At this point you add up all your exemptions

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Unformatted text preview: d deductions lower your taxable income and thus lower the amount of taxes you must pay. At this point, you add up all your exemptions, deductions, and adjustments and subtract them from your total income. What is left is your taxable income. To figure out how much you have to pay in taxes, you consult a tax table. These tables can be found at or in the tax booklet that you received from the IRS. The accompanying table is for a single person filing in 2005. Using the table, you can figure your tax liability. For example, let’s suppose your taxable income was $40,000. Using the table, we see that $40,000 falls between $29,700 and $71,950. Therefore your tax liability is $4,090 plus 25 percent of the amount over $29,700. If we subtract $29,700 from your taxable income of $40,000, the amount is $10,300. Twenty-five percent of $10,300 is $2,575. So $4,090 $2,575 $6,665, the amount you owe in taxes. Page 375 13. It is also likely that you paid taxes throughout the year. You have probably noticed that a certain amount of money is deducted from your paychecks to pay federal income taxes. Let’s say the total amount of taxes deducted from your paychecks over the year was $6,000. Given that you already paid $6,000 of the $6,665 you owe in taxes, you now need to write out a check to the IRS for $665. 14. If by chance, the total amount of taxes deducted from your paychecks over the year was $7,000, then you paid more in taxes than you owe. You will be entitled to a tax refund of $335. 15. Finally, you can file your tax return over the phone, online, or via regular mail. If taxable income is over— But not over— The tax is: $0 $7,300 $29,700 $71,950 $150,150 $326,450 $7,300 $29,700 $71,950 $150,150 $326,450 no limit 10% of the amount over $0 $730 plus 15% of the amount over 7,300 $4,090 plus 25% of the amount over 29,700 $14,652.50 plus 28% of the amount over 71,950 $36,548.50 plus 33% of the amount over 150,150 $94,727.50 plus 35% of the amount over 326,450 n s Action Pla al Economic My Person me consider and so want to points you may Here are some practice. want to put into g elines you might guid liability and filin puting your tax s, com ❑ 1. In most case rn is a fairly simple process. retu your tax file my to complete and a serious effort I will make s, or own return. to do your taxe puter software is u use com ❑ 2. Even if yoreturn service to file your tax return, it puted. m get a tax taxes are co u know how your portant that yo im e money.” It x refund as “fre refer to their ta worked ❑ 3. Some people oney; it is (most likely) money you is not free m to earn. ✔ ✔ ✔ Chapter 14 Taxing and Spending 375 14 (364-389) EMC Chap 14 11/18/05 10:58 AM Page 376 Focus Questions How does the federal government spend its tax revenues? What is a balanced budget? A budget deficit? A budget surplus? What is the relationship between deficits and the national debt? What are some issues connected with budget surpluses? The Budget: Deficits and Debt...
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This document was uploaded on 01/16/2014.

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