Chapter 7 Federal Income Tax 7 1 Our
![Chapter 7 Federal Income Tax 7. 1 Our Tax System 7. 2 Filing Tax Chapter 7 Federal Income Tax 7. 1 Our Tax System 7. 2 Filing Tax](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-1.jpg)
![Lesson 7. 1 Our Tax System GOALS n Explain the purpose of taxes and Lesson 7. 1 Our Tax System GOALS n Explain the purpose of taxes and](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-2.jpg)
![Purpose of Taxes n In a free enterprise system such as ours, the government Purpose of Taxes n In a free enterprise system such as ours, the government](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-3.jpg)
![Types of Taxes n Progressive taxes n Regressive taxes n Proportional taxes Chapter 7 Types of Taxes n Progressive taxes n Regressive taxes n Proportional taxes Chapter 7](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-4.jpg)
![Progressive Taxes n Progressive taxes take a larger share of income as the amount Progressive Taxes n Progressive taxes take a larger share of income as the amount](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-5.jpg)
![Regressive Taxes n Regressive taxes take a smaller share of income as the amount Regressive Taxes n Regressive taxes take a smaller share of income as the amount](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-6.jpg)
![Proportional Taxes n Proportional taxes, or flat taxes, are taxes for which the rate Proportional Taxes n Proportional taxes, or flat taxes, are taxes for which the rate](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-7.jpg)
![Components of the Tax System n The IRS n The power to tax n Components of the Tax System n The IRS n The power to tax n](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-8.jpg)
![(continued) Components of the Tax System n Failure to pay taxes n Failure to (continued) Components of the Tax System n Failure to pay taxes n Failure to](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-9.jpg)
![An IRS Audit n Every year, the IRS calls millions of taxpayers for an An IRS Audit n Every year, the IRS calls millions of taxpayers for an](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-10.jpg)
![Lesson 7. 2 Filing Tax Returns GOALS n Define basic tax terminology. n Prepare Lesson 7. 2 Filing Tax Returns GOALS n Define basic tax terminology. n Prepare](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-11.jpg)
![Filing Status n Filing status describes your tax-filing group. n You must mark one Filing Status n Filing status describes your tax-filing group. n You must mark one](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-12.jpg)
![Exemptions n An exemption is an amount you may subtract from your income for Exemptions n An exemption is an amount you may subtract from your income for](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-13.jpg)
![Exemptions—Who Qualifies n Yourself, unless someone else claims you on their return n Your Exemptions—Who Qualifies n Yourself, unless someone else claims you on their return n Your](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-14.jpg)
![Gross Income n Gross income is all the taxable income you receive. n Earned Gross Income n Gross income is all the taxable income you receive. n Earned](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-15.jpg)
![Common Types of Income n Wages, salaries, and tips n Interest income n Dividend Common Types of Income n Wages, salaries, and tips n Interest income n Dividend](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-16.jpg)
![Adjusted Gross Income n The law allows you to subtract some types of spending Adjusted Gross Income n The law allows you to subtract some types of spending](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-17.jpg)
![Adjusted Gross Income Gross income – Adjustments Adjusted gross income Chapter 7 © 2010 Adjusted Gross Income Gross income – Adjustments Adjusted gross income Chapter 7 © 2010](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-18.jpg)
![Taxable Income n Taxable income is the income on which you will pay tax. Taxable Income n Taxable income is the income on which you will pay tax.](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-19.jpg)
![(continued) Taxable Income Gross income – Adjustments Adjusted gross income – Deductions – Exemptions (continued) Taxable Income Gross income – Adjustments Adjusted gross income – Deductions – Exemptions](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-20.jpg)
![Deductions n Itemize deductions n Standard deduction Chapter 7 © 2010 South-Western, Cengage Learning Deductions n Itemize deductions n Standard deduction Chapter 7 © 2010 South-Western, Cengage Learning](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-21.jpg)
![Itemize Deductions n Itemize deductions are expenses you can subtract from adjusted gross income Itemize Deductions n Itemize deductions are expenses you can subtract from adjusted gross income](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-22.jpg)
![Standard Deduction n If you do not have many deductions, your tax may be Standard Deduction n If you do not have many deductions, your tax may be](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-23.jpg)
![Tax Credits n A tax credit is an amount subtracted directly from the tax Tax Credits n A tax credit is an amount subtracted directly from the tax](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-24.jpg)
![Preparing Your Income Tax Return n Who must file? n When to file? n Preparing Your Income Tax Return n Who must file? n When to file? n](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-25.jpg)
![Form 1040 EZ n Step 1: Name, address, and Social Security number n Step Form 1040 EZ n Step 1: Name, address, and Social Security number n Step](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-26.jpg)
![Form 1040 A n Step 1: Name and address n Step 2: Filing status Form 1040 A n Step 1: Name and address n Step 2: Filing status](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-27.jpg)
- Slides: 27
![Chapter 7 Federal Income Tax 7 1 Our Tax System 7 2 Filing Tax Chapter 7 Federal Income Tax 7. 1 Our Tax System 7. 2 Filing Tax](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-1.jpg)
Chapter 7 Federal Income Tax 7. 1 Our Tax System 7. 2 Filing Tax Returns © 2010 South-Western, Cengage Learning
