TAXES – What TAXES – What You Can’t Avoid!You Can’t Avoid!Instructor NameInstructor Name

Class TitleClass Title

Two Things You Can’t Two Things You Can’t Avoid:Avoid:

Death and Taxes!Death and Taxes!

Understanding TaxesUnderstanding Taxesand Tax Formsand Tax Forms

The first form you will work with is The first form you will work with is Form Form W-4W-4 Personal Allowance WorksheetPersonal Allowance Worksheet

It is filled out each time you begin a new It is filled out each time you begin a new job and/or if your family status changesjob and/or if your family status changes If you marry or have children, you If you marry or have children, you

will need to fill out a new W-4will need to fill out a new W-4 This form tells your employer how much This form tells your employer how much

money to withhold from your paycheck to money to withhold from your paycheck to pay the government your taxespay the government your taxes

Withholding Taxes:Withholding Taxes: the tax your the tax your employer takes out of your paycheckemployer takes out of your paycheck

Form W-4Form W-4 Line A:Line A: you are a you are a dependentdependent as long as long

as you are living with someone and they as you are living with someone and they provide most of the money for your careprovide most of the money for your care—they claim you as a —they claim you as a ‘dependent’‘dependent’

Line B:Line B: Line C:Line C: Enter “0” at all times unless Enter “0” at all times unless

you and your spouse do not earn much you and your spouse do not earn much combined income or your spouse does combined income or your spouse does not earn anything – this makes that not earn anything – this makes that person a person a dependentdependent

Form W-4Form W-4 Line D:Line D: Does your salary provide for anyone Does your salary provide for anyone

else living in your household?else living in your household? Line E:Line E: See “See “head of householdhead of household” ” conditionsconditions Line F:Line F: Child careChild care that you are claiming that you are claiming Line G:Line G: If you have a low income and have to If you have a low income and have to

care for childrencare for children Line H:Line H: Add up your numbers…you want this Add up your numbers…you want this

to be as close to 0 as possibleto be as close to 0 as possible Be sure to completely fill out lower part of Be sure to completely fill out lower part of

the W-4:the W-4: Print namePrint name SS#SS# Full AddressFull Address

Form W-4Form W-4

Single, Married, Married, but withhold Single, Married, Married, but withhold at higher Single rateat higher Single rate – you are filing – you are filing single so you will have more tax taken out single so you will have more tax taken out of your paycheckof your paycheck

#5 – total number from above#5 – total number from above #6 – Additional amount you want withheld – #6 – Additional amount you want withheld –

to make sure you pay enoughto make sure you pay enough #7 – #7 – ExemptExempt – saying you don’t make – saying you don’t make

enough for the government to withhold any enough for the government to withhold any money. DO NOT use this unless you are money. DO NOT use this unless you are absolutely sure you qualifyabsolutely sure you qualify

Form W-4Form W-4 #7 – #7 – Exempt Exempt – you don’t earn enough – you don’t earn enough

income for the government to withhold income for the government to withhold any money from your paycheck. DO any money from your paycheck. DO NOT use this unless you are absolutely NOT use this unless you are absolutely sure you qualify!sure you qualify! You will have to pay a penalty of $500 if You will have to pay a penalty of $500 if

you earn more than you thought you you earn more than you thought you wouldwould

Sign & DateSign & Date If you forget to sign, your tax filing is not If you forget to sign, your tax filing is not

valid!valid!

During the Regular YearDuring the Regular Year

You do not need to keep track of your You do not need to keep track of your taxes-- that is what your employer taxes-- that is what your employer does!does!

You may want to double check your You may want to double check your pay stub to make sure that your tax pay stub to make sure that your tax deductions are being calculated deductions are being calculated correctlycorrectly

Form W-2 Wage Form W-2 Wage and Tax Statementand Tax Statement

This is sent to you by your employer – This is sent to you by your employer – completely filled out!completely filled out!

