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7.4 and 7.5 1040 forms
Transcript of 7.4 and 7.5 1040 forms
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
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
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
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
+ 956 =
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
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
Elizabeth paid $15,844.00 in taxes, and Elizabeth owed $14,535.00 in taxes
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?
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?
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
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.
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.
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.
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
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
paid in federal taxes
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
Fed. tax withheld
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
Completed Schedule B
Prize - Lottery
The O'Sullivan's had a total income of $80,154
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
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
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?
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
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
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
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
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
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
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
7.4/7.5 Packet Due Tuesday 1/20
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)
7.4 # 2-7
7.5 # 2-7
None of the application problems that used forms are required to be added to the packet
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.
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
No other taxes were reported in the problem
Calculate Refund or Owe