1 Vocab/Definitions WS. Lesson 1 Introduction 2 Note: All information is based on 2011 data.
-
Upload
lesley-lloyd -
Category
Documents
-
view
216 -
download
0
Transcript of 1 Vocab/Definitions WS. Lesson 1 Introduction 2 Note: All information is based on 2011 data.
1Vocab/Definitions WS
Lesson 1
Introduction
2
Note: All information is based on 2011 data
Did You Know
Nearly 1/3 all students work 40+ hours per week in summer
¼ work 35+ hours per week during the school year
Average teen saves $1000 of summer wages
3
What’s the Problem?Teens don’t understand
how TAX applies to them
Most forfeit a refund!!!
4
Is this you???
Objectives…Basic Tax LawExemptionsDependentsWithholdingsPayroll TaxesIncomeDeductionsWhen and How to File a Tax Return
5
(We will focus on Federal Tax in this Unit)
6
Lesson 2
I’ve Got A Job!What’s an I-9 and a W-4?
Form I-9 – Employment Eligibility VerificationProves you aren’t an illegal alienPenalty if not one on file for each employeeKeep 3 years after employee is goneAcceptable documents used to prove
citizenship:PassportVoter’s registrationSchool or military IDDriver’s licenseSocial security card
7
So What Is A W-4?New employees fill out this formTells employers how much federal income
tax to withhold from paycheck
8
Filling Out the W-4 CorrectlyIf don’t fill out correctly:
Owe money when taxes are due April 15
Could be taking out too much tax from paycheck
Lose potential interest
9
A Few Key Terms You Need To Know
WITHHOLDING:Represents money that an employer deducts
from paycheck to pay all or part of employee’s taxes
However, depending how much you make for the rest of the calendar year, you may not have to pay federal income tax. If this is you, you would be EXEMPT from paying
10
Are you Exempt? Exempt if:
1. Weren’t required to pay federal income tax last year2. Don’t expect to this year either (made less than
$5800)3. If under 19 or a full-time student (or until 24 yr/full time)
4. If have to pay, will depend on if parents CAN claim you as a dependent
DEPENDENT: A person who relies on another taxpayer for at least half of his or her support (food, shelter, clothing, education, etc.)
If divorced Custodial parent (has child 1 more day than other) One makes more money
11
Examples:If you live with parents and under 19, you
can be claimed as a dependent regardless of how much you make.
While your parents may not choose to claim you, test is whether they CAN.If they can claim you and you are under 19,
and expect to make under $5800 in the calendar year, you will likely NOT have to pay federal income tax. Note: If you are at least 19 but under 24,
parents can still claim you as a dependent as long as you are a FULL-TIME Student!
12In-Class Am I Exempt WS Am I Exempt WS
I don’t qualify for exempt status – now what?
Need to fill out the personal allowances worksheet on the W-4 form!
The more exemptions (allowances) you claim, the less tax withheld from paycheck
Claim “0” will result in the largest amount of tax to be withheld
13Do: Pg. 6 then Fill out W4 WS
What if I Make a Mistake?Claim exempt and make more than
$5800?
More than likely have to owe taxes!
If you don’t claim exempt (0 allowances)
More than likely break even or receive a refund!
14
15
Lesson 3
Where’s All The Money I Earned?
Where’s All The Money I Earned?Payroll Taxes
Collected from employers and employees to provide retirement benefits (social security, Medicare)
This amount is paid regardless of income earned
Will NOT get back until retirement
16
The Paycheck StubMiscellaneous Information
Gross Income
Deductions
May get refund on Fed and State
No refund on SS or Medicare
Net Income
17
P. 10 - verbal W4 qz/Am I Exempt QZ
Lesson 4
What’s This,More Forms?W-2s and 1099-INTs
19
What? More Forms?W-2 – will have 3 copies
Your records
Attach to state tax return
Attach to federal tax return
1099-INT
20
The W-2Must receive these by January 31st
from your employer
Summarizes
How much you made during the year (Earned Income)
How much you paid in for taxes
Use to help fill out tax return
If error, see employer to fix21
1099-INTReceive this form from your bank
Shows interest earned for year
Remember: Interest is considered “unearned income” and may have to pay tax on it!
23
W-2 and 1099-INT will help you to determine whether
you are required to, or should, file a federal tax
return!
25
26
Lesson 5
Am I Required to File a Tax
Return?
Am I Required to File a Tax Return (as a dependent)?
Due April 15!
Required? Depends…
*Your income for the year
*If parents can claim you, you must file if:
1.Your unearned income was over $950
2.Your earned income was over $5800
Filing Requirement Worksheet for Most Dependents 1. Calculate Gross Income:
(earned income + unearned income)
2.Enter dependent's earned income plus $300
3.Minimum amount $950
4. Compare lines 2 and 3. Enter larger amt (Adjusted Earned Income)
5. IS: Gross Income > Adjusted Earned Income? MUST file
6. IS: Gross Income < Adjusted Earned Income? DOES NOT have to file
3.
Am I Required to File a Tax Return?
John Garcia, 18, earned $4200 working at the local library and was paid $210 in interest from his bank savings account.
Filing Requirement Worksheet for Most Dependents 1.
Calculate Gross Income:
(earned income + unearned income)
2.
Enter dependent's earned income plus $300
3.
Minimum amount $950
4.Compare lines 2 and 3. Enter larger amt (Adjusted Earned Income)
5.IS: Gross Income > Adjusted Earned Income? MUST file
6.IS: Gross Income < Adjusted Earned Income? DOES NOT have to file
Am I Required to File a Tax Return? Jill Williams, 18,
had two jobs during the past year. She worked as a waitress at La Fogata, where she earned $6800 and as a summer counselor, where she earned $2400. Jill also made $375 in interest.
