**Form 1040EZ**

**Form 1040A**

**Long Form 1040**

**Schedule A and B**

**7.4 and 7.5 -- 1040 Forms**

**Reporting income to the Government**

**Most employees have their taxes taken out of their paychecks every pay period - then at the end of the year, their company gives them a W-2 that lists how much money they made and how much they paid in taxes for that past year**

We, as tax payers, need to compare what we have paid in taxes for the year to what we need to pay for taxes, based on our income and deductions

We, as tax payers, need to compare what we have paid in taxes for the year to what we need to pay for taxes, based on our income and deductions

**Example 3 - page 355 - Form 1040EZ**

**Does Elizabeth get a refund or owe the government money? In either case, determine that amount.**

**Example 2 - page 355 - 1040EZ**

**What is Elizabeth's tax?**

**The Form 1040A is a "short form"**

Use the 1040A when you meet these requirements:

You have a dependent (child)

Combined taxable income of less than $100,000

You do not have enough itemized deductions to use the long Form 1040

Use the 1040A when you meet these requirements:

You have a dependent (child)

Combined taxable income of less than $100,000

You do not have enough itemized deductions to use the long Form 1040

**7.5 Form 1040 and Schedules A and B**

**The more you understand how filing taxes work, the more you can save in spending your income on taxes**

**Example 6 - Schedule A - page 370**

The O’Sullivans had $9,230 worth of flood damage that was not covered by insurance. Find their casualty deduction.

**Example 11 - page 374**

Gloria is single. Her taxable income without deductions was $25,760. She was able to reduce her total income by $5,381 when she listed her allowable deductions on Schedule A. How much did she save in tax by using Schedule A?

Complete form 1040EZ

Complete Form 1040A

File Form 1040 with itemized deductions

Understand the difference between a tax credit and a tax deduction

Tax Returns- Form 1040EZ, Form 1040A, and Form 1040

1040EZ and 1040A are "short forms" which means you only have a few items on your return

The Form 1040 is a long form

1040EZ

To use the Form 1040EZ you must meet the following requirements:

File as single or married filling jointly

No dependents other than yourself or your spouse

Your taxable income is less than $100,000

Your income is only from: wages, salaries, tips, scholarships, grants, unemployment

Your taxable earned interest is not over $1,500

Example 1 - page 353/354 - Using the 1040EZ

Elizabeth Allison is a food editor for a magazine. She has received a W-2 form from her employer and a 1099 form from her savings bank. What is Elizabeth’s taxable income for the year if she files as a single taxpayer

$83,600

+ 956 =

$84,556

Elizabeth earned $83,600 from gross income on her W-2 and $956 from her 1099

For a total adjusted gross income of $84,566

$83,600.00

$956.00

$84,556.00

$10,300.00

$74,256.00

Elizabeth gets the standard deduction of $10,300 for a single tax payer without any dependents

Elizabeth's adjusted taxable gross income is $74,256.00

Check for Understanding 1 - page 354

How would Elizabeth’s tax form differ if she were married, filing a joint return, assuming that her spouse had no income to report?

She had $15,844.00 withheld for the year from her job

$15,884.00

$14,498.00

Elizabeth paid $15,844.00 in taxes, and Elizabeth owed $14,535.00 in taxes

$74,256.00

Check for Understanding 2

Suppose that Elizabeth had been filing as married filing jointly with her husband, and their combined taxable income was the same as reported on line 6.

Why is that tax lower?

$14,498.00

**$1,386.00**

Elizabeth paid more in her deductions than what is required - She will be receiving a refund for the amount of $1,386.00 for the amount that she overpaid

Check for Understanding 3 - page 356

Leo is filling out his 1040EZ form. His employer withheld $12,907 in federal taxes. He has calculated that he owes $13,952. Does he get a refund or owe money? In either case, what is the amount?

**Form 1040A**

NOTE: Your actual gross income may be larger than $100,000 but have the deductions given for having a dependent and the standard deduction, ACTUAL adjusted TAXABLE income is less than or equal to $100,000

HOMEWORK - Due Tuesday 1/12

Textbook Application problems 2-7, page 361

Tuesday 1/12 -- Warm Up Problem

In your Notes

8. Tony is paying off a car loan. The monthly payment is $211.28. He is hoping to receive an income tax refund that is large enough to make one monthly payment. His tax is $1,722 and his employer withheld $2,071 in federal taxes.

a. How much of a refund will Tony receive?

b. Will Tony be able to make one car loan payment with the refund? Explain

Application problems 9, 11 and 12

Complete a Form 1040EZ and find:

Adjusted Gross Income

Taxable Income

Tax Due

Amount of refund or Owed

9) Laurie Tenser is single and works in a clothing store. The following was reported on her W-2 form:

Federal income tax withholding - $1,131.00

Wages - $21,265.50

$293 interest earned from bank

11) Mukul is a teacher at Rockland School and he runs a tennis shop called Racket's Rackets.