![Lesson 7 1 Our Tax System GOALS n Explain the purpose of taxes and Lesson 7. 1 Our Tax System GOALS n Explain the purpose of taxes and](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-2.jpg)
Lesson 7. 1 Our Tax System GOALS n Explain the purpose of taxes and describe the different types of taxes. n Describe the U. S. tax system and explain how it works. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 2
![Purpose of Taxes n In a free enterprise system such as ours the government Purpose of Taxes n In a free enterprise system such as ours, the government](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-3.jpg)
Purpose of Taxes n In a free enterprise system such as ours, the government collects money from citizens and businesses in the form of taxes. n These incoming funds to the government are called revenue. n The government spends the revenues received according to priorities set by Congress. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 3
![Types of Taxes n Progressive taxes n Regressive taxes n Proportional taxes Chapter 7 Types of Taxes n Progressive taxes n Regressive taxes n Proportional taxes Chapter 7](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-4.jpg)
Types of Taxes n Progressive taxes n Regressive taxes n Proportional taxes Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 4
![Progressive Taxes n Progressive taxes take a larger share of income as the amount Progressive Taxes n Progressive taxes take a larger share of income as the amount](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-5.jpg)
Progressive Taxes n Progressive taxes take a larger share of income as the amount of income grows. n Federal income taxes are progressive. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 5
![Regressive Taxes n Regressive taxes take a smaller share of income as the amount Regressive Taxes n Regressive taxes take a smaller share of income as the amount](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-6.jpg)
Regressive Taxes n Regressive taxes take a smaller share of income as the amount of income grows. n Sales taxes are regressive. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 6
![Proportional Taxes n Proportional taxes or flat taxes are taxes for which the rate Proportional Taxes n Proportional taxes, or flat taxes, are taxes for which the rate](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-7.jpg)
Proportional Taxes n Proportional taxes, or flat taxes, are taxes for which the rate stays the same, regardless of income. n Property taxes are proportional. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 7
![Components of the Tax System n The IRS n The power to tax n Components of the Tax System n The IRS n The power to tax n](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-8.jpg)
Components of the Tax System n The IRS n The power to tax n Paying your fair share n Tax rates apply to income ranges, or tax brackets. n 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. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 8
![continued Components of the Tax System n Failure to pay taxes n Failure to (continued) Components of the Tax System n Failure to pay taxes n Failure to](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-9.jpg)
(continued) Components of the Tax System n Failure to pay taxes n Failure to do so can result in a penalty: interest charges on the taxes owed plus a possible fine. n Willful failure to pay taxes is called tax evasion, which is a serious crime punishable by a fine, imprisonment, or both. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 9
![An IRS Audit n Every year the IRS calls millions of taxpayers for an An IRS Audit n Every year, the IRS calls millions of taxpayers for an](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-10.jpg)
An IRS Audit n Every year, the IRS calls millions of taxpayers for an audit, which is an examination of their tax returns. n Types of audits n Office audit n Correspondence audit n Field audit Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 10
![Lesson 7 2 Filing Tax Returns GOALS n Define basic tax terminology n Prepare Lesson 7. 2 Filing Tax Returns GOALS n Define basic tax terminology. n Prepare](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-11.jpg)
Lesson 7. 2 Filing Tax Returns GOALS n Define basic tax terminology. n Prepare tax forms 1040 EZ and 1040 A. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 11
![Filing Status n Filing status describes your taxfiling group n You must mark one Filing Status n Filing status describes your tax-filing group. n You must mark one](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-12.jpg)
Filing Status n Filing status describes your tax-filing group. n You must mark one of the following as your filing status on your tax form: n Single person (not married) n Married person filing a joint return n Married person filing a separate return n “Head of household” n Qualifying widow(er) Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 12
![Exemptions n An exemption is an amount you may subtract from your income for Exemptions n An exemption is an amount you may subtract from your income for](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-13.jpg)
Exemptions n An exemption is an amount you may subtract from your income for each person who depends on your income to live. n Each exemption reduces your taxable income and thus your total tax. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 13
![ExemptionsWho Qualifies n Yourself unless someone else claims you on their return n Your Exemptions—Who Qualifies n Yourself, unless someone else claims you on their return n Your](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-14.jpg)
Exemptions—Who Qualifies n Yourself, unless someone else claims you on their return n Your spouse, if you are filing jointly n Your dependents n A dependent is a person who lives with you and for whom you pay more than half his or her living expenses. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 14
![Gross Income n Gross income is all the taxable income you receive n Earned Gross Income n Gross income is all the taxable income you receive. n Earned](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-15.jpg)