Sent by Sent by January 31January 31

Make sure everything is correct and Make sure everything is correct and then use it to file your tax information then use it to file your tax information for the IRS!for the IRS!

Form W-2Form W-2

2: 2: Federal Income Tax Withheld:Federal Income Tax Withheld: How much federal income tax your How much federal income tax your employer took out of your paychecksemployer took out of your paychecks

4: 4: Social Security Tax Withheld:Social Security Tax Withheld: how much social security tax your how much social security tax your employer took out of your paychecksemployer took out of your paychecks

6: 6: Medicare Tax Withheld:Medicare Tax Withheld: how how much Medicare tax your employer much Medicare tax your employer took out of your paycheckstook out of your paychecks

Form W-2Form W-2

Lines 15 – 20: information on state Lines 15 – 20: information on state tax and local tax deducted from each tax and local tax deducted from each paycheckpaycheck

You will need a W-2 from each job You will need a W-2 from each job that you have held this year, even if that you have held this year, even if you don’t work there anymore!you don’t work there anymore!

Form 1099-INT Interest Form 1099-INT Interest IncomeIncome

This is sent to you by your bank or This is sent to you by your bank or financial institution.financial institution.

It shows how much money you have It shows how much money you have made on interest on your made on interest on your investmentsinvestments

You must pay taxes on your interest!You must pay taxes on your interest!

10991099

Form 1099Form 1099

A copy is also sent to the IRS, so A copy is also sent to the IRS, so they know what the amounts are – they know what the amounts are – you can’t lie!you can’t lie!

The type of investment you have will The type of investment you have will determine whether you must pay determine whether you must pay taxes on the interest or dividends taxes on the interest or dividends earnedearned

Filing Your TaxesFiling Your Taxes

You must file you taxes by You must file you taxes by April 15April 15 Penalties for filing late!Penalties for filing late! You can file for time extension, if You can file for time extension, if

necessarynecessary Ways to file:Ways to file:

1.1. Hire an Accountant:Hire an Accountant: they do all the work they do all the work and even send in the formsand even send in the forms

• Inquire about fees charged if accountant filesInquire about fees charged if accountant files

2.2. Fill out the forms yourself and send inFill out the forms yourself and send in

3.3. E-File:E-File: electronically file your taxes electronically file your taxes • Save money by filing your taxes yourselfSave money by filing your taxes yourself!!

Tax TermsTax Terms Voluntary Compliance:Voluntary Compliance: every citizen every citizen

voluntarily files a tax return by April 15voluntarily files a tax return by April 15thth

Tax Evasion:Tax Evasion: not reporting income or not reporting income or paying your taxespaying your taxes

Audit:Audit: IRS wants additional data or IRS wants additional data or evidence about your returnevidence about your return Correspondence Audit:Correspondence Audit: done by mail done by mail Field Audit or Office Audit:Field Audit or Office Audit: meet with IRS meet with IRS

agent in personagent in person Can give someone else power-of-attorney to take your Can give someone else power-of-attorney to take your

placeplace Can bring a tax expert for advise and supportCan bring a tax expert for advise and support

Federal Income TaxFederal Income Tax(Single taxpayer for 2006 Taxes)(Single taxpayer for 2006 Taxes)

Annual Earnings Tax + Tax Rate OverAnnual Earnings Tax + Tax Rate Over $0 $0 – 7,550 – 7,550 $0 tax + 10% over 0$0 tax + 10% over 0 $7,550 – 30,650$7,550 – 30,650 $755 +15% over $7,550$755 +15% over $7,550 $30,650 – 74,200$30,650 – 74,200 $4,220 +25% over 30,650$4,220 +25% over 30,650 $74,200 – 154,800$74,200 – 154,800 $15,107.50 +$15,107.50 + 28% over 74,20028% over 74,200 $154,800 – 336,550$154,800 – 336,550 $37,650.50 +33% over 154,800$37,650.50 +33% over 154,800 $336,550 or more$336,550 or more $97,653.00 +$97,653.00 + 35% over 35% over

336,550336,550 Source: http://www.smbiz.com/sbrl001.html#pis06Source: http://www.smbiz.com/sbrl001.html#pis06

Federal Income TaxFederal Income Tax

How much would you owe in How much would you owe in taxes if you earned taxes if you earned ? ? ? ? ? ?