He and his wife Nikki have combined bank interest of $1,011.

His wife made $850 in tips last year.

If they get a refund, they would like their money deposited into their checking account (#88535244 with routing #100078456)

12) Darcelle teaches skiing at the Snow School.

Jack runs a ski shop called Up Hill, Down Hill.

Their combined bank interest is $1,000.

If they get a refund, they would like the money deposited into their checking account (#89764251 and routing #114466872)

Example 4 - page 357 - 1040A

Kenya and Robin Omar are married with one child. In addition to their W-2's they also earned $987 in interest last year and $1,200 in stock dividends. They know that after deductions they will make under $100,000 for the year. And, because they have a child they can not use the 1040EZ. They are qualified to use the 1040A. Fill out the 1040A and find how many exemptions they can claim.

Robert Omar

The number of exemptions that the Omar's claim on this return is 3

Jack and Janine Jones are married and will be filing a joint 1040A tax return. They have x dependent children living at home and they are the sole supporters for y dependent adults. Write an algebraic expression for the number of exemptions they will claim.

Check for Understanding 4 - page 357 -- 1040A

Example 5 - page 358 - 1040A

Determine the Omars’ adjusted gross income. They received $987 interest on bank deposits and $1,200 in stock dividends.

$65,120.97

+ $52,126.76

= $117,248

Plus: $987 interest and $1,200 dividends

Note: each extra item individually is not more than $1,500 - they can be added to income in the 1040A

Total income: $119,435

Example 5 cont.

$117,248.00

$987.00

$1,200.00

$119,435.00

$119,435.00

No other adjustments are needed - their adjusted gross income is $119,435.00

Check for Understanding 5 - page 358

Lisa and Bob Zee have a combined income from salaries of $87,980. They received 1099 forms for $1,100 in interest from their bank and $1,300 in stock dividends. They have a total of $4,000 in adjustments to their gross income. Determine their adjusted gross income.

Example 6 - page 359 - 1040A

Determine the Omar's tax for the year

Standard Deduction the an allowable reduction that is based on filing status - these amounts are set by the government and change every year

The Omar's are married, their standard deduction on the 1040A form is $12,600 (this amount is provided on the 1040A form - line 24)

And, because they have 3 exemptions, they can reduce their adjusted gross income by 3 times the exemption deduction amount of $4,000 each (this amount is given on the 1040A form - line 26)

$119,435 - $12,600 - ( 3 * 4,000 ) = $94,835

Adjusted Gross - Standard Deduction - Exemption Deduction = Taxable income

Their tax is $15,419

119,435.00

12,600

106,835.00

12,000

94,835.00

1040A for the Omar's showing total tax

Raul and Hannah have an adjusted gross income of A dollars. They are married and filing a joint return.

They reported a total of E exemptions on their form and have no further deductions.

Write an algebraic expression for their taxable income.

Check for Understanding 6

Do the Omar's get a refund or owe the government money? In either case, determine that amount.

Example 7 - page 360 - 1040A

$8,765.99

+ $6,198

= $14,964

paid in federal taxes

14,964

The Omar's owe $455.00 in taxes

Check your Understanding 7

Suppose that Kenya had an additional $50 withheld from each of his biweekly paychecks.

How would that change the amount reported on his W-2 form?

With the additional money withheld, would they have gotten a refund or owed the government money?

Application Problem 10 -- Using 1040A

Betsy and Rich are married with two children. Betsy and Rich also received $1,287.43 in interest on bank deposits and $976 in stock dividends.

This information was reported on their w-2 forms

Betsy

Rich

Fed. tax withheld

Wages

$11,900 $12,235

$57,742 $58,721

Homework:

Complete Application Problem 13, page 363 using the 1040A form -

Due Wednesday 1/13 if not completed in class

**If you have other forms of income, such as: alimony or prize money - You needed to use the 1040 long form**

**If you have a lot of deduction items, to lower your taxable income, you can not use the 1040A form, but will need to use the long 1040 form**

Schedule B - Interest and Dividend Income

This form allows you to list all sources of income from interest earnings and dividends

Tax payers may have a diverse portfolio of investments, they could receive income from several sources each year

The schedule B allows the government to track all of those incomes - for both the taxpayer and the business providing the income

