Income Taxes!
Created by: Ms. Daniel
Albert Einstein once said, “The
hardest thing in the world to
understand is income tax.”
16th Amendment
• Feb 3, 1913- added to the Constitution-
gave Congress the power to lay and
collect income taxes.
• The first year everyone filled out a
1040 tax form and sent it to the IRS
• The first year the IRS collected $28
million!
IRS (Internal Revenue
Service)
• Government agency that is part
of the Treasury Department
• In 1913 it had 277 employees
• In 2005 it had 94,000
employees
Voluntary Compliance
• It is your responsibility to
file your taxes
April 15th
• Deadline for filing taxes
W-4 Form
• This form is completed each time
you begin a new job- it determines
how much in taxes should be
withheld from your check
• http://www.irs.gov/pub/irs-pdf/fw4.pdf
W-2 Form
• Wages and tax statement
• This form is sent to you by your
employer (usually in January or early
February)
• It shows the total wages you have earned
for the year and how much was taken out
for federal income tax (withholding),
Social Security (FICA), and Medicare
• http://www.irs.gov/pub/irs-pdf/fw2.pdf
1099 Form
• Interest Income- This form is issued by
your bank, credit union, or savings and
loan and shows the amount of interest
you earned from the account for the
year- a copy is also sent to the IRS
•
http://www.docstoc.com/docs/3398870/109
9-form-download
1040 EZ Form
• Known as the simple tax form- it is
used by single people with no
dependents earnings less than
$100,000 or married couple filing
jointly with no dependents making less
than $100,000 in total income
• http://www.irs.gov/pub/irs-pdf/f1040ez.pdf
1040 A Form
• This form is used by anyone with
income less than $100,000 who has
the following: dependents, stock
dividends, Social Security Checks,
etc….
• http://www.irs.gov/pub/irs-pdf/f1040a.pdf
1040 Form
• “The Long Form”- it can be very
complicated- used by people who
have multiple deductions (home,
children, etc)
• http://www.irs.gov/pub/irs-pdf/f1040.pdf
Dependents
• Anyone closer in relation than a
cousin for whom you provided
over half their living expenses for
the year
Exemptions
• The federal government allows you to
subtract specific amounts of money from
your wages
• For 2010, the amount is $3,650
• This lowers your income and that means
you have less to pay in taxes
• Exemptions:
• Personal, spouse, dependent, over 65, blind
Filing Status
• Determines how much in taxes you are
responsible for paying
• Types of filing status:
• Single
• Married filing jointly
• Married filing separately
• Head of household (single with a
dependant)
Audits
• When the IRS takes a closer look at your tax
return
• The IRS can audit your records from 5 years in the
past
• Some audits are done randomly and others
because the job allows cash payments- waiters,
doctors, taxi drivers, etc
• In 2005, 1.2 million returns were audited (approx.
1 in 107 individual returns)
• At an audit you must be able to prove each
deduction you have taken on your tax return
– If you can’t the IRS will require you to pay back that
tax money and assess a penalty and interest on the
money that is owed
What can the IRS do to you?
1. Make you produce records and documents
without a court case being called
2. Seize your property without a court order
3. Make your debt publicly known
4. Force you to try your case in IRS court
where you are GUILTY UNTIL PROVEN
INNOCENT
5. Wiretap your phone without a court order
Tax Liability
• Total tax that must be paid
Interest Income
Income received from a
savings account
Itemized Deductions
• Specific expenses that can be
deducted from your income that
helps lower the amount of taxes
you owe- examples: mortgage
interest, charitable contributions,
work expenses
Tax Rate
• The percentage of tax applied to an
income- if your tax rate is 22% that
means that 22% of your income
goes to paying taxes- the higher
your income the higher your tax
rate
Taxable Income
• The income on which you must
pay taxes