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TAXES!!!

TAXES!!!. Introduction. It has been proven that 18-25 year olds are historically the most likely age group to forfeit their tax refund by not filing a tax return. What does this mean? They paid MORE taxes than they needed to and didn’t file to get their money back.

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TAXES!!!

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  1. TAXES!!!

  2. Introduction • It has been proven that 18-25 year olds are historically the most likely age group to forfeit their tax refund by not filing a tax return. • What does this mean? • They paid MORE taxes than they needed to and didn’t file to get their money back. • Many teens do not understand taxes.

  3. Introduction • In this tax unit, you will understand… • All different types of taxes • When and why you must file a tax return • The different forms and what they are used for.

  4. Understanding Taxes • There are three levels of government: • Federal- Runs the country as a whole. • State- Manages the 50 states • Local- Governs counties, cities, and towns. All of these levels need money to operate, so you must pay taxes to all three.

  5. The More Common Types of Taxes • Income Tax • You pay taxes on your income (Money you make) • Sales Tax • Taxed on items you buy • This tax goes to the state or local government • Property Tax • Based on the value of your property • Payroll Tax • Social Security and Medicare

  6. Types of Taxes: Sales Taxes • Sales tax is calculated as a percentage of the price of the item. • The tax rate varies from state to state • Colorado sales tax is at least 2% but less than 4% • As of 2008 it is 2.9% • Craig’s sales tax is 2.25% • About 75% of the other states have a higher sales tax percentage than Colorado (at least 5%)

  7. Types of Taxes: Property Taxes • One of the main source of money for local government is property taxes. • These taxes are based on the value of property-generally land and buildings. • Property taxes have been raised in Craig in order to pay for the new Middle School and to build a new hospital

  8. Your Role As a Taxpayer • Why do we pay taxes? • To pay the government’s bills • Government provides public goods and services for the community • This is why we have TAXES! • Taxes shift resources from private individuals, (you and everyone else who works) and businesses to the government.

  9. Understanding Taxes • The Internal Revenue Service (IRS): is the agency that collects federal taxes and oversees the federal system • Taxes paid to the IRS go into the U.S. Treasury.

  10. Your Role As a Taxpayer

  11. Your Role as a Taxpayer

  12. Where the Money comes from

  13. Where the Money Goes

  14. Different Tax Systems • Regressive • Progressive • Proportional

  15. Regressive Tax • Regressive Tax: Everyone, regardless of income, pays the same $ dollar $ amount. • What is the problem with this? • Lower-income people pay a larger share of their income than wealthier people.

  16. Regressive Tax • Example: • John makes $10,000 • Susan makes $50,000 • They both have to pay the same dollar amount in taxes. • Let’s say they have to pay $1,000 in taxes this year • That’s 10% of John’s total income • It’s only 2% of Susan’s total income

  17. Regressive Tax • What are some examples of Regressive Tax? • Tobacco, alcohol, gasoline, jewelry, perfume, travel, licenses, parking, admission to museums and parks, tolls for roads and bridges.

  18. Progressive Tax • Progressive Tax: takes a larger percentage of income from high-income groups than from low-income groups and is based on the concept of ability to pay. • Our federal tax system today is based on the Progressive Tax.

  19. Progressive Tax

  20. Progressive Tax • Example: • Low-income pays 10% • Middle-income pays 15% • High-income pays 30%

  21. Proportional Tax • Proportional Tax: Each individual pays a fixed rate. • Example: • Low-income taxpayers would pay 10% • Middle-income taxpayers would pay 10% • High-income taxpayers would pay 10% • What is an example of Proportional Tax? • Sales Tax

  22. The Beginning… • You all have or will soon have a job. • This is the beginning of paying Federal Income Taxes

  23. You’ve Got a Job! • What was one of the first things your employer made you fill out when you got your job? • W-4 (Employee’s Withholding Allowance Certificate) • What is a W-4 used for?

  24. W-4 • Used for your employer • 4-em-ploy-ER • W-4 – is a form you fill out as a new employee so that your employer will withhold (keep) the correct amount of federal income tax from your paycheck. • Employee’s Withholding Allowance Certificate

  25. W-4 • The W-4 tells your employer how much he/she should withhold (keep) from your paycheck. • Employers withhold payroll taxes and income taxes • Employers then send the amounts withheld to the federal government

  26. W-4 • If you fill out a W-4 incorrectly, you may have to PAY taxes at the end of the year. • You owe IRS • Too little was taken out of your checks • This could happen if you filed for exemption and you ended up making more than the Standard Deduction ($5,450) • OR, a mistake could mean too much tax is being taken out of your paycheck • IRS owes you • Too much was taken out of your checks • The closer you are to 0 for a return, the better. • Why?

  27. Exempt from withholding? • Depending on how much you expect to make for the year, you may not have to pay FEDERAL income taxes. • In other words, you would be “EXEMPT” from paying federal income taxes

  28. Exempt from Withholding? • You are exempt from withholding if… • 1) You weren’t required to pay federal income tax last year • AND… • 2) You don’t expect to this year either.

