Income Taxes


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This presentation describes the three types of taxes - progressive, regressive, and proportional. It describes the components of our tax system.

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Income Taxes

  1. 1. Income Taxes Our Tax System
  2. 2. Types of Taxes <ul><li>Progressive – taxes that take a larger share of income as the amount of income grows. </li></ul><ul><ul><li>Federal Income Taxes </li></ul></ul>
  3. 3. <ul><li>Regressive – taxes that take a smaller share of income as the amount of income grows </li></ul><ul><ul><li>Sales taxes </li></ul></ul><ul><ul><li>Consumption taxes </li></ul></ul><ul><ul><li>Excise taxes (taxes imposed on specific goods and services such as gas, cigarettes, air travel, telephone service) </li></ul></ul>
  4. 4. <ul><li>Proportional taxes (flat taxes) – taxes for which the rate stays the same, regardless of income </li></ul><ul><ul><li>Property taxes </li></ul></ul>
  5. 5. Components of the Tax System <ul><li>The IRS (Internal Revenue Service) </li></ul><ul><li>The Power to Tax </li></ul><ul><li>Paying Your Fair Share </li></ul>
  6. 6. <ul><li>The IRS (Internal Revenue Service) </li></ul><ul><ul><li>Agency of the Dept. of Treasury </li></ul></ul><ul><ul><li>Headquarters in Washington D.C. with seven regional offices </li></ul></ul><ul><ul><li>Function to collect income taxes & enforce laws </li></ul></ul><ul><ul><li>Provides services to taxpayers </li></ul></ul><ul><ul><ul><li>Assists with filing taxes </li></ul></ul></ul><ul><ul><ul><li>Prints pamphlets </li></ul></ul></ul><ul><ul><ul><li>Furnishes tax information to schools and colleges </li></ul></ul></ul>
  7. 7. <ul><li>The Power to Tax </li></ul><ul><ul><li>Power to levy taxes rests with Congress </li></ul></ul><ul><ul><li>Bills for raising revenue originates in House of Representatives Ways & Means Committee </li></ul></ul><ul><ul><li>Proposals may come from president, Dept. of Treasury, or a member of Congress. </li></ul></ul>
  8. 8. <ul><li>Paying Your Fair Share </li></ul><ul><ul><li>Tax system is graduated; tax rates increase as taxable income increases </li></ul></ul><ul><ul><li>Tax rates apply to income ranges (tax brackets) </li></ul></ul><ul><ul><li>There are currently 6 brackets ranging from 10% to 35%. </li></ul></ul>
  9. 9. <ul><li>Voluntary Compliance </li></ul><ul><ul><li>Citizens are expected to </li></ul></ul><ul><ul><ul><li>Complete W-4 accurately </li></ul></ul></ul><ul><ul><ul><li>Obtain necessary forms and instructions </li></ul></ul></ul><ul><ul><ul><li>File a return </li></ul></ul></ul><ul><ul><ul><li>Complete return accurately </li></ul></ul></ul><ul><ul><ul><li>File on time (April 15) </li></ul></ul></ul><ul><ul><ul><ul><li>Filing late can result in interest charges on amount owed plus a fine and/or imprisonment </li></ul></ul></ul></ul><ul><ul><li>Tax Evasion – willful failure to pay taxes </li></ul></ul><ul><ul><ul><li>Serious crime punishable by a fine or imprisonment or both </li></ul></ul></ul>
  10. 10. <ul><li>Audit – examination of tax return </li></ul><ul><li>Individuals can </li></ul><ul><ul><li>Represent themselves </li></ul></ul><ul><ul><li>Give someone the power to take their place (lawyer, accountant, immediate family member, or enrolled agent) </li></ul></ul><ul><ul><li>Bring anyone for support during session (such as accountant, tax preparer, attorney, etc.) </li></ul></ul>
  11. 11. <ul><li>Office audit </li></ul><ul><ul><li>Asked to bring documentation to IRS office to answer specific questions </li></ul></ul><ul><li>Correspondence audit </li></ul><ul><ul><li>More common than office audit </li></ul></ul><ul><ul><li>IRS sends letter asking for specific information </li></ul></ul><ul><ul><li>Taxpayer provides evidence </li></ul></ul><ul><li>Field audit </li></ul><ul><ul><li>IRS agent visits the taxpayer to verify information and ask specific questions </li></ul></ul>
  12. 12. The End! Source: Managing Your Personal Finance, 5 th Edition, Joan S. Ryan