Gross Income n Gross income is all the taxable income you receive. n Earned income refers to money you earned from working. n Unearned income refers to money you received from passive activity (other than working). Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 15
![Common Types of Income n Wages salaries and tips n Interest income n Dividend Common Types of Income n Wages, salaries, and tips n Interest income n Dividend](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-16.jpg)
Common Types of Income n Wages, salaries, and tips n Interest income n Dividend income n Unemployment compensation n Social security benefits n Child support n Alimony Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 16
![Adjusted Gross Income n The law allows you to subtract some types of spending Adjusted Gross Income n The law allows you to subtract some types of spending](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-17.jpg)
Adjusted Gross Income n The law allows you to subtract some types of spending from gross income. n You can “adjust” your income by subtracting such things as contributions to individual retirement accounts, student loan interest, and tuition and fees. n These adjustments are subtracted from gross income to determine adjusted gross income. n Adjustments reduce income that is subject to tax. n Note that these adjustments are not available on Form 1040 EZ. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 17
![Adjusted Gross Income Gross income Adjustments Adjusted gross income Chapter 7 2010 Adjusted Gross Income Gross income – Adjustments Adjusted gross income Chapter 7 © 2010](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-18.jpg)
Adjusted Gross Income Gross income – Adjustments Adjusted gross income Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 18
![Taxable Income n Taxable income is the income on which you will pay tax Taxable Income n Taxable income is the income on which you will pay tax.](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-19.jpg)
Taxable Income n Taxable income is the income on which you will pay tax. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 19
![continued Taxable Income Gross income Adjustments Adjusted gross income Deductions Exemptions (continued) Taxable Income Gross income – Adjustments Adjusted gross income – Deductions – Exemptions](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-20.jpg)
(continued) Taxable Income Gross income – Adjustments Adjusted gross income – Deductions – Exemptions Taxable income Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 20
![Deductions n Itemize deductions n Standard deduction Chapter 7 2010 SouthWestern Cengage Learning Deductions n Itemize deductions n Standard deduction Chapter 7 © 2010 South-Western, Cengage Learning](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-21.jpg)
Deductions n Itemize deductions n Standard deduction Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 21
![Itemize Deductions n Itemize deductions are expenses you can subtract from adjusted gross income Itemize Deductions n Itemize deductions are expenses you can subtract from adjusted gross income](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-22.jpg)
Itemize Deductions n Itemize deductions are expenses you can subtract from adjusted gross income to determine your taxable income. n Examples include: n Medical and dental expenses beyond a specified percentage of your income n State and local income taxes n Property taxes n Home mortgage interest n Gifts to charity n Losses from theft or property damage n Moving expenses Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 22
![Standard Deduction n If you do not have many deductions your tax may be Standard Deduction n If you do not have many deductions, your tax may be](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-23.jpg)
Standard Deduction n If you do not have many deductions, your tax may be less if you take the standard deduction. n The standard deduction is a stated amount that you may subtract from adjusted gross income instead of itemizing your deductions. n This amount changes each year. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 23
![Tax Credits n A tax credit is an amount subtracted directly from the tax Tax Credits n A tax credit is an amount subtracted directly from the tax](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-24.jpg)
Tax Credits n A tax credit is an amount subtracted directly from the tax owed. n It is different from a deduction. n A deduction is subtracted from adjusted gross income. n It reduces your tax by reducing the amount of income on which the tax is figured. n A tax credit reduces the tax itself. n The government allows tax credits for certain education expenses, child-care expenses, and other reasons from time to time. Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 24
![Preparing Your Income Tax Return n Who must file n When to file n Preparing Your Income Tax Return n Who must file? n When to file? n](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-25.jpg)
Preparing Your Income Tax Return n Who must file? n When to file? n Which form to use? n Where to begin? n Filing electronically n Tax preparation software Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 25
![Form 1040 EZ n Step 1 Name address and Social Security number n Step Form 1040 EZ n Step 1: Name, address, and Social Security number n Step](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-26.jpg)
Form 1040 EZ n Step 1: Name, address, and Social Security number n Step 2: Report income n Step 3: Compute tax n Step 4: Refund or amount owed n Step 5: Sign the return Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 26
![Form 1040 A n Step 1 Name and address n Step 2 Filing status Form 1040 A n Step 1: Name and address n Step 2: Filing status](https://slidetodoc.com/presentation_image_h/8264965954f7dfcb29dab42db5bb933b/image-27.jpg)
Form 1040 A n Step 1: Name and address n Step 2: Filing status n Step 3: Exemptions n Step 4: Income n Step 5: Adjusted gross income n Step 6: Taxable income n Step 7: Tax, credits, and payments n Step 8: Refund or amount owed n Step 9: Signature Chapter 7 © 2010 South-Western, Cengage Learning SLIDE 27
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