Schedule A- Itemized Deductions

Deductions lower your taxable income, which means you pay a lower income tax. The 1040A form allowed a few deductions, but many deductions used need be to completed on a Schedule A form

Some major deduction items include:

Medical expenses, Property taxes, state and local income taxes paid, theft losses, moving expenses, business expenses, alimony, mortgage interest, charity donations, job-seeking expenses

If you want to claim any of these deductions, you must complete the long Form 1040

Tax Credits vs Deductions

Deductions lower your income, which lowers your taxable income - The lower your taxable in come is, the lower the tax you need to pay is (remember its the chart that says how much you need to pay)

Tax Credits lower the amount of tax you needed to pay, not your taxable income - This will be directly subtracted to the tax that you owe amount

Tax Avoidance vs Tax Evasion

Tax avoidance is when a taxpayer is doing their best to claim all benefits available and lower the amount of taxes they are required to pay. This is not illegal, it is ethical to practice tax avoidance, these deductions are in place to be used by taxpayers

Tax evasion is when a tax payer will lie or falsify information in order to pay less taxes. Tax evasion is illegal and is a crime.

Example 1 - Schedule B - page 366

Margaret and Brian O’Sullivan are married. They have one child, Carole. Margaret works for a sports cable station and Brian is a cameraman. The O’Sullivans had combined wages of $76,521. They also had interest of $812 from Seaford Bank and $877 from Buffalo Bank. They received stock dividends of $444 from GM stock and $1,200 from Kodak stock. During the year, Margaret won $300 in the lottery. Find the total income from wages, bank interest, stock dividends, and the prize.

Step 1: Add the bank interest earned

$812 + $877 = $1,689

Because these amounts are greater than $1,500, they must use a Schedule B

Step 2: Find total stock dividends

$444 + $1,200 = $1,644

Seaford Bank

Buffalo Bank

$812.00

$877.00

GM

Kodak

$444.00

$1,200.00

$1, 689.00

$1,644.00

Completed Schedule B

$76,521.00

$1,689.00

$1,644.00

Prize - Lottery

$300.00

$80,154.00

The O'Sullivan's had a total income of $80,154

Form 1040

Check for Understanding 1 - page 367

A family had $1,123 in bank interest. Must they report this on Schedule B? Explain.

Example 2 - Form 1040 Adjustments

Margaret O’Sullivan teaches a night course at the local college and had $133 in educator expenses. The O’Sullivans also had $3,009 worth of moving expenses. These two expenses are deductions from income. Find their adjusted gross income.

Step 1: Add the adjustments to find the total amount to be deducted

$133 + $3,009 = $3,142

Step 2: Subtract adjustments from total income

$80,154 - $3,142 = $77,012

Form 1040 - Adjustments

$133

$3,009

$3,142.00

$77,012.00

Check for Understanding 2

The Lamberti family had a total income of x dollars. They also had d dollars in adjustments to income. Express their adjusted gross income algebraically

Example 3 - Schedule A - page 368

The O’Sullivans had $18,800 in medical expenses last year.

Medical insurance covered 80% of these expenses, so they only had to pay 20% of the medical bills.

The IRS allows medical and dental expenses deductions for the amount that exceeds 10% of a taxpayer’s adjusted gross income.

How much can they claim as a medical deduction?

Step 1: Find how much of the medical bills were paid out of pocket

18,800 * 0.20 = $3,760

Step 2: Find 10% of their adjusted gross income

$77,012 - 0.1 = $7,701.20

Step 3: Compare amount spent vs. the deductible minimum threshold

They did not spend more than the minimum threshold of $7,701.20 to allow for a medical bill deduction

Schedule A

$3,760.00

77,012

7,701

-0-

Example 4 - Schedule A - page 369

The O’Sullivans paid $3,298 in state income taxes, and $3,567 in real estate taxes. They paid $3,096 in mortgage interest.

What is the total amount they paid in state income and real estate taxes?

$3,298.00

X

3,567.00

$6,865.00

$3,096.00

$3,096.00

Check for Understanding 4

The Keenan family paid t dollars in state income taxes and r dollars in real estate taxes. Represent their Schedule A taxes paid algebraically.

Example 5 - Schedule A - page 370

The O’Sullivans gave $987 to different charities. The highest amount they gave to any single charity was $100. They also donated $450 worth of old clothes to different charities. The most they gave to any single charity was $120 worth of clothes. Find the total of their charitable contributions.

$987 + $450 = $1,437

$987.00

$450.00

$1,437.00

Check for Understanding 5

Pete donated x dollars to charity over the last tax year. He also donated b bags of used clothing valued at c dollars each. Express his total charitable contributions algebraically.

