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© 2010 South-Western, Cengage Learning SLIDE 1 Chapter 7 Do Now 9/26/13 & 9/27/13 Work with your neighbor and create a list of ways people accumulate earned income and unearned income.
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© 2010 South-Western, Cengage Learning SLIDE 1
Chapter 7
Do Now 9/26/13 & 9/27/13
Work with your neighbor and create a list of ways people accumulate earned income and unearned income.
© 2010 South-Western, Cengage Learning SLIDE 2
Chapter 7
Agenda 9/26/13 & 9/27/13
Discuss the differences between earned and unearned income. Explain the purpose of taxes and how the U.S. tax system works, and describe the different types of taxes. Discuss payroll deductions and benefits,and demonstrate how to compute net pay. Review for Unit 1 Test
Chapter
© 2010 South-Western, Cengage Learning
Federal Income Tax
7.17.1 Our Tax System
7.27.2 Filing Tax Returns
7
© 2010 South-Western, Cengage Learning SLIDE 4
Chapter 7
Purpose of Taxes
In a free enterprise system such as ours, the government collects money from citizens and businesses in the form of taxes.
These incoming funds to the government are called revenue.
© 2010 South-Western, Cengage Learning SLIDE 5
Chapter 7
Types of Taxes
Progressive taxesRegressive taxesProportional taxes
© 2010 South-Western, Cengage Learning SLIDE 6
Chapter 7
Progressive Taxes
Progressive taxes take a larger share of income as the amount of income grows.
Federal income taxes are progressive.
© 2010 South-Western, Cengage Learning SLIDE 7
Chapter 7
Regressive Taxes
Regressive taxes take a smaller share of income as the amount of income grows.
Sales taxes are regressive.
© 2010 South-Western, Cengage Learning SLIDE 8
Chapter 7
Proportional Taxes
Proportional taxes, or flat taxes, are taxes for which the rate stays the same, regardless of income.
Property taxes are proportional.
© 2010 South-Western, Cengage Learning SLIDE 9
Chapter 7
Components of the Tax System
The IRSThe power to tax – Congress!Paying your fair share
Tax rates apply to income ranges, or tax brackets.
Our income tax system is based on voluntary compliance, which means that all citizens are expected to prepare and file tax returns of their own accord without force.
© 2010 South-Western, Cengage Learning SLIDE 10
Chapter 7
Components of the Tax System
Failure to pay taxesFailure to do so can result in a penalty:
interest charges on the taxes owed plus a possible fine.
Willful failure to pay taxes is called tax evasion, which is a serious crime punishable by a fine, imprisonment, or both.
(continued)
© 2010 South-Western, Cengage Learning SLIDE 11
Chapter 7
An IRS Audit
Every year, the IRS calls millions of taxpayers for an audit, which is an examination of their tax returns.
Types of auditsOffice auditCorrespondence auditField audit
© 2010 South-Western, Cengage Learning SLIDE 12
Chapter 7
Filing Status
Filing status describes your tax-filing group.
© 2010 South-Western, Cengage Learning SLIDE 13
Chapter 7
Exemptions
An exemption is an amount you may subtract from your income for each person who depends on your income to live.
© 2010 South-Western, Cengage Learning SLIDE 14
Chapter 7
Exemptions—Who Qualifies
Yourself, unless someone else claims you on their return
Your spouse, if you are filing jointlyYour dependents
A dependent is a person who lives with you and for whom you pay more than half his or her living expenses.
© 2010 South-Western, Cengage Learning SLIDE 15
Chapter 7
Gross Income
Gross income is all the taxable income you receive.
© 2010 South-Western, Cengage Learning SLIDE 16
Chapter 7
Common Types of Income
© 2010 South-Western, Cengage Learning SLIDE 17
Chapter 7
The law allows you to subtract some types of spending from gross income.
These adjustments are subtracted from gross income to determine adjusted gross income.
Adjusted Gross Income
© 2010 South-Western, Cengage Learning SLIDE 18
Chapter 7
Adjusted Gross Income
Gross income
– Adjustments
Adjusted gross income
© 2010 South-Western, Cengage Learning SLIDE 19
Chapter 7
Taxable Income
Taxable income is the income on which you will pay tax.
© 2010 South-Western, Cengage Learning SLIDE 20
Chapter 7
Taxable Income
Gross income
– Adjustments
Adjusted gross income
– Deductions
– Exemptions
Taxable income
(continued)
© 2010 South-Western, Cengage Learning SLIDE 21
Chapter 7
Deductions
Itemize deductions Standard deduction
© 2010 South-Western, Cengage Learning SLIDE 22
Chapter 7
Itemize Deductions
Itemize deductions are expenses you can subtract from adjusted gross income to determine your taxable income.
© 2010 South-Western, Cengage Learning SLIDE 23
Chapter 7
Standard Deduction
The standard deduction is a stated amount that you may subtract from adjusted gross income instead of itemizing your deductions.
© 2010 South-Western, Cengage Learning SLIDE 24
Chapter 7
Tax Credits
A tax credit is an amount subtracted directly from the tax owed.
© 2010 South-Western, Cengage Learning SLIDE 25
Chapter 7
Preparing Your Income Tax Return
Who must file?Anyone with enough income to owe taxes
When to file?No later than April 15th
Which form to use?1040, 1040A, 1040EZ
© 2010 South-Western, Cengage Learning SLIDE 26
Chapter 7
Preparing Your Income Tax Return
Where to begin?Save all reciepts for your itemized
deductions and tax forms from your employer
Filing electronicallyIRS Website
Tax preparation software
© 2010 South-Western, Cengage Learning SLIDE 27
Chapter 7
Form 1040EZ
Step 1: Name, address, and Social Security number
Step 2: Report incomeStep 3: Compute taxStep 4: Refund or amount owedStep 5: Sign the return
© 2010 South-Western, Cengage Learning SLIDE 28
Chapter 7
Form 1040A
Step 1: Name and address Step 2: Filing status Step 3: Exemptions Step 4: Income Step 5: Adjusted gross income Step 6: Taxable income Step 7: Tax, credits, and payments Step 8: Refund or amount owed Step 9: Signature
© 2010 South-Western, Cengage Learning SLIDE 29
Chapter 7
Closure 9/26/13 & 9/27/13
What is included in gross pay? List optional and required deductions from gross pay.
What are some employee benefits and incentives provided at many workplaces?
© 2010 South-Western, Cengage Learning SLIDE 30
Chapter 7
Agenda 9/30/13 & 10/1/13
Do Now: Study for Unit 1 TestUnit 1 TestAPFM Project Step 1 AssignedBegin Chapter 20
