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8 Tips for Filing Taxes
- 1. 1 8 TIPS TO KNOW ABOUT TAXES
- 2. 2 § This presentation has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors. Before We Begin
- 3. 3 Taxes & Why We Pay Them
- 4. 4 Types of Tax § Income taxes: individual & corporate, capital gains § Sales & gross receipts taxes § Property taxes § Estate & gift taxes § Excise taxes: gas tax, user fees, sin taxes, luxury taxes § Payroll taxes: Social Security & Medicare § Tariffs
- 5. 5 Agenda: 8 Tips To Know About Taxes This presentation will teach you… 1. How to boost your take home pay 2. How to choose the right tax filing status 3. There’s no escaping Uncle Sam on earned income 4. The standard deduction may be enough 5. All earned income is not taxed equally 6. How to take advantage of the child tax & dependent care tax credits 7. Don’t forget incentives designed to offset higher education costs 8. Financial literacy resources are at your fingertips
- 6. 6 Meet Joe Mountaineer and Suzy Mae Butterfly § Joe Mountaineer is a diehard WVU football faithful with desires of one day graduating from WVU, working for an accounting firm, and eventually returning to his studies to become a CPA. § As a high-schooler, he has a part-time job at the local grocery store. In college, Joe will major in accounting. § Joe also has plans to marry his long-time girlfriend, Suzy Mae, have two children, and buy a house in Morgantown, WV. § Joe and Suzy Mae have a lot of questions about taxes and want to know how some of these life decisions will impact their financial responsibilities.
- 7. 7 Joe’s Prior Year Tax Liability – 1040 Filer Part Time Filing At Joe’s part-time job at the local grocery store, he earned $15,000 in calendar year 2021. Joe’s tax filing status is “single” with no dependents. What is Joe’s tax liability before credits as a single tax filer? W-2 Income: $15,000 Standard Deductions: ($12,550) Taxable Income: $2,450 Tax Rate: 10% Tax Before Credits: $245
- 8. 8 Tip #1: Boost Take-Home Pay Joe Mountaineer Lands His First Accounting Job Making $50,000 § As part of the employment onboarding process, Joe fills out some critical tax forms. § Form W-4, Employee’s Withholding Certificate § Form WV/IT-104, West Virginia Employee Withholding Exemption Certificate § The # of exemptions selected determines the amount of Federal and state taxes your employer is require to withhold from your wages. § The higher the exemptions, the less they are required to withhold.
- 9. 9 Tip #2: Choose the Right Filing Status Joe Mountaineer and Suzy Butterfly Tie the Knot § Common filing status options for married couples § Married filing jointly § Married filing separately § Selecting the right filing status impacts the amount of tax owed on Joe’s $50,000 accountant salary § If Joe and Suzy file separately as a married couple, Federal tax owed before deductions is $6,616 § If Joe and Suzy file jointly, Federal tax owed before deductions is $5,589
- 10. 10 Tip #3: No Escaping Uncle Sam on Earned Income Suzy Butterfly Helps Joe Get His CPA Dream off the Ground § The Gig Economy has grown by 15% over the past decade. Suzy starts a tax filing business to support Joe while he becomes a CPA. § Business owners are responsible for paying taxes: § Sole proprietors file their net earnings on Form 1040 § Federal and state taxes § Social Security and Medicare taxes from self-employment § Suzy earns $10,000 in gross fees and incurs $4,000 in tax deductible expenses (e.g., office rent, supplies, telephone, tax software licensing, etc.). § Now, Joe and Suzy’s income reportable on Form 1040 is $56,000.
- 11. 11 Tip #4: The Standard Deduction May Be Enough Choosing Between the Standard Deduction and Itemized Deductions § Taxpayers may choose the greater of the standard deduction or Schedule A itemized deductions. § The standard deduction for 2022 is $25,900 § Common Schedule A Itemized deductions § Medical Expenses § Home Mortgage Interest (recent increases in interest rates will add value to this deduction) § State & Local Taxes § Charitable Contributions § Joe and Suzy’s Schedule A Itemized deductions for 2022 were $15,000
- 12. 12 Tip #5: All Earned Income Is Not Taxed Equally Joe & Suzy Mountaineer Understanding the Graduated Tax System (2021 Table) *Table source: https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets
- 13. 13 Tip #6: Take Advantage of the Child Tax & Dependent Care Tax Credits Joe and Suzy Welcome Their First Child § Child Tax Credit § $2,000 per qualifying child for tax year 2022 § Dependent children under the age of 17 § Refundable up to $1,500 for 2022 § Dependent Care Tax Credit § Covers qualified childcare cost § Qualifying expenses: $8,000 for one child and $16,000 for two children
- 14. 14 Tip #7: Don’t Forget Incentives Designed to Offset Higher Education Costs Joe Reduces His Education Bill with Tax Incentives § American Opportunity Tax Credit: helps pay for education expenses paid for the first four years of education completed after high school. You can get a maximum annual credit of $2,500 per eligible student and 40% or $1,000 could be refunded if you owe no tax. § Lifetime Learning Tax Credit: offsets the cost of tuition and related expenses. It can help eligible students pay for undergraduate, graduate, and professional degree courses, as well as courses taken to get or improve job skills. There is no limit on the number of years you can claim the credit. The credit is worth up to $2,000 per tax return. § Student Loan Interest Deduction: allows borrowers to subtract up to $2,500 of the interest paid on qualified student loans from their taxable income. *Tax credit source: https://www.irs.gov
- 15. 15 Joe’s Current Year Tax Liability – 1040 Filer A lot has changed for Joe & Suzy in 2022. Their filing status is now “married filing jointly” with one dependent. What is their tax liability before credits now? W-2 Income: $50,000 1099 Net Income: $6,000 Standard Deductions: ($25,900) Taxable Income: $30,100 Graduated Tax Rate: 10%/12% Tax Before Credits: $3,201
- 16. 16 Tip #8: Financial Literacy Resources Are at Your Fingertips Joe and Suzy Mountaineer Use Online Financial Resources § American Institute of Certified Public Accountants (AICPA) § Website: StartHereGoPlaces website § West Virginia Society of Certified Public Accountants (WVCPA) § Website: Public Resources | WVSCPA - West Virginia Society of Certified Public Accountants § Internal Revenue Service § Website: https://apps.irs.gov/app/understandingTaxes/teacher/index.jsp
- 17. 17 § Accounting is not about math—it’s about problem solving. § It has job security and opportunities for advancement. § It’s part of every business, nonprofit or government organization. Working With Taxes: Accounting Joe Became An Accountant; You Can Be One Too! § Accounting is versatile with room for growth. Jobs include auditor, bookkeeper, tax accountant, financial analyst, controller, accounting manager, public accountant, forensic accountant, etc. § It has a lower-than-average unemployment rate. The U.S. Bureau of Labor Statistics projects accountant employment will grow 10% by 2026. § The best way to learn more is to take an accounting course in high school.
- 18. 18 § As a global leader in acquiring and collecting nonperforming loans, PRA Group returns capital to banks and other creditors to help expand financial services for consumers. § Through our subsidiaries, we collaborate with customers to develop flexible, affordable payment options to help them resolve their debt. About PRA Group
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