Federal Income Taxes by wjd16551


									Federal Income Taxes
Federal Revenues
Federal Spending
    Who Needs to File Income Taxes?

   For most people if you are single you must
    file if your gross income was at least $9,350.
    (If married filing jointly $18,700).
   Even if you didn’t earn $9,350 if you had
    taxes withheld you need to file to get back
    any or all of your tax withholdings.
        W-4 Employee’s Withholding
           Allowance Certificate
   Employees complete Form W-4 and Employers
    use Form W-4 to determine how much income
    to withhold from an employee’s pay
   The amount depends on:
       Employee’s marital status
       Number of withholding allowances claimed
       Any additional amount the employee wants to
       Any exemptions from withholding that the employee
        Form W-2, Wage and Tax
   Form W-2 reports wages, salaries, tips,
    and federal income tax withheld as well as
    Social Security and Medicare taxes
   Employers must provide Form W-2 to the
    employee and to the federal government
    by January 31 of the year following the
    work year
         Wage and Tip Income
          (taxable earned income)
   Wages, salaries, bonuses, and
    commissions are compensation received
    by employees for services performed are
   Tips received as gratuities by food servers,
    baggage handlers, hairdressers, and
    others for services performed are also
    considered to be taxable.
                 Taxable Interest
   Interest is considered unearned income
    because money, not a person, is working to earn
    the income
   Taxable interest income can come from:
       Savings and checking accounts
       U.S. Savings Bonds
       Certificates of deposit (or CDs)
       Money market certificates
   Tax-exempt interest income is earned from
    bonds issued by entities in states, cities, etc.
    Form 1099-INT or 1099-OID

   Interest income is usually reported on
    Form 1099-INT (and sometimes on a
   Taxable interest income is reported on the
    tax return, even if the taxpayer does not
    receive Form 1099-INT
   A dependent is a person, other than the
    taxpayer or spouse, who entitles the taxpayer to
    claim a dependency exemption.
   A dependency exemption is an amount that
    taxpayers can claim for their eligible
    dependents. Each exemption reduces the
    income subject to tax.
   A dependent may be either a “Qualifying Child”
    or a “Qualifying Relative”
                  Qualifying Child
   In general, to be a taxpayer’s qualifying child, a
    person must satisfy four tests:
       Relationship – child or stepchild, foster child, sibling
        or stepsibling, or a descendent of one of these
       Residence – has same principal residence as taxpayer
        for more than half the year
       Age – must be under the age of 19 or under the age
        of 24 if a full-time student, or be permanently and
        totally disabled
       Support – did not provide more than one-half of
        his/her own support for the year
              Qualifying Relative

   Can be a parent, grandparent, brother, or
    sister that meets the following:

       The person’s gross income must be less than
        $3400 for the year
       The taxpayer must provide more than half of
        the person’s total support for the year
       Federal Tax Filing Status
A person can file under one of five different filing statuses.
 Single

 Married filing a joint return

 Married filing separately

 Head of household--unmarried and paid more than half
  the cost of a maintaining a home for yourself and
  another relative who lives with you for over half the year
  and can be claimed as your dependent.
 Qualifying widow(er) with dependent child – a person
  whose spouse has died within the last two taxable years
  and has not remarried
   W-4 – determines federal tax withholdings from
   W-2 –reports wages, salaries, tips, and federal
    income tax withheld as well as Social Security
    and Medicare taxes withheld.
   1099-INT – shows amount of possible taxable
    interest income
   Earned vs. unearned income
   Dependent
       Qualifying child
       Qualifying relative

   Filing status:
       Single
       Married filing jointly
       Married filing separately
       Head of household
       Qualifying widow(er) with dependent child
      Federal Income Tax Forms

   Form 1040EZ (easiest)
   Form 1040A (referred to as the “short
   Form 1040 (also referred to as the “long
   You can use the 1040EZ return if:
       Only two filing statuses: single or married filing jointly.
       You (or your spouse if married, filing jointly) must be younger
        than 65;
       You (or your spouse if filing jointly) were not legally blind
        during the last tax year.
       You have no dependents.
       Your interest income is less than $1,500.
       Your income, or combined incomes for joint filers, is less
        than $100,000.
       Your taxable income is less than $50,000
         1040A (the “short form”)
   To use a 1040A a person must:
       Have taxable income below $100,000
       Use the standard deduction instead of itemizing
   All five filing statuses are available
   Income adjustments allowed on Form 1040A
    include educator expenses, certain IRA
    contributions, student loan interest and some
    college tuition and fees. .
           1040 (the “long form”)
   If earnings are larger, you itemize deductions, or
    you have more complex investments and other
    income to report you will need to use Form
   You should file Form 1040 if:
       Income > $100,000.
       You itemize deductions rather than take the standard
       You have self-employment income.
       You received income from the sale of property.
   Deductions reduce the amount of income
    subject to income tax.
   Before a deduction can be used, there are a
    variety of qualifications (such as income level)
    that must be met by the taxpayer. These can
    be found in the tax booklets that accompany the
    tax forms.
   Some common deductions include:
       IRA deduction
       Student loan interest deduction
       Tuition and fees deduction
                      IRA Deduction
      Single and AGI < $56K
           You can deduct up to $5000 if under age 50
           Up to $6000 if 50+
      Married filing jointly and AGI < $85K
           You can deduct up to $5000 if under age 50
           Up to $6000 if 50+

