Chapter 26 TAXES AND TAXATION 26 1 Taxation

Chapter 26 TAXES AND TAXATION 26. 1 Taxation 26. 2 Filing an Income Tax Return © Thomson/South-Western CHAPTER 26 Slide 1

Lesson 26. 1 TAXATION Objectives n Explain the purpose of taxes n Identify and explain the major types of taxes n Illustrate the difference between a graduated tax and a flat tax © Thomson/South-Western CHAPTER 26 Slide 2

Lesson 26. 1 THE PURPOSE OF TAXES n Taxation = the process by which the expenses of government are paid. The purpose of taxation is to raise revenue (money) to pay the cost of an operating government. n Tax is a compulsory (required) contribution of money people make to be paid to the government. © Thomson/South-Western CHAPTER 26 Slide 3

Lesson 26. 1 TYPES OF TAXES n Income taxes = workers n Payroll taxes = employers n Sales and excise taxes (like gasoline) = buyers of goods and services. n Estate, inheritance, and gift taxes = inheriting and/or receiving money © Thomson/South-Western CHAPTER 26 Slide 4

Lesson 26. 2 FILING AN INCOME TAX RETURN Objectives n Summarize the general process by which the amount of income tax is determined n Complete a Form 1040 EZ © Thomson/South-Western CHAPTER 26 Slide 5

Lesson 26. 2 DETERMINING YOUR INCOME TAX n First you must subtract certain nontaxable items called adjustments to income. n After you subtract adjustments to income, you are left with an adjusted gross income. n Next, you are allowed to subtract various non -taxable items called deductions. n You may subtract a set amount for yourself and each dependent. These are your exemptions. © Thomson/South-Western CHAPTER 26 Slide 6

DETERMINING YOUR INCOME TAX (continued) Lesson 26. 2 n Subtraction of amounts for deductions and exemptions leaves you with your taxable income, the amount on which you pay tax. n Your figure from the tax table may be reduced by any tax credits for which you are eligible. n Tax evasion is illegally avoiding payment of some or all of one’s income tax obligation. © Thomson/South-Western CHAPTER 26 Slide 7

Lesson 26. 2 FILING A TAX RETURN n Filing your tax return = is used to refer to the process of completing and submitting an income tax return. © Thomson/South-Western CHAPTER 26 Slide 8

Lesson 26. 2 COMPLETING A FORM 1040 EZ n The easiest form to file is Form 1040 EZ. n The qualifications for using it change little from each year. © Thomson/South-Western CHAPTER 26 Slide 9

WHO CAN USE 1040 EZ Lesson 26. 2 During a recent year, you could use Form 1040 EZ if: n n n n n Your filing status was single or married filing jointly. You did not claim any dependents. You did not claim any adjustments to income. The only tax credit you could claim was the earned income credit. You (and your spouse if filing a joint return) were under age 65 and not blind. Your taxable income was less than $100, 000. You had only wages, salaries, tips, taxable scholarships or fellowship grants, unemployment compensation, or Alaska Permanent Fund dividends, and your taxable interest was not over $1, 500. You did not receive any advance earned income credit payments. You did not owe any household employment taxes on wages you paid to a household employee. © Thomson/South-Western CHAPTER 26 Slide 10

FORM W-2, WAGE AND TAX STATEMENT © Thomson/South-Western CHAPTER 26 Lesson 26. 2 Slide 11

FORM 1040 EZ Lesson 26. 2 © Thomson/South-Western CHAPTER 26 Slide 12