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NDSU HDFS 357 - Taxes Cont.

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LECTURE 7 2-11-15Clarification on refundable and nonrefundable:Nonrefundable credit: savings cannot exceed the amount of tax you oweFor example: if the only credit you’re eligible for is a $500 nonrefundable credit, and the tax you owe is only $200—the $300 excess is nonrefundableThis means that the credit will eliminate the entire $200 of tax, but you don’t receive a tax refund for the remaining $300Refundable: if the credit you qualify for is more than you owe in taxes, you get the additional amount backComputing Your Tax Liability Cont.7. Add any other taxes owed to determine Tax LiabilityW-2 – shows withholding8. Determining Tax PaymentCompare withheld amount (on W-2) to Tax LiabilityRefund: If withholding is higher than tax liabilityBalance Owed: If tax liability is higher than withholdingFiling Your Federal Income Tax ReturnThere are five filing status categories1. Single or legally separated2. Married, filing jointly3. Married, filing separately4. Head of HouseholdUnmarried individual who maintains a household for a child or dependent relative5. Widow or Widower (for 2 years after death)Surviving spouses receive the same standard deduction and tax rates as taxpayers who are married filing jointlyTax PreparationRange from a one-person office to large firmsSoftware programsIf your professional tax preparer or software makes a mistake, you are still responsible for paying the correct amountPlus any interest and penaltiesElectronic FilingFree e-filing for federal tax returnsRefunds are generally received within three weeks- The Audit ProcessAbout 1% of all returns are auditedIf you claim large are unusual deductions are you more likely to be auditedThere are three types of audits1. Correspondence- for minor questions2. Office audit- takes place at an IRS office3. Field- is the most complex, with an IRS agent visiting you at home, business or your accountant’s officeYou have audit rightsTime to prepare for the auditClarificationRepresentation (e.g., accountant, lawyer, etc.)-Tax Planning StrategiesPractice Tax Avoidance…Legitimate methods to reduce your tax obligation to you fair share but no more…Not Tax EvasionIllegally not paying all the taxes you owe, such as not reporting all incomeHDFS 357 1st Edition Lecture 7Outline of Last LectureI. Taxes and Financial PlanningII. Four Types of TaxesIII. Income Tax FundamentalsIV. Computing Your Tax Liability Outline of Current LectureI. Clarification and Recap of last classII. Computing Your Liability Cont.III. Filing You Federal Income Tax ReturnIV. Tax Preparation V. Electronic FilingVI. The Audit ProcessVII. Tax Filing Strategies Current LectureLECTURE 7 2-11-15- Clarification on refundable and nonrefundable:o Nonrefundable credit: savings cannot exceed the amount of tax you owe For example: if the only credit you’re eligible for is a $500 nonrefundable credit, and the tax you owe is only $200—the $300 excess is nonrefundable This means that the credit will eliminate the entire $200 of tax, but you don’t receive a tax refund for the remaining $300o Refundable: if the credit you qualify for is more than you owe in taxes, you get the additional amount backComputing Your Tax Liability Cont.o 7. Add any other taxes owed to determine Tax Liability W-2 – shows withholdingo 8. Determining Tax Payment Compare withheld amount (on W-2) to Tax Liability Refund: If withholding is higher than tax liability Balance Owed: If tax liability is higher than withholding- Filing Your Federal Income Tax Returno There are five filing status categories 1. Single or legally separated 2. Married, filing jointly 3. Married, filing separately 4. Head of Household Unmarried individual who maintains a household for a child or dependent relative 5. Widow or Widower (for 2 years after death) Surviving spouses receive the same standard deduction and tax rates as taxpayers who are married filing jointly- Tax Preparationo Range from a one-person office to large firmso Software programso If your professional tax preparer or software makes a mistake, you are still responsible for paying the correct amount Plus any interest and penalties - Electronic Filingo Free e-filing for federal tax returnso Refunds are generally received within three weeks - The Audit Process- About 1% of all returns are audited - If you claim large are unusual deductions are you more likely to be audited- There are three types of auditso 1. Correspondence- for minor questionso 2. Office audit- takes place at an IRS officeo 3. Field- is the most complex, with an IRS agent visiting you at home, business or your accountant’s office- You have audit rightso Time to prepare for the audito Clarificationo Representation (e.g., accountant, lawyer, etc.) -Tax Planning Strategies- Practice Tax Avoidance…o Legitimate methods to reduce your tax obligation to you fair share but no more- …Not Tax Evasiono Illegally not paying all the taxes you owe, such as not reporting all


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