money management federal income tax chapter seven notes ____________________________ are collected...

3
Money Management Federal Income Tax Chapter Seven Notes ____________________________ are collected from the citizens and businesses. The money collected is called ____________________________ and is redistributed according to the needs and priorities set by Congress. The largest source of government revenue is ____________________________, followed by Social Security and Medicare taxes. A commonly accepted criterion of tax fairness is that individuals with different amounts of wealth or income should pay different amounts of taxes. This theory is called the ____________________________________________. _____________________________ are those that increase in proportion to income. Under this system, the people with higher incomes not only pay more taxes but they pay them at a higher rate. ___________________________________ are those that decrease in proportion to income. With a regressive tax, the person with the higher income pays a lower % of their income than those with a lower income. _____________________ is an example of a regressive tax. Those who can least afford to pay the tax (the poor) are assessed the greatest amount in proportion to their income. Sales taxes are often called “pay as you go taxes” because they are levied against your purchases. Another example of a regressive tax is an ______________________. These are taxes on specific goods like cigarettes or alcoholic beverages. Usually, lawmakers are criticized for these types of taxes saying they unfairly target the people who can afford it the least. ________________________________ are those that stay constant even though the amount being taxed increases. For example, _________________________ are proportional. All people owning property in a the same community pay the same tax rate for every $100 of assessed value. Each year the property is assessed and the owner must pay the local tax assessor whatever is owed. On a local level, these taxes often help pay for community services such as education, police and fire departments, and parks.

Upload: deirdre-gordon

Post on 02-Jan-2016

214 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Money Management Federal Income Tax Chapter Seven Notes ____________________________ are collected from the citizens and businesses. The money collected

Money ManagementFederal Income Tax

Chapter Seven Notes

____________________________ are collected from the citizens and businesses. The money collected is called ____________________________ and is redistributed

according to the needs and priorities set by Congress. The largest source of government revenue is ____________________________,

followed by Social Security and Medicare taxes. A commonly accepted criterion of tax fairness is that individuals with different

amounts of wealth or income should pay different amounts of taxes. This theory is called the ____________________________________________. _____________________________ are those that increase in proportion to income.

Under this system, the people with higher incomes not only pay more taxes but they pay them at a higher rate.

___________________________________ are those that decrease in proportion to income. With a regressive tax, the person with the higher income pays a lower % of their income than those with a lower income.

_____________________ is an example of a regressive tax. Those who can least afford to pay the tax (the poor) are assessed the greatest amount in proportion to their income.

Sales taxes are often called “pay as you go taxes” because they are levied against your purchases.

Another example of a regressive tax is an ______________________. These are taxes on specific goods like cigarettes or alcoholic beverages.

Usually, lawmakers are criticized for these types of taxes saying they unfairly target the people who can afford it the least.

________________________________ are those that stay constant even though the amount being taxed increases.

For example, _________________________ are proportional. All people owning property in a the same community pay the same tax rate for every $100 of assessed value.

Each year the property is assessed and the owner must pay the local tax assessor whatever is owed.

On a local level, these taxes often help pay for community services such as education, police and fire departments, and parks.

Our tax system is complex. Both businesses and individuals pay income taxes and must file income tax returns each year.

The basic components that allow the tax system to operate efficiently are: _____________________________________________________________ _____________________________________________________________ ______________________________________________________________

Page 2: Money Management Federal Income Tax Chapter Seven Notes ____________________________ are collected from the citizens and businesses. The money collected

Money ManagementFederal Income Tax

Chapter Seven Notes

The _______________________________________________ is an administrative agency of the Department of the Treasury.

The main function of the IRS is to _________________________________________. In local IRS offices, employees assist taxpayers in finding information and forms. They also

print brochures and pamphlets to help taxpayers in preparing their returns. The power to levy tax rests with the ________________________________________.

• Must originate in the House of Representatives.

• Must make it through votes in both the House and the Senate.

• Must then be signed into law by the president Our income tax is at a graduated rate, the more income you receive the more you pay. Congress tries to balance its budget.

• If more money is spent than what is received there is a _________________.

• If more comes in than is spent there is a ______________________. Currently the government is operating at large deficits. Tax cuts were put in place, decreasing

revenue. However, spending has not decreased at the same rate. We don’t need to debate the politics behind this but obviously, this is not a great example of money management!

Filing your Tax Return: Definition of Terms ________________________ – are you single, married filing as an individual, married

couple filing jointly etc...? _________________________________ – do you have dependents to claim on your

return? You are entitled to claim yourself unless your parents still claim you. In order to be claimed as a dependent a person needs to meet FIVE requirements:

Must be a relative (list of what qualifies is at the IRS website). Must be a citizen or resident of the U.S., Canada or Mexico, or an adopted

child who has lived with you all year. Must provide over half the persons support during the year. The person’s income must be less than the amount of his or her exemption

($3,100 last year). This test doesn’t qualify for kids under 19 or kids who are college students (until 24).

If the person is married they can’t file a joint return with their spouse. ______________________________________ -- all the taxable interest you receive,

including wages, tips, salaries, interest, alimony, worker’s compensation, and unemployment benefits.

Page 3: Money Management Federal Income Tax Chapter Seven Notes ____________________________ are collected from the citizens and businesses. The money collected

Money ManagementFederal Income Tax

Chapter Seven Notes

__________________________ – Will be shown on your W2 form that is mailed to you by your employer. Some adjustments are allowed to be subtracted from your gross income, like contributions to an IRA or a 401(k)

retirement plan. ________________________________________________________ is what is left after these adjustments are subtracted from gross income.

____________________________________ are expenses that the law allows the taxpayer to subtract from adjusted gross income.

All taxpayers are allowed to list certain expenses, which are called _________________________________. Things that might be deducted:

__________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________

If you don’t have enough of these types of deductions you can just chose the _____________________________________________________. These change but currently they are Single -- $4,850, Married filing jointly or a qualifying widow(er) -- $9,700, Married filing separately -$4,850, Head of household -- $7,150, Claimed as a dependent on someone else's return - $250 + earned income of at least $800 but not more than the standard deduction of $4850.

That might sound confusing but it’s actually not that bad ... ________________________________________- ________________________________________= ________________________________________- ________________________________________ - __________________________________= ________________________________________

Once you do this calculation, you’ve got your taxable income! Now you can see if you get a refund or not! If you made enough to HAVE to file, then you better! If you didn’t make enough to be required to file ... FILE to RECLAIM

the taxes that were taken out! If you don’t file you won’t get your refund! You must file no later than April __________________ of the year after you earned the income! There are over 400 different IRS forms and schedules! WOW! However, most people use one of 3:

– Easiest – the ____________________ –single, under 65, no more than one personal exemption for yourself, not itemizing deductions, made less than $50,000. (About 17% use this form)

– Next easiest – _______________________– single or married, can claim all the exemptions you are entitled to, not itemizing deductions, made less than $50,000. (About 19% use this form)

– Next easiest – _________________ – single or married, all exemptions that you are entitled to, no limit to amount of money, want to itemize your deductions. (about 64% use this form)

Save all your important documents and receipts during the year. Throw them in a “Tax Folder”. By ________________ you should receive your W2’s and any other forms needed to prepare your returns. PREPARE EARLY! Might as well get that refund right away! Easiest way to complete the 1040EZ is by using

___________________________________! Some still prefer to fill out the form themselves and mail it in! We’ll learn how to do it both ways in class tomorrow!