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Personal Finance - Ch. 7

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by

traci blanco

on 10 February 2014

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Transcript of Personal Finance - Ch. 7

CH. 7 Federal Income Tax
incoming funds to the government collected from citizens and businesses in the form of taxes
revenue
taxes that take a larger share of income at the amount of income grows
progressive taxes
taxes that take a smaller share of income as the amount of income grows
regressive taxes
taxes for which the rate stays the same, or is flat, regardless of income
proportional taxes
Internal Revenue Service
IRS
Power to tax
6 current tax brackets 10% - 39.6%
tax brackets
shortage of revenue
deficit
a system in which all citizens are expected to prepare and file income tax returns of their own accord without force
voluntary compliance
willful failure to pay taxes
tax evasion
an examination of your tax return and records by the IRS
audit
•can represent themselves
•lawyer, CPA, member of immediate family, licensed tax preparer can take their place
•bring someone for supports during session
choices for taxpayers who are audited
3 types of audits
taxpayer sits down with the auditor to answer questions and produce records
office
IRS sends a letter asking taxpayer to respond to specific questions or produce evidence of deductions on the tax form
correspondence
similar to office, except and IRS agent or local rep. visits the taxpayer’s home or business to look at records, assets, and verify information
field
power to levy taxes rests with Congress
7-2
your tax-filing group based on your marital status
filing status
types of filing status
•single person (not married)
•married person filing a joint return
•married person filing a separate return
•“head of household”
•qualifying widower
an amount you may subtract from your income for each person who depends on your income to live
exemption
all taxable income you receive, including wages, salaries and tips
gross income
wages
salaries
tips
earned income examples
interest
dividends
alimony
unemployment compensation
workers compensation benefits
unearned income
child support
gifts
inheritances
life insurance benefits
veteran’s benefits
non-taxable income
all taxable interest from banks, savings, and loan associations, credit unions, series HH saving bonds
interest income
money, stock, or other property that corporations pay to stockholders in return for their investment
dividend income
money paid to support a former spouse
alimony
money paid to a formers spouse or ex for supports of dependent children
child support
gross income less adjustments
adjusted gross income
expenses listed on schedule A that you can subtract from adjusted gross income to determine taxable income
itemized deductions
stated amount you can subtract from adjusted gross income if you do not itemize deductions
standard deduction
amount on which you will pay income tax
taxable income
amount subtracted directly from the tax owed
tax credit
any person who earned enough income to owe taxes
Who?
no later than April 15, unless granted extension

if the 15th falls on a holiday or weekend, then next weekday
When?
1040
1040A
1040EZ
Which Forms?
save receipts
W-2’s
all deduction receipts
Where to start
free if your income is under $54,000
irs.gov/efile
filing electronically
Medical expenses
State and local taxes paid, including: I
Vehicle registration license fee
Property taxes
Mortgage interest expense
Charitable contributions to allowable recipients
Gambling losses
Job-related clothing or equipment
Union dues
Unreimbursed work-related expenses, such as travel or education
Fees paid to tax preparers
Subscriptions to newspapers or other periodicals directly relating to one's job
Examples of Itemized Deductions
single or married filing jointly
claim no dependents
taxable income must be less than $100,000
1040EZ
Individuals who earn less than $100,000
qualify for deductions or credits less than $1,500
1040A
earn more than $100,000
itemizing deductions
1040
Full transcript