Chapter 7

Progressive tax the larger the amount of

income earned, the higher percentage of
tax owed (ex. Income tax)

Regressive tax the lower your income, the

bigger portion of that income you pay in
taxes (ex. Sales tax)

Proportional tax based on the value of

something the tax rate stays the same
regardless of what something is worth. (ex.
Property taxes)

FEDERAL

Military
Medical care/welfare
Prisons
Salaries for Congress
Highways
Wildlife refuges
Foreign aid

LOCAL

Schools
Roads
Police protection/fire
Prisons
Parks/playgrounds
Health departments
Court system
Public official salaries

IRS (Dept. of the Treasury) Main purpose is to collect taxes

and assist tax payers, enforce tax laws
Power to Tax all bills generating revenue have to originate
in the House of Representatives
Paying your fair share tax rates are determined by the
amount of income you earn
Voluntary compliance all citizens are EXPECTED to pay
taxes they owe
Tax evasion intentionally NOT paying taxes you owe
IRS Audit verifying the accuracy of your tax return

Services Provided to Taxpayers

Assist in finding forms needed

Prints pamphlets to help prepare returns

Gives instruction materials to schools and colleges
www.irs.gov

Correspondence audit (most common)

IRS sends a letter asking the taxpayer to answer

certain questions
Taxpayer must show proof of deductions or other
entries on the tax return and send them in to the
IRS office

Field Audit/Office Audit

An IRS agent visits the taxpayer or requires a

meeting at the IRS office to verify tax return

Three ways the taxpayer may be represented:
Represent themselves
Give another the power to represent them (CPA, tax
preparer, another immediate family member)
Bring a representative and appear with the
representative

single person
married person filing jointly
married person filing separately
Head of Household (meet certain
conditions in providing a home for people
dependent on you)
Qualifying widower with a dependent child.

Exemptions an amount you can subtract from your income

for each person who depends on your income to live.
Gross income all taxable income you receive

wages, salaries, tips

interest income
dividend income
unemployment compensation
social security benefits (85% of the money you received is taxable)
Alimony money paid to a former spouse (person receiving it must
claim it as income)

child support NOT TAXABLE

Adjusted gross income some types of spending may be

subtracted from gross income (contributions to IRAs) this
reduces your income subject to tax
Deductions expenses the law allows you to subtract form
your adjusted gross income to determine your taxable
income.
You must itemize (list) them on your tax return
Standard deduction stated amount you can subtract from
your adjusted gross income to reduce your taxable income.

Single - $4,750 (2010--$5700)

Married filing jointly - $9,500 (2010 -- $11,400)

Head of Household - $7,000 (2010 -- $8350)

Who must file?

Earn more than $7,800

Under age 65
Even if you earned less than minimum you may

still have to file if you meet certain qualifications

When to file?
No later than April 15th

If the 15th is on a weekend/holiday then the first

business day after

Which form to use?

1040EZ
Taxable income less than $50,000
No deductions
No dependents
Less than $1,500 in interest income

1040A
Less than $50,000 in taxable income

Less than $1,500 in interest income

May have credits or deductions

1040 (long form)

Itemize deductions

Greater than $1,500 in interest income (savings

accts)
Must use 1040 if your income is over $50,000 (can
be less)

As soon as you receive all W-2 forms and

1099 forms
Use last years return as a model
Should prepare using short and long forms to
see which gives you the most tax benefit
Errors found after filing (1040X)
Keep your tax returns for seven years!

1040
You have enough deductions to itemize

OR if you earn more than $50,000 you MUST use

the 1040 (you can earn less and still benefit from
using the 1040)

Software
Form 1040EZ

Form 1040A

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List three services our taxes pay for

Explain regressive tax
Explain progressive tax
Explain proportional tax
List two things the IRS is responsible for

Roberto Flores, single, claims one exemption

285 SW 28th Street, #8
Portland, OR 97214-4562 (ss#465-84-3894)
Employer: Blanton School District T-31
W-2 information:
Earnings $14,720, Interest earned $134.
Federal income tax withheld $1,501.00
State income tax withheld $946.00

Roberto wants $3 to go to the presidential

campaign fund