taxes . tax requires payment to local, state, or national government *** irs (internal revenue...
TRANSCRIPT
Tax
• Requires payment to local, state, or national government
*** IRS (Internal Revenue Service )is in charge of Federal Taxes
Importance of taxes
A) Primary way the government collects money
B) Give the government the money it needs to operate
Milton Friedman• Helped come up with a solution to people
NOT paying their share of income tax
• Established tax withholding from employees’ paychecks
Revenue• Income received by a government from
taxes and non-tax sources
Without Revenue:
The government would NOT be able to provide the goods and services,
such as:
National defense, highways, education, law enforcement
Where does the power to tax come from?
• Stated in the U.S. Constitution
(Federal Government)
Constitution: Article 1, section 8, Clause 1
• “To law and collect taxes, duties, imposts, and excises, to pay the debts, and provide for the common defense and general welfare of the United States; but all duties, imposts, and excises shall be uniform throughout the United States.”
Where are the limits on the Power to Tax come from?
• Stated in U.S. Constitution
(Federal Government)
What are FIVE (5) limits on the power to tax?
A) NOT for individual interestsB) Federal taxes must be the SAME in every
stateC) Can NOT violate the freedoms promised
by the First AmendmentD) Can collect taxes ONLY on ImportsE) Taxes most be divided up among states
according to population
Describe ways to tax according to…
• Value of the object taxed
AND
• How the tax is structured
Tax Base
• Income, property, good, or service that is subject to tax
Four types of Tax Bases
• Individual Income Tax – tax on a person’s income
• Sales Tax – good or service being sold
• Property Tax – value on property
• Corporate Tax – value on company’s profits
Types of Tax Bases:
1. Corporate TaxCorporate Tax – tax on the value of the company’s profits
2. Property TaxProperty Tax – A tax on thevalue of the property
3. Sales TaxSales Tax – A tax on the dollar value of a good or service being sold
Example:
4. Individual Income TaxIndividual Income Tax –A tax on a person’s income
Four (4) Characteristics of a Good Tax• Simplicity – easy to understand
• Efficiency – collect taxes without spending too much time or money
• Certainty – Clear to taxpayer when tax is due, how much, and how to pay
• Equity – should be fair
Three Types of Tax Structures
• Proportional Tax
• Progressive Tax
• Regressive Tax
Proportional Tax
• The percentage of income paid in taxes remains the same for all income levels
• Example: “Flat Tax”
Progressive Tax
• The percentage of income paid in taxes increases as income levels increase
• Example: Income Tax
Regressive Tax
• The percentage of income paid in taxes decreases as income increases
• Example: Sales Tax
Income Proportional Tax
Progressive Tax
Regressive Tax
$30,000
% of income
Amount
15%
$4,500
10%
$3,000
20%
$6,000
$100,000
% of income
Amount
15%
$15,000
30%
$30,000
5%
$5,000
Examples of Tax Structures:
$30,000 $100,000
Proportional 15%
$4,500
15%
$15,000
Progressive 10%
$3,000
30%
$30,000
Regressive 20%
$6,000
5%
$5,000
TWO (2) ways to determine “Fairness”
• Benefits-Received Principle
• Ability-to-pay Principle
Benefits-received Principle• Pay taxes base on the level of benefits s/he
expects to receive
• Example: Gasoline tax (maintains roads)
Ability-to-pay Principle
• Pay taxes based on their ability to pay
• Example: Progressive income tax
(More income = more taxes paid)
Withholding
• Taking tax payments out of an employee’s pay before s/he receives it.
• Examples: Social Security, Medicare
Tax Return
• Form used to file income taxes
• Due every year by April 15th
• Taxable Income – income on which tax must be paid
• Gross Income – total income
• Net income – income after taxes are deducted
• Deductions – Variable amounts that you can subtract, or deduct from your gross income
Why is April 15th important?
This is the day –every year—that individual income taxes are due
(with some exceptions)
You must file 3 tax forms: Federal, State, and Local
Who has to file their income taxes?
Normally, if you are SINGLE (not married), you do NOT have to file you taxes if
you made less than
$8,750 LAST YEAR$8,750 LAST YEAR
(BEFORE taxes—your gross income)
How can you file your taxes?
• Mail• Phone• Internet (e-file)
Where do I get forms from?
• Post office
• Internet (www.irs.gov)
• Phone
• IRS office
• CD Rom
What items should you have ready when filing?
• Social Security numbers
• W-2 forms (from ALL employers for that year)
http://www.irs.gov/pub/irs-pdf/fw2.pdf
1099 Forms
(ex: dividends)http://www.irs.gov/pub/irs-pdf/f1099r03.pdf
• Receipts for itemized deductions
• Bank Account numbers (to have money automatically deposited)
What is the 1040?
1040:1040: “Long form”
1040A:1040A: Medium form
1040EZ:1040EZ: “Easiest” form
Who can file a 1040?
1.Taxable income of $50,000 or more
1.Itemized deductions 2.Self-employment income 3.Income from sale of property
http://www.irs.gov/pub/irs-pdf/f1040.pdf
Who can file a 1040A?
1.Taxable income below $50,000 2.Capital gain distributions3.Specific tax credits (child tax, education, earned income, child and dependent care expenses, adoption and retirement savings contributions 4.Only deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees 5.No itemized deductions
http://www.irs.gov/pub/irs-pdf/f1040a.pdf
Who can file a 1040EZ?
1.Taxable income below $50,0002.Single or Married Filing Jointly3.Under age 65 4.No dependents 5.Interest income of $1,500 or less
http://www.irs.gov/pub/irs-pdf/f1040ez.pdf
http://www.irs.gov/pub/irs-pdf/i1040ez.pdf
What if you can’t pay?
http://www.irs.gov/taxtopics/tc202.html
1. Direct Debit from your bank account
2. Payroll deduction from your employer
3. Routine installment