Understanding Taxes and Personal Income


Introduction | Basics of Taxes | Tax Avoidance vs. Tax Evasion | Tax Systems | Corporate Tax | Federal Taxes | Georgia State Taxes | Review


Introduction

Under the U.S. system, individuals, corporations, estates, and trusts are subject to income tax. The United States of America has separate federal, state, and local governments with taxes imposed at each of these levels. Taxes are levied on income, payroll, property, sales, capital gains, dividends, imports, estates and gifts, as well as various fees. However, taxes fall much more heavily on labor income than on capital income.

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Basics of Taxes

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Assignment: Basics of Taxes Nearpod

Directions: Complete the Nearpod lesson. You must join the lesson using the join code ACNMX. If you do not join and use your first and last name, you will not receive credit for this assignment. You must complete all exercises and quizzes contained within the lesson.

Assignment: Basics of Taxes Quiz

Directions: Take the Basics of Taxes Quiz in itsLearning after completing the Nearpod lesson.


Tax Avoidance vs. Tax Evasion

The money you pay in taxes goes to many places. In addition to paying the salaries of government workers, your tax dollars also help to support common resources, such as police and firefighters. Tax money helps to ensure the roads you travel on are safe and well-maintained. No one likes to pay taxes but taxes are the law in the United States. The single biggest tax mistake businesses and individuals make is to willfully evade paying taxes. The terms "tax avoidance" and "tax evasion" are often used interchangeably, but they are very different concepts and very different consequences. Basically, tax avoidance is legal, while tax evasion is not. Tax avoidance is the legitimate minimizing of taxes, using methods included in the tax code. Tax evasion, on the other hand, is the illegal practice of not paying taxes, by not reporting income, reporting expenses not legally allowed, or by not paying taxes owed. Tax evasion is most commonly thought of in relation to income taxes, but tax evasion can be practiced by businesses on state sales taxes and on employment taxes. One common tax evasion strategy by fraudulent businesses is failing to pay or turn over taxes you have collected from others to the proper federal or state agency.

Cheating the System: Biggest Tax Evasion Cases in American History

Under the federal law of the United States of America, tax evasion or tax fraud, is the purposeful illegal attempt of a taxpayer to evade assessment or payment of a tax imposed by Federal law. When you resort to deceptive or fraudulent tactics to save on taxes, you run the risk of sizable penalties and even jail. From the famous to the infamous, tax evaders end up paying a high price for their crimes.

Tax Evasion
Source: AccountingSchoolGuide.com

Assignment: Tax Evasion Current Event

Directions: Do a little research on Tax Evasion and find a current (within the past 3 years) of a case of tax evasion. Summarize the case including the consequences as a result of the tax evasion. Cite your source using MLA format. Submit your current event summary to the itsLearning textbox. Do not attached a separate file or link to your Google Drive.


Tax Systems

Tax systems fall into three main categories: regressive, proportional, and progressive. Regressive taxes, such as sales or sin taxes, have a greater impact on low-income individuals than they do on high-income earners. A proportional tax, also referred to as a flat tax, impacts low-, middle-, and high-income earners relatively equally attempting to tax everyone at the same rate. Everyone pays the same tax rate, regardless of income. A progressive tax places a larger tax burden on higher income individuals and businesses than on low-income earners which might be completely exempt from paying any taxes.

In the United States, our income tax system is what is considered progressive. Study the infographic below to see the effects that progressive versus regressive tax systems have on individuals at different income levels.

progressive vs regressive taxes

Assignment: Tax System Discussion

Directions: What type of federal tax system does the United States have? After studying the Progressive vs Regressive Taxes infographic, do you agree or disagree with our current tax system and why? State at least two pros and two cons of our tax system and justify your reasoning. Respond to at least two classmates to continue the collaborative discussion.


Businesses Taxes

Businesses pay taxes as well as individuals. Sole proprietorship, Partnerships, and Corporations all have different tax schedules and filing rules but all are expected to contribute to the tax liability in the United States. Corporations is the only type of business that must pay its own income taxes on profits. In contrast, partnerships, sole proprietorships and limited liability companies (LLCs) are not taxed on business profits; instead, the profits "pass through" the businesses to their owners, who report business income or losses on their personal tax returns.

Because a corporation is a separate legal entity from its owners, the company itself is taxed on all profits that it cannot deduct as business expenses. Generally, taxable profits consist of money kept in the company to cover expenses or expansion (called "retained earnings") and profits that are distributed to the owners (shareholders) as dividends. To reduce taxable profits, a corporation can deduct its business expenses - basically, any money the corporation spends in the legitimate pursuit of profit. In addition to start-up costs, operating expenses and product and advertising outlays, a corporation can deduct the salaries and bonuses it pays and all of the costs associated with medical and retirement plans for employees. Nolo, How Corporations are Taxed

How Amazon Paid $0 Federal Income Tax in 2018

Assignment: Does America have a corporate income tax problem? Discussion

Directions: Amazon is one of the world's most valuable companies, valued at nearly $800 billion, and the e-commerce giant pulled in $232.9 billion in global revenue in 2018. Amazon paid $0 in federal income taxes in 2018. On top of that, the company also received a multi-million dollar tax rebate from the federal government. How does the company do it? President Trump's tax cuts, aggressive revenue reinvestment, years of R&D, and employee stock compensation all helped. Does America have a corporate income tax problem? Post your thoughts to the discussion board and then reply to at least two classmate with well constructed replies to help continue the conversation.


