INCOME TAXES: HOW TO FILE
BEFORE YOU WORKING, FILL OUT A W-4

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The W-4 Form gives
your employer an
overview of your tax
status (are you
married? Do you have
kids? Do you pay a lot
for child care?).
Using this information,
it is determined how
much in taxes should
be withheld from your
paycheck throughout
the year.
The W-4 is pictured to
the right.
NOW…GO TO WORK.
Based on the information on your W4, taxes will
be withheld from each of your paychecks for
the calendar year. On January 1st, the new tax
year begins.
 People who are not totally truthful on their W4
do not have enough in taxes withheld, and
therefore have a big tax bill due in the Spring.
 Its pay it now or pay it later…but you will pay!

STEP 1: COLLECT ALL TAX DOCUMENTS
These documents are sent to you by your
employer, your bank, and any other financial
institutions.
 These documents prove how much money you
made and whether you spent money that would
be deductible.
 A copy is also sent directly to the IRS, so you
cannot lie!

W-2 FORM – A QUICK PEEK
FILL OUT YOUR 1040 BY APRIL 15TH
Depending on how complicated your taxes are,
there are many different (often times very
complicated) forms you will use.
 The primary form is called the 1040. The 1040
summarizes your over all tax scenario.
 Additional forms may be required to prove
some of the numbers used on the 1040.

1040 FORM – IT IS COMPLICATED
WHICH FORM TO USE?
Tax law changes and your finances change, so
year to year may require different forms.
 We will do some practice on a 1040EZ form.
 My advice when you are adults: if you are not a
tax expert, do not try to be. TurboTax, H&R
Block, and many others can do your taxes
quickly, cheaply and accurately. If you are
financially successful, get an accountant!
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STEP 2: DETERMINE TAXES OWED
1.
2.
3.
4.
5.
6.
7.
8.
9.
Add up all of your income to determine your Adjusted Gross
Income (AGI).
Add up your deductions.
Add up your exemptions.
Subtract Deductions and Exemptions from AGI to determine
your Taxable Income.
Find your taxes due based on your Taxable Income.
Determine how much in taxes have been withheld from
your pay.
Subtract what you paid from what you owe.
If it is a positive number, you owe that!
If it is a negative number, you will get a refund!!!
LETS TRY!
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Here is our scenario:
Billy is 25, single, and works at Costco.
He made $27,500 last year at Costco.
Federal Income Taxes Withheld = $4,125
Billy also bartends as a 2nd job and earned
$3,500 in tips that have not been taxed.
FIND TOTAL INCOME, DEDUCTIONS AND EXEMPTIONS
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Step 1: Add up all income to find AGI.
 27,500
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+ 3,500 = $31,000 in wages, salary or tips.
Step 2: Add up your deductions.
 In
2012, the IRS allows a standard individual deduction
of $5,950.
 Billy has no other expenses that qualify as deductions.
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Step 3: Add up your exemptions.
 In
2012, the standard personal exemption was $3,800.
FIND TAXABLE INCOME & TAXES OWED
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From AGI, subtract deductions and exemptions.
 31,000
– 5,950 – 3,800 = 21,250.
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Using the IRS web site, search for 2012 income
tax tables. Remember, Billy is single!

http://www.irs.gov/pub/irs-pdf/i1040tt.pdf
FIND TAXES OWED
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Using the tax
table, use
Billy’s
taxable
income and
filing status
to determine
taxes due.
Filing Status
Taxable Income
Taxes Owed
COMPARE TAXES OWED TO TAXES PAID
$4,125 was withheld from Billy’s pay check and
already sent to the IRS. The taxes withheld will
be shown on the W-2 Form.
 Billy only owes $2,749, which we determined in
the last 2 slides.
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Taxes Owed – Taxes Paid = (refund) or due
 $2,749 - $4,125 = ($1, 376)
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IT’S A REFUND!
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Because Billy had more taxes withheld out of
his paycheck than he owed, the IRS must send
him his money back.
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Now, for homework, you try on your own.