• $10,000$10,000 $$

• $80,000$80,000 $$

• $150,000$150,000 $$

$10,000$10,000

10,000 – 7,550 = 10,000 – 7,550 = $2,450.00$2,450.00 2,450 * .15 = 2,450 * .15 = $ 367.50$ 367.50 755 + 367.50 = 755 + 367.50 = $1,122.50$1,122.50

What if the government used a What if the government used a steady rate of steady rate of 15%?15%?

10,000 * .15 =10,000 * .15 = $1,500 $1,500

$80,000$80,000

80,000 – 74,200 = 80,000 – 74,200 = $ 5,800.00$ 5,800.00 5,800 * .28 = 5,800 * .28 = $ 1,624.00$ 1,624.00 15,107.50 + 1,624 = 15,107.50 + 1,624 = $16,731.50$16,731.50

What if the government used a What if the government used a steady rate of steady rate of 28%?28%?

80,000 * .28 = 80,000 * .28 = $22,400$22,400

$150,000$150,000

150,000 – 74,200 = 150,000 – 74,200 = $75,800.00$75,800.00 75,800 * .28 = 75,800 * .28 = $21,224.00$21,224.00 15,107.5 + 21,224 = 15,107.5 + 21,224 = $36,331.50$36,331.50

What if the government used a What if the government used a steady rate of steady rate of 28%?28%?

150,000 * .28 = 150,000 * .28 = $42,000$42,000

Basic Tax FormsBasic Tax Forms

The following are common forms used by The following are common forms used by citizens to file their Federal taxes:citizens to file their Federal taxes:

• Forms 1040, 1040A, 1040EZForms 1040, 1040A, 1040EZ

• Schedule A,B, or CSchedule A,B, or C• Download current tax forms @Download current tax forms @

http://www.unclefed.com/IRS-Forms/200http://www.unclefed.com/IRS-Forms/2001/HTML/p52710.html1/HTML/p52710.html

Form 1040 Form 1040 U.S. Individual Income Tax U.S. Individual Income Tax

ReturnReturn

Use this form if you want to itemize Use this form if you want to itemize deductions or if you are a business deductions or if you are a business ownerowner

Use the Schedules with this Use the Schedules with this documentdocument

Form 1040AForm 1040A

Use this form if you have children, Use this form if you have children, child care expenses, dependentschild care expenses, dependents

Form 1040EZForm 1040EZ

This is the easiest form to use!This is the easiest form to use! Use the “EZ” if you have limited Use the “EZ” if you have limited

dependents/exemptions – usually if it dependents/exemptions – usually if it is just you or maybe a spouseis just you or maybe a spouse

Tax Form SchedulesTax Form Schedules Schedule A:Schedule A:

Allows you to show where you spent your Allows you to show where you spent your money and to get tax breaks on certain money and to get tax breaks on certain expendituresexpenditures

Schedule B:Schedule B: Shows interest and dividends for tax Shows interest and dividends for tax

exemptionsexemptions Schedule C:Schedule C:

Used in businesses to show profit or lossUsed in businesses to show profit or loss If you own a business, you will want to fill If you own a business, you will want to fill

one of these out!one of these out!

Other FormsOther Forms

There are many other forms that you can There are many other forms that you can use for other exemptions and deductionsuse for other exemptions and deductions

If you start having to use all of these If you start having to use all of these forms, it is may be time to get some help! forms, it is may be time to get some help!

Know when it is too much for you to Know when it is too much for you to handlehandle