3/24/14
“Deductions, credits, & dependents”
1. What is the difference between a tax deduction and a tax
credit?
2. What is a dependent & how do they effect your taxes?
On desk: Deductions & credits wksht.
Earn: $50,000
Deductions
reduce amount
$$ you are
TAXED ON.
Owe in taxes: $10,000
Credits
reduce amount
$$ you OWE in
taxes.
What is a dependent & how do they effect your taxes?
dependent:
• Someone who depends on you to live (child, grandma, cousin,
etc.)
• The more dependents you can claim, the more money you
save on your taxes! (dependent credits)
How much would your standard deduction be if you filed your
taxes today?
• Single = $6,100
• Married = $12,200
What is the difference between nonrefundable tax credits and
refundable tax credits?
Nonrefundable:
• can reduce tax liability to zero, but not below
• Refundable:
• can reduce tax liability below zero, which means…?
• Govt. can end up owing you money!
Deductions
($ reduces income subject to tax)
Credits
($ reduces amt. of tax owed)
3/24/14
Econ. Agenda
1. How to file your taxes, part one (class notes)
2. Adjusted Gross Income tax problems
HW: finish AGI tax problems # 1 – 3
3/24/14
Class notes – how to file your taxes
• Need at least 3 things:
1. Personal info. for you and your dependents
(SSN, date of birth, address, etc.)
2. W-2 form – statement of your wages for past
year
3. Correct tax form
• Need to file BOTH Federal & State tax forms every
year!
• Tax due date?
• April 15th!
576-98-4356
985869493
76,500.00
8,415.00
Google, Inc.
76,500.00
5,355.00
1600 Amphitheatre Parkway
76,500.00
1,530.00
Mountain View, CA 94303
Niza Hernandez
300 Primavera Street, Apt. A
Impuesto, CA 90000
CA
76,500.00
2,295.00
76,500.00
765.00
3/24/14
Class notes – how to file your taxes
• Adjusted Gross Income (AGI)
• Amount of income you are taxed on (basically)
• Total income minus all of your deductions
• Income = $50,000
• Standard deduction =
$6,100
• Student loan interest deduction = $1,500
• Charitable contribution to RIPR = $150
• Total amount in deductions?
• = $7,750
• AGI = $50,000 – $7,750 = $42,250
3/24/14
Class notes – how to file your taxes
•
What form do I need to file my taxes?
•
3 forms to choose from (federal taxes):
1. 1040 EZ
• Shortest, least complicated:
• Under $100,000 income, no dependents, under age 65,
single or married filing jointly…
2. 1040A
• Medium length, more complicated:
• Same as 1040EZ but…any age, can claim dependents,
owning stocks & other investments…
3. 1040
3/24/14
Class notes – how to file your taxes
•
What form do I need to file my taxes?
•
3 forms to choose from (federal taxes):
3. 1040
• Longest, most complicated:
• Any marital status, over $100,000 income, sold
property, self employed, greater than $1500 in interest
earned…
•
How do I file my taxes?
• Online or paper (online refund comes faster)
• Self with tax forms, pay a professional, or pay TurboTax, etc.
•
•
•
•
•
•
1040-EZ
Short
Marital status
– Single,
married
filing jointly
Age
– >65
Dependents
– none
Interest income
– <$1,500
Taxable income
– <$100,000
•
•
•
•
•
•
•
1040A
Medium
Marital status
– Single, married
filing jointly
Age
– Any
Other
– Retirement
payments
– Own stocks
– Student loans
Dependents
– yes
Interest income
– <$1,500
Taxable income
– <$100,000
1040
• Long
• Marital status
– married filing
separately, divorced
• Other
– Self-employed
– Sold property
– Own stocks
– YES itemized
deductions
• Interest income
– >$1,500
• Taxable income
– >$100,000
Adjusted Gross Income Federal Tax Rates, 2013
Single
If taxable income is more than …
but not
more than …
the tax is …
$0
$8,925
10% of the taxable income
$8,925
$36,250
$892.50 plus 15% of the amount
over $8,925
$36,250
$87,850
$4,991.25 plus 25% of the
amount over $36,250
$87,850
$183,250
$17,891.25 plus 28% of the
amount over $87,850
$183,250
$398,350
$44,603.25 plus 33% of the
amount over $183,250
$398,350
$400,000
$115,586.25 plus 35% of the
amount over $398,350
$400,000
no limit
$116,163.75 plus 39.6% of the
amount over $400,000
Example: You are single and earn $89,000 as a plumber. You get
the standard deduction amount of $6,100 and a child tax credit
of $1,000. What is your AGI and how much money do you owe
in taxes?
AGI =
$89,000
- $6,100
AGI = $82,900
Income = $89,000
Deductions? $6,100
Amount of tax owed?
AGI = $82,900
- $36,250
$46,650
X .25
$11,662.50
$4,991.25 plus 25% of the amount over
$36,250
$4,991.25
+ $11,662.50
$16,653.75
Tax credits?
$16,653.75
- $1,000.00
Tax owed = $15,653.75