8.3 Paying Income Taxes8.3 Paying Income Taxes

2 income tax responsibilities:2 income tax responsibilities: Complete a w-4 when you start a job.Complete a w-4 when you start a job.

File a tax return at least once a year and pay File a tax return at least once a year and pay any additional tax owed.any additional tax owed.

AllowancesAllowances: USE : USE W-4W-4((w-4 before you start workw-4 before you start work.).)

Purpose: Determines Purpose: Determines how much tax to take how much tax to take out of your paycheck.out of your paycheck.

Completed at hire.Completed at hire.

Higher allowances- Higher allowances- Less taxesLess taxes taken out taken out of paycheck.of paycheck.

When can you change # When can you change # of allowances on w-4?of allowances on w-4?

AnytimeAnytime Ex: when you have a baby or get Ex: when you have a baby or get

married.married.

Dependent:Dependent: Anyone supported by tax payers income.Anyone supported by tax payers income. Why should you have fewer taxes taken Why should you have fewer taxes taken

out if you have more dependents?out if you have more dependents?

Three Sets Of Twins Born In Three Sets Of Twins Born In Different Years Over New Different Years Over New Year's Weekend Year's Weekend

Would you like no federal Would you like no federal taxes taken out of your taxes taken out of your check?check?

The Standard Deduction for individual is The Standard Deduction for individual is $6100$6100 for 2013. for 2013. If you expect to earn less than that amount and did If you expect to earn less than that amount and did

not have any tax liability in 2012, you can write not have any tax liability in 2012, you can write “EXEMPT”“EXEMPT” on line 7 on your W-4. on line 7 on your W-4.

No No FEDERALFEDERAL taxes will be taken our of your check. taxes will be taken our of your check. You will not have to file a 1040EZ tax return. You will not have to file a 1040EZ tax return. StateState taxestaxes and and FICAFICA will still be deducted from you will still be deducted from you check.check.

WHICH IS BETTER?WHICH IS BETTER?

Big refund?Big refund?

Bigger paychecks throughout the year?Bigger paychecks throughout the year?

Average tax refund Average tax refund $3000.$3000.

"All a tax refund is, is the government "All a tax refund is, is the government saying to you, 'You've overpaid and saying to you, 'You've overpaid and here's your change,' "here's your change,' " explains Charles explains Charles Enis, an accounting professor at Penn Enis, an accounting professor at Penn State University. State University.

Uncle Sam is getting an interest-free Uncle Sam is getting an interest-free loan from you. loan from you.

What do you need to file What do you need to file the 1040EZ tax return?the 1040EZ tax return?

W-2 and form 1099 if you have: savings W-2 and form 1099 if you have: savings account or other taxable income.account or other taxable income.

ie: prize winnings.ie: prize winnings.

When to you get When to you get w-2w-2??

Has to be mailed to you by Has to be mailed to you by JAN. 31JAN. 31stst..

What is it?What is it? See example on back of W-4 worksheet.See example on back of W-4 worksheet.

Shows how much you made from job, how much was Shows how much you made from job, how much was taken out in deductions.taken out in deductions.

Should match your last pay stub of the yearShould match your last pay stub of the year How many will you get?How many will you get?

Tax Deductions:Tax Deductions:

What do they do?What do they do?

Tax DeductionTax Deduction

Something that reduces the amount of Something that reduces the amount of taxes paid.taxes paid.

2 types of deductions- Choose one or 2 types of deductions- Choose one or the other…the other…

Itemized vs. Standard Itemized vs. Standard Tax Deduction – Tax Deduction –

Which One Should You Take?Which One Should You Take?

2013 2013 StandardStandard Tax Deduction Tax Deduction

standard tax deduction is standard tax deduction is easiest.easiest.

it’s simply a fixed number it’s simply a fixed number set each year just have to set each year just have to write it down on your tax write it down on your tax form . form .

Nearly 2 out of 3 taxpayers Nearly 2 out of 3 taxpayers take the standard deductiontake the standard deduction

Get to use the short tax Get to use the short tax form,form,

1040EZ.1040EZ.

Single   $6,100Single   $6,100 Married, Filing Jointly    Married, Filing Jointly   

$12,200 $12,200 Married, Filing Married, Filing

Separately   $6,100 Separately   $6,100 Head of Head of

Household  $8,950 Household  $8,950 Blind or over 65 and Blind or over 65 and

married add:   $1,200 married add:   $1,200 Blind or over 65 and Blind or over 65 and

single/head of household single/head of household add:     $1,500 add:     $1,500

2013 2013 ItemizedItemized Tax Tax Deductions:Deductions:

But if you think you may have tax But if you think you may have tax

deductions deductions biggerbigger than the standard than the standard deductiondeduction

it may make sense to itemize, even though it may make sense to itemize, even though it will it will require better record keeping and a require better record keeping and a little more worklittle more work

Can not use 1040EZ tax form if itemizing Can not use 1040EZ tax form if itemizing deductions.deductions.

Itemized Tax deductionsItemized Tax deductions::

Examples include:Examples include: Mortgage interest. Mortgage interest. Charitable contributions. Charitable contributions. Property taxes. Property taxes. State and local income taxes. State and local income taxes. Medical expenses that Medical expenses that

exceed 7.5% of your adjusted exceed 7.5% of your adjusted gross income. gross income.

Various miscellaneous Various miscellaneous expenses that exceed 2% of expenses that exceed 2% of your income such as: union your income such as: union dues, tools and supplies dues, tools and supplies needed for work, tax needed for work, tax preparation fees, some legal preparation fees, some legal fees, and many more. fees, and many more.