Do I have to file return WS
Filing Requirement Worksheet for Most Dependents 1.
Calculate Gross Income:
(earned income + unearned income)
2.
Enter dependent's earned income plus $300
3.
Minimum amount $950
4.Compare lines 2 and 3. Enter larger amt (Adjusted Earned Income)
5.IS: Gross Income > Adjusted Earned Income? MUST file
6.IS: Gross Income < Adjusted Earned Income? DOES NOT have to file
Lesson 6
Should I File a Tax Return?
30
Should I File a Tax Return?Civic Duty to File
Voluntary Compliance
Government relies on people to:
Report their income
Calculate tax liability correctly
File on time31
To Pay or Not to Pay…Why pay?
Government uses money to fund services
Ex: School
Penalty
Fine up to $25,000
Imprisonment up to 1 year
Or Both! 321-6 Review
Forms?There are 3 forms you can choose from to file
1040EZ – simplest to file
1040A
1040 – most lengthy to file
33
Lesson 7
How Do I File the 1040EZ?
34
How Do I File the 1040EZ?Must meet requirements to use EZ:
Single
Claim no dependents
Taxable income < $100,000
No income other than wages, salaries, and tips (shown on W-2)
Up to $1500 taxable interest (shown on 1099INT)
35
Filling out the 1040EZTerminology:
Adjusted Gross Income (AGI)Sum of wages and taxable interest
DeductionAmount tax payers may subtract from
their AGI before tax is determined (reduction in income)
Taxable IncomePart of income you must pay taxes on
CreditDirect reduction of taxed owed
36
Sending in the ReturnPhotocopy the EZ form for record
Mail in W-2 & 1099 INT with return
Check if owe payable to “United States Treasury”
37
Don’t Want to Pay? What could you have done differently?If you don’t choose to pay, IRS will
add 5% to what you owe for each month you don’t pay!
W-2
Claimed “0” rather than exempt so take taxes out
Watch out for scam artists!
381040 EZ Prob WS
Other Ways for Government to Collect Money
Income tax not only source
Social Insurance taxes and contributions (retirement and unemployment)
Excise tax (tax on gas, cigarettes, and alcohol)
Estate and gift tax
Customs duties (imports)
Other miscellaneous receipts 39
Where Does Your Money GO? Year 2011 – in billions
of dollars% of debt
National Defense 718 Billion 20%
Social Security 731 20%
Healthcare (Medicare, Medicade, child health ins program)
769 13%
Interest on National Debt
230 6%
Education 72 2%
40Chap 7 review 1040 EZ quiz
Lesson 8
How Do I File the 1040 Form?
41
How Do I File 1040 Form?File this form if:
Received dividends or capital gains from an investment
Received tips of $20 or more in any month that you didn’t report
Box 8 of W-2 shows tips allocatedEarned income from your own businessWon money in lottery or raffleReceived non-employee compensation Social Security pension
42
Preliminaries Matter
Be sure to have:
1099 Dividends & Distributions form
Any records of receipts
Ex: E-Bay, lottery, drawings
43
Filing Status and ExemptionsFiling status affects amount tax paid
Exemptions
$3700 each exemption may be subtracted from adjusted gross income
Exemptions help reduce taxable income!
But you probably won’t qualify
More than likely, parents can claim you
45
What is Income?Income: “all income from whatever
source derived”
Types of Compensations for Services:FeesCommissionsPrizes and awardsFringe benefits
Tickets, clothing given to you by employer instead of money
46
Other Income Continued…Income derived from business
Deductible expensesMust be “ordinary and necessary”
Interest and DividendsEarnings/Profits to persons who own stockConsidered taxable income
Capital Gains and LossesCapital gain: profit from the sale or exchange
of investmentShort TermLong TermReported on 1099-DIV
47
48
Exclusions From IncomeCertain economic benefits don’t have to count as income =
exclusions from income Gifts
Must see Dominant Reason was out of affection, respect, admiration, charity
Ex: transfer of property
Inheritances
Scholarships May be excluded from income if used to pay tuition/course
related fees
De Minimis Fringe Benefits Ex: Store’s photocopier, company coffee, telephone
Ebay winnings (pg 41)
50Do pg 42 WB
Adjusted Gross Income (AGI)Income reduced by certain expenses
Ex:
Student Loan Interest
One half of self-employment taxSchedule SE
Penalty on early withdrawal of savingsEx: Certificate of Deposit
51
Standard & Itemized DeductionsStandard Deduction: Base amount of
income that is not taxed (reduces taxable income)Income: $5800 Itemized Deduction:
State and Local Taxes Gifts to Charity Job Expenses – mileage? Travel Uniforms – if not adaptable to general, everyday use Education – if maintain or improve skills and/or
meet requirements of employer Other: tools, supplies for job, professional
journals, protective clothing52
CreditsA direct reduction of tax owedCredit actually deducted from the
amount you owe (dollar for dollar)
Credits offered:
Encourage certain behavior
Assist those in need
Provide relief
53
Credit ExamplesChild Care Expenses
Elderly or Disabled
Adoption Expenses
Buying new electric car
Education expensesForm 8863
Refundable Credit: EIC – person who claiming receives FULL amount of credit even if exceeds tax liability
54
Payment or Refund?Payment:
Due April 15
Refund:
Check
Direct Deposit
55
1040 Prob WSChap 8 Review
Lesson 9
Conclusion
56
57