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Mastering Federal Income Tax: A Comprehensive Guide to Preparing Your Taxes

Prepare your taxes with confidence by understanding federal income tax principles. This guide will help you navigate the complexities of the IRS, which is responsible for administering and enforcing tax laws in the United States. Learn critical tax concepts, explore preparation strategies, and equip yourself with the knowledge needed to file your taxes accurately and efficiently. Whether you're an individual or a business owner, this resource aims to demystify the tax preparation process to ensure compliance and maximize potential refunds.

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Mastering Federal Income Tax: A Comprehensive Guide to Preparing Your Taxes

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  1. Preparing Your Taxes

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  2. Learning Goals
  3. Understanding Federal Income Tax Principles Internal Revenue Service (IRS) responsible for administration and enforcement of federal tax laws Typical American family pays more than 1/3 of gross income in various taxes
  4. Economics of Income Taxes Progressive tax structure
  5. Single Taxpayer 2010 Tax Return
  6. Economics of Income Taxes Marginal Tax Rate Tax rate paid on the next dollar of taxable income Average Tax Rate Rate at which each dollar is taxed on average Divide tax liability by taxable income
  7. Sam and Burt’s Taxes
  8. Filing Status Categories
  9. Your Take-Home Pay Taxes due on a pay-as-you-go basis Employer withholds taxes all year Self-employed deduct and pay taxes Taxes include: Federal, State, & Local income taxes FICA and other withholding taxes
  10. It's Taxable Income That Matters Taxable Income = the amount of income subject to taxes Calculating income taxes is a complex process involving several steps and many computations
  11. Three Kinds of Income Wages, salaries, bonuses, pension, alimony Active Income Interest, dividends, capital gains Portfolio Income Income from real estate, limited partnerships PassiveIncome
  12. Taxable Income and Liability
  13. Taxable Income and Liability
  14. Taxable Income and Liability
  15. Capital gain (loss) – when an asset is sold for more (less) than its original cost Capital Gains
  16. Capital Gains Tax Categories as of 2010 Capital gains tax rates are as low as 5% or 15% for holding periods over 12 months, depending on the tax bracket (year 2010).
  17. Income remaining after subtracting allowable adjustments to income from gross income Used to limit certain itemized deductions and other calculations Adjustments to (Gross) Income
  18. Adjustments to Gross Income These can be subtracted from gross income
  19. Deductions: Standard or Itemized Standard deduction – a fixed amount that depends on filing status
  20. Deductions: Standard or Itemized Itemized deductions specific personal expenditures itemize if expenses are greater than standard deduction Medical, dental expenses State, local, foreign taxes Mortgage interest Charitable contributions Casualty and theft losses Moving expenses
  21. Exemptions Deductions from AGI based on number of persons supported by taxpayer’s income
  22. Calculating Your Taxes Reported taxable income – determines the amount of income subject to federal income taxes If taxable income <$100,000 use tax rate tables If taxable income >$100,000 use tax schedules
  23. Tax Credits Subtracted from amount of taxes owed Credits include:
  24. Taxable Income and the Amount of Taxes Due (2010)
  25. Tax Credits versus Tax Deductions Which results in lower taxes? Credits directly reduce amount of taxes owed Deductions subtracted from AGI and reduce taxable income VS
  26. Tax Forms and Schedules When more detail is required, taxpayers also must file other forms and schedules
  27. Tax Forms and Schedules-1040EZ Form 1040EZ -- Simple 1 page form Under age 65 Taxable income under $100,000 Don’t claim adjustments to income itemized deductions tax credits
  28. Continued…
  29. Tax Forms and Schedule-1040 Standard Form 1040 Taxable income over $100,000 Claim itemized deductions Use when reporting self-employment income or reporting income from sale of property
  30. 2010 Tax Return for the Milroys Continued…
  31. 2010 Tax Return for the Milroys Back of 1040 Form Continued…
  32. 2010 Tax Return for the Milroys Back of 1040 Form
  33. Other Filing Considerations Quarterly payment of estimated taxes April 15 filing deadline Filing extensions Amended returns (1040X) Audited returns
  34. Tax Preparation Services Do it yourself or get help from Private tax preparers Tax services CPA’s Enrolled agents Tax attorneys Computer-based tax returns Taxpayer is responsible for accuracy!
  35. Effective Tax Planning Tax avoidance is legal - tax evasion is not! Reduce taxes Maximize deductions, credits Shift taxes Use gifts or trusts Defer taxes Postpone to future through IRA or annuity
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