • Earned income: salaries and wages, commissions, bonuses, professional fees, tips. • Unearned Income: money received from sources other than working in a job. Examples would be: • Interest Income- interest earned on savings accounts • Dividend Income- dividend payments received from stock ownership • Capital Gains • Pension payments to retirees

8. Unearned income is taxable and must be included on your taxes as income. • The tax rates for unearned income may be lower than income tax rates on earned income. • (ex. Dividend payments may be subject to a 15% tax while earned income tax may be at a much higher rate)

9. Tax Forms • Every year millions of taxpayers in the U.S. prepare and file their tax return with the Internal Revenue Service (IRS). • The form may be a 1040 or 1040EZ. The1040EZ is the simplest tax form to complete. • You are required to file an income tax return by April 15th of each year (unless the 15th falls on a Saturday or Sunday, in which case you would be required to file on the following Monday. • Financial penalties for late filing may be incurred, even if you are just one day late. • Your employer is required by law to send you a W-2 form, or the Wage and Tax Statement. This must be sent to you by January 31st of each year.