Tax Basics
Investment account which earns interest; commonly used to save for retirement; allow matching contributions from employers; money is taxed when withdrawn
401(k)
How can you file your taxes?
‒ completing tax forms by hand and then mailing them to the IRS
‒ completing tax forms online at IRS.gov
‒ CPAs (Certified Public Accountants)
‒ computer programs or software (i.e. programs such as TurboTax® and H&R Block®)
‒ financial advisors
specific expenses a person deducts from their gross income
Itemized Tax Deductions
Generally a child, in-laws or other blood relatives who receive at least one half of their financial support from the person claiming them on taxes
Dependent
Income tax return form; most common tax return form
1040A Tax Form
How long should you keep your tax records for?
7 years
Are an expense a person is allowed to subtract from their gross income to arrive at their taxable income
Tax Deductions
When do you need to file your taxes by?
April 15th
How long does it take to complete tax forms?
Usually takes a few hours if you have multiple forms to fill out.
Who is the primary income provider
Household individual
Which taxes are levied directly on personal or corporate income
Direct Taxes
Increase as the amount of money someone makes increases
Tax Bracket
Who can be exempted from taxes?
Yourself, your spouse, and any dependents.
What is a filing status that you can claim?
‒ single ‒ married filing jointly ‒ married filing separately ‒ head of household: an individual who is the primary income provider ‒ widow(er) with dependent child
Provides _______________ for public good and services
Revenue
Are specific expenses a person deducts from their gross income Interest: fee paid to use money; usually expressed as a percentage; can be thought of as a the price “paid” to “rent” money
Itemized Deductions
Are made without any exchange of goods of services
Transfer payments
A tax credit for parent who have sent a child to college
Hope Tax Credit
Taxes are a percentage-based fee assessed by who?
Congress
Agency that is responsible for collecting Income Taxes
Internal Revenue Service
At what age can you stop filing taxes?
It is not based on age. Federal law may require retirees to pay taxes on part of their Social Security if it is over the threshold amount.
Types of Income which cannot be taxed?
‒ tax-free interest on government bonds ‒ carpool costs ‒ some house sales ‒ health coverage paid for by an employer ‒ life insurance ‒ money spent on education, such as college ‒ academic scholarships ‒ gifts
The amount deducted for each dependent
$3800
Are received by every taxpayer and are an amount set by the IRS on which no taxes are paid (different in every state)
Standard Deductions
What can taxpayers can deduct expenses which equal more than 7.5 percent of net income
Some medical expenses.