Transcript Itemized vs. Standard Tax Deduction

8.3 Paying Income taxes
“It’s death and taxes here to see you. Taxes
wants to come in first.”
2 income tax
responsibilities:
1)Complete a W-4 when you start a job.
 (W-4 B4 start working)
2) File a tax return at least once a year, if
required and pay any additional tax owed.
Allowances: USE W-4
 Determines how
much tax to take out
of your paycheck.
 Completed at hire.
 P. 201
Allowances: USE W-4
 **Higher allowances-
Less taxes taken out
of paycheck.
 “1” = bigger check
 “0” = smaller check
What if you need to
change allowances??
 You can change your W-4 Allowances at
any time during employment.
 Ex: get married, have a baby, or get
divorced.
If a teenager expects to earn less than
the standard deduction amount $6100,
and did not have any tax liability for the
prior year, the teen can write "exempt"
on line 7 of the Form W-4 and no federal
income tax will be withheld.
 You will still have to pay Social Security and
Medicare. Do not have to file 1040ez.
Read more: Do Teenagers Have to Withhold From Paychecks? | eHow.com http://www.ehow.com/info_8718274_do-teenagers-withhold-paychecks.html#ixzz2K41Rm2xj
Would you rather have more
taxes taken out of
paychecks & get bigger
refund?
 Or have less taken out of
paychecks with less of a refund..
possibly have to pay more taxes
after your return is filed?
Avg. Tax Refund $3000.00
 Financial advisors argue the point that by
allowing the government to knowingly
collect more in tax from you during the
year, you are, in effect, giving Uncle Sam
an interest free loan.
A more wise investment
may pay off later…
 For example, reducing your withholding by $3,000
annually means that for the average taxpayer, you
will not receive a refund, but you will not owe any
taxes either.
 That's an extra $58 per week, or about $250 per
month.
 Investing that money into a mixture of stocks, bonds or
precious metals, with an average return of 6 percent,
would yield an inflation-adjusted amount of $70,000
after just ten years. Now that's a tidy sum worth taking
note of.
Dependent:
 Anyone supported by tax payer’s income.
 Why should you have fewer taxes taken
out if you have more dependents?
Three Sets Of Twins Born In Different Years Over New
Year's Weekend- 2011/12
How does this affect parent’s tax return?
How does this affect parent’s tax return?
Baby born before Dec. 31 at midnight will be
claimed as a dependent for 2011 tax return.
Baby born on Jan 1 will not be claimed until
2012 tax year.
What do you need to file
1040ez tax return?
 W-2– How many do you have?
Do you have a savings account?
 Then you will also get a FORM 1099.
 Misc. income reported.
 Interest from account
 Prize value
 Forms must be mailed to you by Jan 31st.
Tax Deduction
 What do they do?
 reduces the amount of taxes owed.
 Ex: Make $60,000. Gave $5000 to
charity. You are taxed on $55,000.
 2 main types of deductions Choose one or the other…
Itemized vs.
Standard
Tax Deductions –
Which One Should You Take?
2013 Standard Tax
Deduction
 standard tax deduction is
easiest.
 it’s simply a fixed number
set each year used to
complete taxes.
 Nearly 2 out of 3 taxpayers
take the standard deduction
 Examples:
 Single $6100
 Married, Filing
Jointly $12,200
 Head of
Household $8,950
2013 Itemized Tax
Deductions:
 But if you think you may have tax
deductions bigger than the standard
deduction
 it may make sense to itemize, even
though it will require better record
keeping and a little more work
 Can not use 1040EZ tax form if itemizing
deductions.
Itemized Tax deductions:
Examples include:
 Mortgage interest.
 Charitable contributions.
 Property taxes.
 State and local income taxes.
 Medical expenses that
exceed 7.5% of your adjusted
gross income.
 Various miscellaneous
expenses that exceed 2% of
your income such as: union
dues, tools and supplies
needed for work, tax
preparation fees, some legal
fees, and many more.
Single person
 For 2013 You could take Standard
Deduction of $6,100
 Or show receipts for Itemized deductions
greater than $6,100– use longer tax form.
**Must use one or the other, not both.
Missed deductions can be
the most costly….
 About 48 million of us itemize on our 1040s -- claiming more than
$1 trillion worth of deductions.
 $1,000,000,000,000
 Another 92 million taxpayers claim about $700 billion worth using
standard deductions
 $700,000,000,000

http://www.kiplinger.com/features/archives/the-mostoverlooked-tax-deductions.html#ixzz1XEFxeqJH
Tax Credits – “bonus”
 Examples:
Your tax form shows you owe $2,000 in taxes.
tax credit of
500
Now owe
$1500
Tax Credits – “bonus”
 Examples:
 $500 tuition credit (ex: mater dei)
 $1000 credit for each dependent child16 yrs by dec. 31, 2012.
 American Opportunity Tax Credit
 up to $2,500 on the first $4,000 of qualifying educational
expenses, which include course materials as well as
tuition.
 First time homebuyers tax credit
 Up to $8000 credit extended to 2010 taxes.
Why are tax credits better
than tax deductions?
A tax credit is a dollar-for-dollar benefit.
The credit is applied to your final IRS bill,
meaning you get money back or don't have
to pay Uncle Sam as much.
Read more:
http://www.bankrate.com/finance/moneyguides/why-tax-credits-are-better1.aspx#ixzz2t4K1kNKm
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What is a W-2?
 When do you get them? By Jan 31.
 See page 203.
 INFORMATION ON W-2 should Match
your last pay stub of the year. Did you
check it?
When are tax returns due?
April 15th
Why is it important for
your parents to get their
taxes completed quickly
this year?
Thursday we will
complete a 1040EZ tax
form.
1040EZ “Easy Form”
 Use the 1040EZ if:
 • Your taxable income is below
$100,000
 • Your filing status is Single or
Married Filing Jointly

• You and your spouse – if married
-- are under age 65 and not blind

• You are not claiming any
dependents
 • Your interest income is $1,500 or
less
 Using Standardized Deduction.
When do you get your
money?
Check the Status Online The fastest and easiest way to find out
about your current year refund is to go to IRS.gov and click the
“Where’s My Refund?” link at the IRS.gov home page. To check
the status online you will need your Social Security number, filing
status and the exact whole dollar amount of your refund shown on
your return.
Check the Status By Phone You can check the status of your refund by
calling the IRS Refund Hotline at 800–829–1954. When you call, you
will need to provide your Social Security number, your filing status
and the exact whole dollar amount of the refund shown on your
return.