Single personSingle person

For 2013: You could take For 2013: You could take Standard Standard DeductionDeduction of $6,100 of $6,100

Or show receipts for Or show receipts for ItemizedItemized deductionsdeductions greater than $6,100.greater than $6,100.

****Must use one or the other, not both.Must use one or the other, not both.

Missed deductions can be Missed deductions can be the most costly…. the most costly….

About 48 million of us About 48 million of us itemizeitemize on our 1040s -- claiming more than on our 1040s -- claiming more than $1 trillion worth of deductions.$1 trillion worth of deductions.

$1,000,000,000,000$1,000,000,000,000

Another 92 million taxpayers claim about $700 billion worth using Another 92 million taxpayers claim about $700 billion worth using standardstandard deductions deductions

$700,000,000,000$700,000,000,000

http://www.kiplinger.com/features/archives/the-mostoverlooked-tax-deductions.html#ixzz1XEFxeqJHhttp://www.kiplinger.com/features/archives/the-mostoverlooked-tax-deductions.html#ixzz1XEFxeqJH

Tax Credits = bonusesTax Credits = bonuses ExamplesExamples::

$500 tuition credit$500 tuition credit 10% of cost of some Energy Star 10% of cost of some Energy Star

Appliances.Appliances. American Opportunity Tax CreditAmerican Opportunity Tax Credit

up to $2,500 on the first $4,000 of qualifying up to $2,500 on the first $4,000 of qualifying educational expenses, which include course educational expenses, which include course materials as well as tuition. materials as well as tuition.

First time homebuyers tax creditFirst time homebuyers tax credit Up to $8000 credit extended to 2010 taxes.Up to $8000 credit extended to 2010 taxes.

EX: how tax credit works:EX: how tax credit works:

Owe $345 in taxes.Owe $345 in taxes. tax credit +$500tax credit +$500

________________________________________________ Now get a $155 refund instead of Now get a $155 refund instead of

paying.paying.

American Opportunity American Opportunity Tax CreditTax Credit

up to $2,500 on the first $4,000 of qualifying educational up to $2,500 on the first $4,000 of qualifying educational expenses, which include course materials as well as tuition. expenses, which include course materials as well as tuition.

Will be good for 2013-2017 years ($10,000 total) Will be good for 2013-2017 years ($10,000 total) Families who earn too much can’t claim the credit. The income Families who earn too much can’t claim the credit. The income

phase-out for claiming the AOTC is $160,000 – $180,000 of phase-out for claiming the AOTC is $160,000 – $180,000 of modified adjusted gross income on joint tax returns ($80,000 – modified adjusted gross income on joint tax returns ($80,000 – $90,000 for single tax filers and head of household). $90,000 for single tax filers and head of household).

The amount of the credit is calculated as 100% of the first $2,000 The amount of the credit is calculated as 100% of the first $2,000 in qualified tuition and fees costs paid, plus 25% of the next in qualified tuition and fees costs paid, plus 25% of the next $2,000 paid for such fees.$2,000 paid for such fees.

For lower income taxpayers who don’t owe $2,500 in tax, up to For lower income taxpayers who don’t owe $2,500 in tax, up to $1,000 of the credit is refundable. (The credit is not refundable $1,000 of the credit is refundable. (The credit is not refundable on a dependent child’s return). on a dependent child’s return).

Why are tax credits Why are tax credits better than tax better than tax deductions?deductions?

2013 tax returns:2013 tax returns:

Why is it important for you parents to get Why is it important for you parents to get their taxes completed quickly this year?their taxes completed quickly this year? FAFSA should be submitted by FEB 28FAFSA should be submitted by FEB 28thth..

Need 2013 tax info to complete the Need 2013 tax info to complete the form.form.

Next, we will complete a Next, we will complete a 1040EZ tax form.1040EZ tax form.

1040EZ “Easy Form”1040EZ “Easy Form” Use the Use the 1040EZ1040EZ if: if: • • Your taxable income is below Your taxable income is below

$100,000$100,000

• • Your filing status is Single or Your filing status is Single or Married Filing JointlyMarried Filing Jointly

• • You and your spouse – if married You and your spouse – if married -- are under age 65 and not blind-- are under age 65 and not blind

• • You are not claiming any You are not claiming any dependentsdependents

• • Your interest income is $1,500 or Your interest income is $1,500 or lessless

Using Using StandardizedStandardized Deduction. Deduction.

When do you get your When do you get your money?money?

Check the Status OnlineCheck the Status Online The fastest and easiest way to find out The fastest and easiest way to find out about your current year refund is to go toabout your current year refund is to go to IRS.gov IRS.gov and click the and click the “Where’s My Refund?” link at the IRS.gov home page. To check “Where’s My Refund?” link at the IRS.gov home page. To check the status online you will need your Social Security number, filing the status online you will need your Social Security number, filing status and the exact whole dollar amount of your refund shown on status and the exact whole dollar amount of your refund shown on your return.your return.

Check the Status By PhoneCheck the Status By Phone You can check the status of your refund by You can check the status of your refund by calling the IRS Refund Hotline at 800–829–1954. When you call, you calling the IRS Refund Hotline at 800–829–1954. When you call, you will need to provide your Social Security number, your filing status will need to provide your Social Security number, your filing status and the exact whole dollar amount of the refund shown on your and the exact whole dollar amount of the refund shown on your return.return.