EXAMPLE: Carlos is in the 28% tax bracket. If he
contributes $3,000 to a traditional IRA, he gets a deduction
from income of $3,000. This $3,000 decrease in his taxable
income will save him $840 in taxes (3,000 x 28%).
             Standard Deduction
   The standard deduction reduces the income that
    is subject to tax.
   The amount of the standard deduction depends
    upon the taxpayers:
       filing status,
       age of the taxpayer and spouse,
       whether the taxpayer or spouse is blind, and
       whether the taxpayer can be claimed as a dependent
        on another taxpayer’s return
  2009 Standard Deduction
       Tax Filing Status        Standard Deduction
Single                                $5,700
Married and filing jointly           $11,400
Qualifying widow(er) with            $11,400
dependent child
Head of household                    $8,350
Married and filing separately        $5,700
   Exemptions reduce your taxable income. They
    are the result of tax breaks granted by the
   There are two types of exemptions:
       Personal exemptions for taxpayer and spouse
       Dependency exemptions for dependents
   Each exemption reduces the income that is
    subject to tax by the exemption amount. For
    2009, the exemption amount is $3,500.
   Unlike deductions and exemptions, credits reduce your
    taxes directly, dollar for dollar.
   Credits arise from a number of things. Most often,
    though, they are the result of the taxpayer doing
    something that Congress has decided is beneficial for the
   Some common tax credits include:
       Child and dependent care expenses credit
       Child tax credit
       Hope education credit
       Lifetime learning education credit
       Retirement savings contributions credit
        Child and Dependent Care
             Expenses Credit
   Allows taxpayers to claim a credit for expenses
    paid for the care of children under age 13 or a
    disabled spouse or dependent
   The credit can be up to 35% of expenses and
    decreases as the taxpayer’s AGI increases.
   To qualify, you must pay these expenses so you
    can work or look for work.
        Child Tax Credit (1040A)
   The child tax credit allows taxpayers to claim a
    tax credit of up to $1000 per qualifying child.
   For many families, the child tax credit will
    exceed their tax liability. In many such cases,
    the unused portion of the child tax credit is
    refundable as the "additional child tax credit."
   In order to claim the credit, the taxpayer and
    child must meet a number of requirements
    Child Tax Credit Requirements

   Taxpayer Requirements:
       Modified adjusted gross income (AGI) is
          Married filing jointly - $110,000.
          Single, head of household, or qualifying widow(er)
           - $75,000.
          Married filing separately - $55,000.
   Deduction – reduces amount of taxable income
   Standard deduction – dependent on filing status,
    age, blindness, and taxpayer dependency
   Exemption – reduces income subject to taxes
   Credit – reduces dollar-for-dollar the amount of
            1040 (The Long Form)
   You must use the 1040 if:
       Your taxable income is $100,000 or more
       You claim itemized deductions
       You are reporting self-employment income
       You are reporting income from sale of property
        (referred to as capital gains)
   If you're filing a 1040, then the two most
    important secondary forms are IRS
    Schedules A & B.
                     1040 Schedule A
If you have deductible expenses that exceed the standard deduction you want to
“itemize”. The following are the most common types of deductions appearing on
Schedule A.

Medical  and Dental Expense
      These are all of you medical and dental related expenses, subject to a 7.5%
        threshold. That means you can only deduct these expenses that are in excess of
        7.5% of your Adjusted Gross Income (AGI).
Taxes Paid
      These include state and local income taxes and property taxes. Most of us pay
        state income taxes so we can take that deduction on Schedule A. If you own a
        home, then you've probably paid property taxes too.
Interest You Paid
      If you're a homeowner and have a mortgage on your house, this is where you
        deduct the interest expense associated with those payments. Your mortgage
        company will send you a statement of interest paid sometime in January - Form
        1098, Mortgage Interest Statement. Interest paid, along with taxes paid are
        usually the two largest tax deductions found in Schedule A.
Gifts to Charity
      If you've made any gifts to charity, including donations to a church, they would
        go into this category. Keep in mind that for donations in excess of $500 and / or
        non-cash donations the IRS may require additional record keeping.
             1040 Schedule B

   IRS Schedule B is the form is used to report
    interest income and ordinary dividends if the
    total amount earned is greater than $1,500.
   If you have money in an interest bearing savings
    account, then the banking and / or financial
    institutions will have sent to you a form 1099-
    INT in the mail.
   If you have received a distribution of dividends,
    then the banking and / or a financial institution
    will report this information a form 1099-DIV.
              Oregon Tax Forms
   Oregon has two personal income tax forms for full-time
      40S (the “short” form)
      40 (the “long” form)
   In addition to the five filing statuses available on federal
    forms Oregon also has:
      Registered domestic partner filing jointly
      Registered domestic partner filing separately
   Oregon allows you to deduct your federal tax liability (up
    to $5600) from your taxable income
   Each exemption credit reduces your tax obligation by
   The taxpayer may elect to contribute a portion of their
    refund to a variety of charitable funds.
                Filing Your Taxes
   Completing forms by hand and mailing
   Hiring an accountant or tax preparer
   Using tax software such as TurboTax
   E-filing
   Refund vs. Taxes to Pay
       When withholdings and credits exceed your tax
        liability a person qualifies for a refund
       If withholding and credits are less than your tax
        liability a person needs to pay additional money
       Some taxpayers choose to apply refunds to their next
        year tax obligations
                      Being Audited
   There are two main reasons why an individual or
    business may be audited by the IRS:
       Random audits are not as frequent as they used to be; however,
        they do still exist.
       The majority of audits ordered by the Internal Revenue Service
        (IRS) are because they noticed a large mistake or they feel a
        taxpayer is trying to deceive them to receive a larger tax refund.
   The IRS typically requests an audit one to three years
    after a tax return has been filed; however, they can
    request an audit at anytime if they feel a taxpayer was
    trying to defraud the government.

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