3/24/14 “deductions, credits, & dependents”

3/24/14

“Deductions, credits, & dependents”

1.What is the difference between a tax deduction and a tax credit?

2.What is a dependent & how do they effect your taxes?

On desk: Deductions & credits wksht.

Earn: $50,000 Owe in taxes: $10,000

Deductionsreduce amount $$ you are TAXED ON.

Creditsreduce amount $$ you OWE in taxes.

What is a dependent & how do they effect your taxes?

dependent:•Someone who depends on you to live (child, grandma, cousin, etc.)

•The more dependents you can claim, the more money you save on your taxes! (dependent credits)

How much would your standard deduction be if you filed your taxes today?

•Single = $6,100•Married = $12,200

What is the difference between nonrefundable tax credits and refundable tax credits?

Nonrefundable:• can reduce tax liability to zero, but not below

•Refundable:• can reduce tax liability below zero, which means…?• Govt. can end up owing you money!

Deductions($ reduces income subject to tax)

Credits($ reduces amt. of tax owed)

3/24/14

Econ. Agenda

1.How to file your taxes, part one (class notes)

2.Adjusted Gross Income tax problems

HW: finish AGI tax problems # 1 – 3

3/24/14 Class notes – how to file your taxes

•Need at least 3 things:1. Personal info. for you and your dependents

(SSN, date of birth, address, etc.)2. W-2 form – statement of your wages for past

year3. Correct tax form

•Need to file BOTH Federal & State tax forms every year!

•Tax due date?• April 15th!

985869493

576-98-4356

Google, Inc.

1600 Amphitheatre Parkway

Mountain View, CA 94303

Niza Hernandez

300 Primavera Street, Apt. A

Impuesto, CA 90000

76,500.00

76,500.00

76,500.00

8,415.00

5,355.00

1,530.00

2,295.00CA 76,500.00 765.0076,500.00

3/24/14 Class notes – how to file your taxes

•Adjusted Gross Income (AGI)• Amount of income you are taxed on (basically)

• Total income minus all of your deductions

• Income = $50,000• Standard deduction = $6,100• Student loan interest deduction = $1,500• Charitable contribution to RIPR = $150• Total amount in deductions?• = $7,750

• AGI = $50,000 – $7,750 = $42,250

3/24/14 Class notes – how to file your taxes

•What form do I need to file my taxes?

•3 forms to choose from (federal taxes):

1. 1040 EZ• Shortest, least complicated:• Under $100,000 income, no dependents, under age 65,

single or married filing jointly…

2. 1040A• Medium length, more complicated:• Same as 1040EZ but…any age, can claim dependents,

owning stocks & other investments…

3. 1040

3/24/14 Class notes – how to file your taxes

•What form do I need to file my taxes?

•3 forms to choose from (federal taxes):

3. 1040•Longest, most complicated:•Any marital status, over $100,000 income, sold property, self employed, greater than $1500 in interest earned…

•How do I file my taxes?• Online or paper (online refund comes faster)• Self with tax forms, pay a professional, or pay TurboTax,

etc.

1040-EZ• Short• Marital status– Single,

married filing jointly

• Age – >65

• Dependents– none

• Interest income– <$1,500

• Taxable income– <$100,000

1040A• Medium• Marital status

– Single, married filing jointly

• Age – Any

• Other– Retirement

payments– Own stocks– Student loans

• Dependents– yes

• Interest income– <$1,500

• Taxable income– <$100,000

1040• Long• Marital status

– married filing separately, divorced

• Other– Self-employed– Sold property– Own stocks– YES itemized

deductions• Interest income

– >$1,500• Taxable income

– >$100,000

If taxable income is more than …

but notmore than … the tax is …

$0 $8,925 10% of the taxable income

$8,925 $36,250 $892.50 plus 15% of the amount over $8,925

$36,250 $87,850 $4,991.25 plus 25% of the amount over $36,250

$87,850 $183,250 $17,891.25 plus 28% of the amount over $87,850

$183,250 $398,350 $44,603.25 plus 33% of the amount over $183,250

$398,350 $400,000 $115,586.25 plus 35% of the amount over $398,350

$400,000 no limit $116,163.75 plus 39.6% of the amount over $400,000

SingleAdjusted Gross Income Federal Tax Rates, 2013

Example: You are single and earn $89,000 as a plumber. You get the standard deduction amount of $6,100 and a child tax credit of $1,000. What is your AGI and how much money do you owe in taxes?

Income = $89,000

Deductions? $6,100

AGI = $89,000- $6,100

AGI = $82,900

Amount of tax owed?AGI = $82,900

$4,991.25 plus 25% of the amount over $36,250

$4,991.25- $36,250$46,650X .25$11,662.50

+ $11,662.50

Tax owed = $15,653.75

$16,653.75

Tax credits?$16,653.75- $1,000.00