Then you are allowed to claim the loss over 10% of your adjusted gross income

9,230 - 0.10(77,012) = 9,230 - 7,701.20 = $1,528.80

$1,529.00

Example 7 - Schedule A - page 371

Brian O’Sullivan had $541 expenses for job travel. (This is not from driving to work because that is not tax deductible. This is traveling as part of work. It is based on the miles covered.)

Margaret and Brian belong to unions, and pay a total of $1,439 in union dues.

Brian took two college classes related to his employment, for a total tuition of $2,315.

Find their miscellaneous expenses deduction.

Add all miscellaneous expenses

$541 + 1,439 + 2,315 = $4,295

Can only deduct misc. expenses that exceed 2% of adjusted gross income

0.02(77,012) = $1,540.24

Find the amount of the expenses that exceed the 2% threshold minimum

4,295 - 1,540 = $2,755

$4,295.00

4,295.00

$77,012.00

$1,540.00

$2,755.00

Miscellaneous deductions are recorded on Schedule A as $2,755.00

Example 8 -Schedule A - page 371

Find the O’Sullivans’ total itemized deductions from Schedule A

Add the numbers in the right column of Schedule A that we did in examples 3-7

6865+3096+1437+1529+2755= $ 15,682

$15,682.00

Check for Understanding 8

The Volp family took three hours to gather information and fill out their Schedule A. The itemized deduction saved them $1,236 in taxes. What was the average savings per hour to fill out the Schedule A?

Example 9 - Form 1040 - page 372

Schedule A is completed, the O’Sullivans return to Form 1040 to finish computing their taxes. Each exemption from the total number of exemptions line allows them a deduction on Form 1040. The amount can change from year to year, and usually increases.

If the deduction for an exemption is $3,950, find the total amount the O’Sullivans can deduct.

For higher income families, this deduction may be reduced.

How much can the O’Sullivans deduct for their exemptions?

We found that the family has 3 exemptions

3 * 4,000 = $12,000

$77,012.00

$15,682.00

$61,330.00

$12,000.00

$49,330.00

The family's taxable income is $49,330, their adjusted gross income was $77,012.00

Finding the tax

Taxable income: $49,330

Tax for married filing jointly: $6,491

Example 10 - Tax Credits - page 373

The O’Sullivans both work, and they pay for child care while they are at work. They can get a tax credit of $780 from child care.

They installed some energy-saving items in their home, and can receive a $133 tax credit for that.

What is their tax after the credits are subtracted?

We found their tax to be $6,491

6,491 - (780 + 133)

Their tax was reduced to $5,578

780.00

133.00

913.00

6,491.00

5,578.00

Their total tax to be paid is $5,578

**Use Schedule X for Single Taxpayers - page 340**

**(25,760-8,025)0.15 + 802.50**

**She would pay $3,463 in taxes**

**25,760 - 5,381 = $20,379**

**(20,379 - 8,025)0.15 + 802.50**

**She would pay $2,656 in taxes**

**3,463 - 2,656 = $807**

She save $807 by applying the deductions in the Schedule A

She save $807 by applying the deductions in the Schedule A

**7.4/7.5 Packet Due Tuesday 1/20**

Title Page

Key Terms (7.4 and 7.5)

Notes (7.4 and 7.5 - with 1040ez, 1040a, and long form 1040 with schedule a and b)

Application problems

7.4 # 2-7

7.5 # 2-7

None of the application problems that used forms are required to be added to the packet

15,419.00

0

15,419.00

15,419.00

14,964.00

455.00

Complete the 1040A

Application # 14

Winnie Johnston is a teacher, filing her taxes as a Head of Household. She takes care of her mother and Grandmother.

In addition to her W2 form, she earned $65 in interest from her bank and had educator expenses of $250 that she can claim.

Application #15

Charlie Friend is an account, his wife is a chef. They have 4 children and take care of his wife, Moncia's, mother.

In addition to their W2 earnings, they had bank interest from Chase of $500 and dividends of $304 from GM.

They do not get to claim any medical expenses because they only paid out of pocket $3,760. They government will allow them to deduct expenses that EXCEED 10% of their adjusted gross income. Their adjusted gross income was $77,012, 10% would be $7,701.

They can only deduct the amount that was spent OVER 2% of their income

49,330

6,491

0

6,491

$5,578

$5,578

No other taxes were reported in the problem

Calculate Refund or Owe

$7,622

0

0

7,622

5,578

$2,044

$14,498.00

15,419.00

15.884.00

15,419