Individual Federal Taxes

The Internal Revenue Service (IRS) is a U.S. government agency responsible for the collection of taxes and enforcement of tax laws. Established in 1862 by President Abraham Lincoln, the agency operates under the authority of the United States Department of the Treasury, and its primary purpose includes the collection of individual income taxes and employment taxes.

If you've got a job with a regular paycheck, you're almost certainly already paying taxes! The taxes you owe on your earnings are withheld from your paycheck and paid to the federal and state governments. Your payroll withholding usually isn't exactly right. The decisions that you made when filling out the W4 can result in you under- or over-paying your taxes.

The result of all this is that you're required to file a tax return every year. Through this process, it's determined whether you owe additional taxes beyond what you've already paid to the federal and state governments, or if you're owed a refund of the taxes you've already paid. Your tax return for the tax year is due on or near April 15 of the following year. Each year, taxpayers file the U.S. Individual Income Tax Return, using Form 1040 and associated schedules.

Let's take a look at the federal taxes for high school student Josh Smith. Josh had a part-time job at ABC Store and earned $2,461.19 in 2018. His employer withheld $132.04 in federal income tax, $147.67 for Social Security, $40.61 for Medicare, and $98.44 for state tax. In addition to earned income, Josh also received $115.85 in interest income from a certificate of deposit (most banks do not withhold taxes on interest income). It is time for Josh to file his Form 1040 to determine if he has overpaid his federal taxes and will receive a refund, or whether he has underpaid his taxes and will need to pay the government more taxes. Josh is still a dependent of his parents and they will claim him on their state and federal tax returns.

To get started Josh gathers his W-2 which he received from his employer by January 31, 2019 as well as the 1099-INT he received from First Bank where he has his CD. He will also need the IRS 1040 (Tax Year 2018) Instructions and a blank Form 1040 Tax Form.

Examine the interactive of common tax documents that taypayers receive in the mail. You will need to enable Flash.

Assignment: Identifying Parts of a W-2 and a 1099INT

Directions: Use Joshua Smith's W-2 and 1099-INT to identify the different parts of the supporting documents and answer the questions in itsLearning.


Joshua Smith's Federal Income Taxes

Let's watch as Mrs. Rush completes Josh's federal income taxes for him.

Here is the completed tax form that Josh would mail to the IRS along with the federal copy of the W-2 he received from ABC Store. Because Josh provided his bank account and routing information, he will receive a direct deposit refund into his bank about in about 4 to 6 weeks. If Josh has underpaid his federal taxes, he would have to write a check or get a money order and send the amount owed to the US Treasury. The address to mail his taxes is contained within the IRS 1040 (Tax Year 2018) Instructions booklet.

Assignment: Phillip Michael Federal Tax Return

Directions: Complete the individual federal tax return for Philip Michael. Phillip is a full-time college student and a dependent of his parents (He had medical insurance for the entire year, his parents claimed him as a dependent on their return, and he wants to contribute to the presidental campaign). He had a part-time job at Johnny's pizza and earned interest on his savings account with First bank. Use Phillip's W-2 and 1099INT to complete his Federal 1040. If he owes tax, you will need to look at the tax table starting on page 67 of the IRS 1040 (Tax Year 2018) Instructions. Upload the completed 1040 to itsLearning.


Georgia State Income Taxes

Many states have state income taxes and Georgia is one of those states. Georgia utilizes a relatively simple progressive income tax system, with rates ranging from 1% to 6%. Higher earners pay higher rates of taxes, although Georgia's brackets top out at $7,000 for single filers, which means the majority of full-time workers will pay the top rate. Georgia Individual Income Tax is based on the taxpayer's federal adjusted gross income, adjustments that are required by Georgia law, and the taxpayers filing requirements. Your federal return contains information necessary for completing your Georgia return as well as the W-2.

The Georgia Department of Revenue uses Individual Income Tax 500 and 500EZ forms with the directions contained within the Individual Income Tax Instruction Booklet. Tax filers will need to determine which of the two Georgia forms applies to their situation.

Josh is ready to file his state taxes which are due to the Georgia Department of Revenue by April 15. We will need to use Josh's completed federal tax return, his W-2, a Georgia 500EZ tax form and the Georgia Individual Income Tax Instruction Booklet.

Joshua Smith's Georgia State Income Taxes

Let's watch as Mrs. Rush completes Josh's Georgia income tax return form for him.

Here is the completed tax form that Josh would mail to the Georgia Department of Revenue along with the state copy of the W-2 he received from ABC Store. Because Josh provided his bank account and routing information, he will receive a direct deposit refund into his bank about in about 4 to 6 weeks. If Josh has underpaid his Georgia income taxes, he would have to write a check or get a money order and send the amount owed to the Georgia Department of Revenue. The address to mail his taxes is contained within the Georgia Individual Income Tax Instruction Booklet.

Assignment: Philip Michael Georgia Tax Return

Directions: Complete the Georgia state tax return for Phillip Michael. Phillip is a full-time college student and a dependent of his parents (yes, he had medical insurance for the entire year thanks for his parents). He had a part-time job at Johnny's pizza and earned interest on his savings account with First bank. Use Phillip's Federal tax form, W-2 and 1099INT to complete a Georgia Form 500EZ. If he owes tax, you will need to look at the tax table starting on page 49 of the Individual Income Tax Instruction Booklet. Upload the completed 500EZ to itsLearning.


Review

Taxes Review Game
tax game

Resources

If you are having problems viewing this page, opening videos, or accessing the URLs, the direct links are posted below. All assignments are submitted in itsLearning. If you have having problems, contact Mrs. Rush through the itsLearning email client.


Credits

Progressive vs. Regressive Income Tax: SmartZone Finance

How Corporations are Taxed: Nolo


Transcript of this lesson