Personal finance unit 1

The tax cycle

- In the United States, the tax year for individuals runs from Jan. 1 to Dec. 31 --Taxes withheld or owed for earnings during the calendar year would be included on the tax return sent to the IRS the next year --For example, taxes that are withheld from the year, 2021 would be included in the tax return filed in 2022

Filing for tax returns regardless of dependence status

- You must file a return if your net earnings (income minus expenses) from self-employment were $400 or more³ - Contributions to all of your traditional and Roth IRAs cannot exceed your taxable compensation, with a maximum of $6,000/yr for tax year 2020⁴

Household Employees tax filing requirements (nannies, gardeners, babysitters, etc.)

- you must file a return if your earned income was more than the standard deduction (ix. $12,400 for 2020) - Social Security and Medicare payroll taxes do not need to be withheld if the student meets any of the following criteria --The student is the employer's child and is under the age of 21 --The student is under the age of 18 at any time during the tax year

Self employed tax filing requirements (plumbers, carpenters, repair workers, etc)

- you must file a return if your net earnings from self-employment were $400 or more - Generally you are required to file an annual return and may need to pay estimated tax quarterly - Self employed individuals generally must pay self-employment tax (SECA) which is the 15.3% tax on earnings that is the equivalent to Social security and Medicare payroll taxes withheld from employees' checks (FICA)

Net Pay

Amount of income left after taxes and deductions have been taken out.

Yes, you can file for an extension if you need more time to prepare your tax return

Can you get an extension for your tax returns?

discretionary spending

Federal spending on programs that are controlled through the regular budget process (medicare)

mandatory spending

Federal spending required by law that continues without the need for annual approvals by Congress. (education)

mark yourself as exempt on your W-4 form when you start your job. this way no income taxes are withheld from your paycheck

If you're a dependent and do not expect to owe income taxes you can...

Tax Filing Requirements for Dependents

If your a dependent, under the age of 65, and single, you must file a return if: - Your earned income was more than $12,400 - Your unearned income was more than $1,100 - Your gross income was more than the larger of $1,100 or your income up to $12,050 + $350

Pre-Tax deductions

contributions taken out of your paycheck BEFORE taxes are calculated on your income

two examples of employer contributions

health insurance and 401k

1040 form

one of the official documents that U.S. taxpayers can use to file their annual income tax return - Used to find taxable income and the tax on their income - You can add any deduction to your taxable income that your employer would not

W-2 form

shows the amount of taxes withheld from your paycheck for the year --Given to you from employer --Shows you the reported income you earned from your employer --Must be sent by January 31 the following year - When you are preparing your tax return you must make sure that you are taking the taxes withheld from your paycheck from your tax bill --If you have a positive number you are entitled to a refund --If you have a negative number you will owe the IRS money - The form must be attached to your tax return even if you file online - The IRS will make sure that the numbers that you enter match what your employer says

gross pay

the total amount of an employee's earnings before deductions are taken out

I-9 form

this is used to verify the identity and employability of individuals hired for employment in the US. --All US employers have to fill out this form (it proves who you say you are) - The form must prove that the employee is in fact who they say they are

1. Health 2. Military 3. Interest on Debt

what are the top three categories the government spends our tax dollars on?

Filing for tax returns as a dependent, under the age of 65, single

you must file a return if - Your earned income was more than $12,400 - Your unearned income was more than $1,100¹ - Your gross income (total of your earned and unearned income) was more than the larger of: --$1,100 or --Your earned income (up to $12,050) plus $350

April 15th

When are taxes required to be filed?

So if your income changes or you have major life changes your taxes could be adjusted

Why is it important to keep your W-4 form up to date?

Filing for tax returns if your not a dependent, under the age of 65, single

You must file a return if... - Your earned income was more than $12,400²

W-4 form

a form that is created by the IRS that you complete to let your employer know how much money to withhold from your paycheck for federal income tax - Can help prevent having a big balance during tax time - Also, help from overpaying taxes take into account, for example; Mortgage interest, State and local income tax, Charitable contributions, Excess medical expenses

1099 form

a record that a business or person other than your employer gave your money --Payers fill these out and send them to you and IRS - Someone who is a freelancer or an independent contractor often get these forms from their clients because it reflects the money that the business paid for their work