Individual Tax Chapters 1 & 2 Notes

Front 1

What does a W-4 ask?

Back 1

How many exemptions do you want to withhold?

Front 2

Are you an exemption?

Back 2

Yes, you get to deduct yourself on your tax return

Front 3

What happens if you claim zero exemptions?

Back 3

The fewer exemptions you claim, the more federal withholdings they will take out. If you want a refund, file zero exemptions.

Front 4

What should you always check on your w-2?

Back 4

Your SSN because it is unique to you.

Front 5

What is federal wittholdings deducted from?

Back 5

Deducted from wages.

Front 6

Social security

Back 6

One for pension and one for medicare. This can exceed wages depending on the situation.

Front 7

3 tax forms individuals can file:

Back 7

1. 1040EZ
2. 1040A
3. 1040

Front 8

1040EZ

Back 8

Limited as to who can file. Only if single or married filing jointly with no kids.
Can ONLY report wages, interest, or unemployment.

Front 9

1040A

Back 9

Single, married filing jointly. Can use any of the filing status.
Much larger section for income recording.
Spots to record wages, interest, dividends, capital gains ect.
Adjusted gross income is now applicable. Can do tax credits.

Front 10

What are all of the forms besides the 1040?

Back 10

All the other forms are supporting schedules which tie back into the 1040.

Front 11

What are the 5 filing statuses?

Back 11

1. Single
2. Married filing jointly
3. Married filing separately
4. Head of Household
5. Qualifying widower.

Front 12

What is the first thing you must decide when you begin filling out a tax form?

Back 12

Filing status because it influences amount of deductions a person qualifies for.

Front 13

How much income can tax tables handle? If you have over this amount what must you use?

Back 13

100,000
Tax rate schedules

Front 14

What is true about income

Back 14

ANY INCOME RECEIVED IS TAXABLE UNLESS SPECIFICALLY EXCLUDED IN THE TAX CODE.

Front 15

Deductions for AGI

Back 15

These give you adjusted gross income.

Front 16

Deductions FROM AGO

Back 16

These are adjustments made after AGI is determined.

Front 17

How does the process of developing AGI work?

Back 17

Start with gross income
Then do deductions for AGI.
This =AGI

Front 18

Why is AGI important

Back 18

Alot of times phase outs are based on your AGI.

Front 19

What are 2 MAJOR deductions FROM AGI

Back 19

Standard deduction
Itemized deduction
You take the higher of the 2

Front 20

Charitable contributions what are the qualifications on these?

Back 20

1. Must be in CASH
2. Unless it's to a nonprofit, then it can be non-cash.
MUsT have a well documented receipt.

Front 21

If electing itemized deduction what form MUST be filed?

Back 21

Schedule A

Front 22

If you itemize at state level can you deduct standard deduction at federal level?

Back 22

NO. If you itemize you must itemize for both. If you choose standard deduction, you must use standard deduction for both.

Front 23

Personal and dependency exemption:

Back 23

You get 3700 deduction to taxable income per exemption.

Front 24

What comes after taxable income?

Back 24

After taxable income you have non-refundable tax credits which you either use or lose.
Suppose line 44 is 1500
Qualify for child tax credit of 2000
You lose 500 of the tax credit because you don't owe enough tax

Front 25

Tax deduction

Back 25

Tax deduction this is like an exemption or a dependent. Reduces tax liability by 3700. Then take 15% of that so reduces your taxes by $550.

Front 26

Tax credit

Back 26

Dollar for dollar deduction from your taxes. These are very powerful. They motivate people and businesses to spend $.

Front 27

What is the ultimate goal when preparing taxes for your client?

Back 27

You want to minimize the amount they have to pay. If non-refundable tax credit amount exceeds taxes you don't get $$$ back. If they have refundable credits these can be refunded.

Front 28

Ad valorum taxes

Back 28

Added value taxes. Most common are real estate taxes and property taxes. Usually values of homes are increasing, that's why they're valorum. Homes are appreciating.

Front 29

What do personal property taxes support?

Back 29

School districts

Front 30

What are transaction taxes?

Back 30

1. Excise taxes
2. General Sales Tax

Front 31

Excise taxes

Back 31

Sin taxes. Tax over and above on certain types of transactions such as gambling, cigarette's, and alcohol. These are sin tax. Cigarettes cost .60 with 3.90 of tax.

Front 32

General sales tax

Back 32

There is currently no federal sales tax.
Right now congress is trying to implement a federal sales tax.
Sales taxes differ by municipality.
There's state tax and sometimes city tax as well.

Front 33

Taxes for transfer on death

Back 33

No city tax. Estate taxes have been radically changing used to be a max of 1,000,000 tax free. Busch raised it to 10,000,000. Currently it sits at 5,000,000.

Front 34

Gift taxes

Back 34

You can have a $13,000 gift exclusion. I can give someone a gift of 13,000 before I begin to be taxed. They wouldn't have to pay taxes on it. Doesn't get me a tax break but it reduces my estate. I HAVE TO PAY TAXES on the 13,000

Front 35

Federal income tax

Back 35

This is the tax you owe federal government.

Front 36

State income tax

Back 36

Same thing state's often adopt federal tax. State law for MO and KS adopt everything for gross income and then have their own laws.

Front 37

Earnings taxes

Back 37

Taxes on your earnings. You live in KCMO but you work in KS. Even though you live in KC and work in KS you own 1%. IF you live in MO and work in KS then it's an income tax

Front 38

How do employment taxes work?

Back 38

FICA-Social security and medicare
FUTA-unemployment

Front 39

FICA

Back 39

Social security and medicare.
The pension part is limited on how much they will tax.
Medicare is not. Even if you make 10,000,000 you will be taxed on all of it. Matching cont. employer and employee

Front 40

FUTA

Back 40

Unemployment tax paid by employer

Front 41

Flat tax

Back 41

Says we get rid of all deductions. All you do is take income multiplied by tax rate and boom. Done. to solve inequality we wouldn't tax anyone making less than 25,000

Front 42

VAT

Back 42

Value Added Tax

Front 43

VAT How they work?

Back 43

WE have manufacturer who pays 100. They must pay tax on that 100.
Then he sells it to middle man for 150. Middle man has to pay additional tax on the 50.
Retailer comes in and sells it for 300. They must pay tax on 150 of it.

Front 44

What is the problem with VAT taxes?

Back 44

They increase very rapidly

Front 45

Sales tax

Back 45

Currently only state and local we could impose a federal tax on everything.