Federal Income Taxes
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
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
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.
Interest is considered unearned income
because money, not a person, is working to earn
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”
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
Support – did not provide more than one-half of
his/her own support for the year
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.
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
Earned vs. unearned income
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
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
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
Some common deductions include:
Student loan interest deduction
Tuition and fees 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%).
The standard deduction reduces the income that
is subject to tax.
The amount of the standard deduction depends
upon the taxpayers:
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
Married and filing jointly $11,400
Qualifying widow(er) with $11,400
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
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
Modified adjusted gross income (AGI) is
Married filing jointly - $110,000.
Single, head of household, or qualifying widow(er)
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
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).
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
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
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.