COA 4131 1st Edition Lecture 3 Outline of Last Lecture I Microeconomics II Presidents and the Economy III Financial Statements and Budgets IV Important Numbers List V Financial Statements VI The Personal Balance Sheet Net Worth VII How Solvent Are You VIII Selecting Financial Advisors Outline of Current Lecture I Taxes II Federal Income III Outlays IV Taxing Philosophies V Average Taxes VI Types of Taxes VII Tax Filing VIII Paying Taxes IX Common Forms X Paying Taxes XI Avoid Common Mistakes XII Withholding and Prompt Returns XIII Audits XIV Software XV Tax Preparation Current Lecture A Taxes a The average American pays between 20 40 percent of earnings in taxes i Depends on income level size of family and other factors ii Florida does NOT have a state income tax b Taxes i Definition payment of money to local state or federal governments ii Used to provide public goods and services 1 Roads bridges public schools state universities public goods iii Failure to pay can lead to various penalties including jail 1 Jail is extremely rare rather have money than send you to jail B Federal Income a Biggest chunk is coming from individual income 48 1 b Next chunk is from social insurance retirement 33 5 C Outlays a Biggest chunk is from Social Security Medicare and other retirement 37 i Take money in and push it back out in terms of Social Security ect b National defense is next big chunk 18 D Taxing Philosophies a Benefits received philosophy i Those who receive the benefits of a particular public expenditure should pay for it 1 If a bridge is built every time you go over that bridge you would have to pay so much for it 2 If I never go on the bridge I don t pay anything for it b Ability to pay philosophy i Those with higher incomes should pay proportionally more taxes than those with lower incomes 1 The richer you are the more you pay 2 The less you make the less you pay c Progressive taxes i The more you earn the more you pay d Regressive tax i Takes a smaller percentage from those with high income than from those with lower income e Sales tax i Example of regressive taxes 1 Hit lower income people harder than high income people 2 Flat tag everyone would pay the same percentage regardless of income everyone pays the same it s equitable Republicans likes this one E Average Taxes a Taxes run around 20 to 40 percent of the average American s income i How much should people pay and what s a good amount b Tax Avoidance i Use of legitimate methods to reduce one s taxes 1 Give money to your kids so you don t have to write it on your taxes c Tax Evasion i Use of illegal methods to reduce taxes 1 Putting money in a separate box offshore account d Marginal Tax Rate i Tax rate applied to the last dollar of earnings 1 January you get a form to estimate your taxes F Types of Taxes a Exercise taxes i Tax on specified goods and services 1 Cigarettes alcohol fireworks 2 People will go to different states if it s cheaper there 3 Hits lower income people more 4 Duty free items liquor cosmetics purses ect b Homestead exemptions i Based on state to reduce property tax 1 Sometimes you get it because you are a first time home buyer 2 Senior citizen different ages in different states 3 Legally blind or disabled c Estate tax i Tax imposed on the value of a deceased person s net worth 1 If someone dies people who inherit it has to pay the taxes on it d Inheritance Tax i Taxes paid by the beneficiaries of an estate 1 If you get a certain amount of money you have to pay tax on it but it has to be a pretty large amount e Gift tax i Federal tax a giver of a sizable gift may have to pay 1 Usually has to be given to family member 2 Taxed if greater than 13 or 14 000 G Tax Filing a Filing status i Marital or household status that affects tax rates b Death of a taxpayer i The taxpayers spouse or personal representative may have to file and sign a return for that taxpayer H Paying Taxes a If someone cannot pay i Extensions given til August ii May be charged a little or nothing at all iii Will work with you so you can pay it but you have to reach out to them b Reaching the IRS i http www irs gov I Common Forms a Form 1040 i Most used form ii All filled out online iii Use if income is over 50 000 b Form 1040A i Simpler form than 1040 ii Less than 50 000 and not itemized deductions iii Form 1040EZ J K L M 1 Often used by college students c Tax deduction i Items to reduce taxes d Standard deduction i Deduction set by the government based on filing status Paying Taxes a Not paying on time i File a 4648 application for Automatic Extension of time to File U S Individual Income Tax Return ii Some people want to use money for April and August so people will want the extension on purpose iii The longer you go the more they will charge you for delay Avoid Common Mistakes a Dependents Alimony and Child Support i IRS check for fraudulently claimed dependent exemptions b Alimony i An allowance for support made under a court order and usually given by a man to his wife after a divorce or legal separation 1 Usually a man but can be the other way around Withholding and Prompt Returns a Withholding i Employer deducts federal income tax from your pay and sends it to the government 1 Tax Withholding calculator irs gov ii W4 forms withholding from employee sign this form to agree to this iii Refund 1 When too much is deducted and the government owes you money back 2 Fill out W2 to report findings and should match up with W4 Audits a Tax Audits i Detailed examination by the IRS of a tax return b Fewer than 1 of all individual tax returns are audited each year i Certain cities New Orleans Las Vegas that are gambling hotspots and have a lot of hospitality and entertainment with cash are more likely to be audited ii Medical doctors are more likely than school staff to be audited iii If you are audited once they will continue to follow you c Random search every 30 tax returns for random searches d Three types of audits i Correspondence audits 1 Minor mistakes most common Is when people do not sign it a If it is a joint husband and wife both parties must sign 2 Office audits a Need to visit IRS 3 Field audits a More complex N Software a Find one that is easy to use b Websites such as Turbotax Kiplinger TaxCut and Intuit O Tax Preparation a …
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