  29. Exempt form withholding? • Whether you have to pay or not also relies on whether your parents or guardians CAN claim you as a dependent on THEIR tax return. • What is a dependent? • Dependent: a person who relies on another taxpayer for at least half of his or her support • Support includes food, shelter, clothing, medical, dental care, and education.

  30. Exempt from withholding? • Most high school students can be claimed. • If you live with your parents/guardians, AND • You’re under 19 years of age, • You CAN be claimed • It’s NOT whether your parents/guardians claim you, it’s whether they CAN if they want to. • MOST CASES THEY CAN

  31. Exempt from withholding? • So… • If your parents CAN claim you • You are UNDER 19 years old • Or 19-24 and FULL-time student • You EXPECT to make LESS than $5,450 • You can file for exemption!!! • $5,450 is a standard deduction • The government allows you to deduct (subtract) $5,450 from your income.

  32. STANDARD DEDUCTION • Example: • You made $4,000 this year • Standard Deduction says you don’t have to pay taxes on $5,450 of your income (TAX FREE) • Since $5,450 is LARGER than what you made, you won’t have to pay taxes • (This doesn’t mean you will get a refund of $1,450 either)

  33. No Way Around All Tax • No matter if you filed and qualified for exemption (free from federal income tax) or not, you STILL have to pay some taxes from your paycheck. • These taxes are called PAYROLL TAXES

  34. Payroll Taxes • They include Social Security (FICA) tax and Medicare Tax • THESE TAXES ARE NON-REFUNDABLE • You will not see any of this money until you start receiving the benefits of them at age 65 • (You may also not have social security when you’re that old)

  35. Payroll Taxes • Payroll taxes include… • 1) Social Security tax (FICA tax) • Social security provides the following: • Retirement benefits • Benefits for people dependent on retired workers • Benefits for the disabled and their dependents

  36. Payroll Tax • Payroll tax also includes… • 2) Medicare Tax • Used to provide medical benefits for certain individuals when they reach the age of 65

  37. Your Pay-Stub • If you work 5 hours for $10/hour you would make $50 • This is called your __________ income • GROSS (Before Taxes) • On payday you realize you get a check for less than $50 • The money you received is called your _______ income. • NET (After Taxes) • We have a “pay-as-you-go” tax system

  38. ? ?

  39. NEXT SECTION…more forms!!! • So far we have covered one form for taxes… • W-4 • Review…What is the W-4 for?

  40. W-2 and 1099-INTs • If you had a job in 2008, you WILL receive a W-2 • W-2 – is a form from employer explaining how much you made in the year. • YOU RECEIVE A W-2 FROM EVERY EMPLOYER YOU HAD THIS YEAR. • Remember: • W-4 = 4 employer • W-2 = For you

  41. 1099-INTs • 1099-INTs – Form explaining how much money you made with interest this year • Example: You put $1,000 in a savings account last year. • You notice that you now have $1,020 in the account • You made $20 of unearned income • You will get a 1099-INT form this month explaining you made $20 of unearned income.

  42. January 31st • You should have all your forms by January 31st • W-2, 1099INTs, 1099DIV, Student loan interest, etc…

  43. Which Form Do You Use? • There are 3 possible forms to use. • 1040EZ • 1040A • 1040

  44. 1040EZ • The simplest IRS form (EASY) • You can use this form if… • 1) Your filing status is single or married filing jointly • 2) You’re younger than 65 • 3) You or your spouse are not legally blind • 4) You have no dependents • 5) Your interest income is less than $1,500 • 6) Your income is less than $100,000

  45. 1040EZ (Good and Bad) • Good – Very easy and it’s only one page • Bad – Limits the number of ways to save on your tax bill

  46. Next one…1040A • Has more options to reduce your taxable income than the 1040EZ but is a little longer. • Some of them include… • Certain IRA contributions • Student loan interest • Some college tuition and fees • Etc… • You can’t do this on the 1040EZ

  47. How the EZ could cost you • The case of Joe: • Finished college last year and got a full-time job making $35,000. • He’s single, renting, and has no investment income • Perfect person for the 1040EZ… • For Uncle Sam he is • Filing the 1040EZ, Joe will likely overpay his taxes

  48. How could the EZ cost you • The 1040EZ doesn’t offer the same tax breaks found on the other forms • The more complicated the forms, the more tax breaks. • Since Joe just graduated college, he has a student loan ($2,500) • He also started a Traditional retirement account which he put in $3,000.

  49. How the EZ could cost you • 1040 EZ • Joe owes taxes on $35,000 • Joe falls into the 25% tax bracket • Joe overpaid a lot on his taxes • 1040A • Joe owes taxes on $29,500 • Joe falls into the 15% tax bracket • Joe saved a lot on taxes

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