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-10287056007000Income Tax WorksheetRead (or just scan) the Overview of US Income Tax Forms, and then answer the following questions to understand how your income tax is calculated, what things increase your income, and the kinds of expenses that may reduce your taxes. This knowledge may help you manage your taxes better in the future. You will need the following documents: Your most recent federal tax returnIf you or your spouse are employed:Last year’s W2Final paystub from last year and a recent paystubAn Overview of US Income Tax FormsSome of the tax forms you are most likely to see are listed below, with brief descriptions. The format of our tax returns changed drastically in 2018 when the Tax Cuts and Jobs Act went into effect, and there have been smaller modifications each year since then. Some of these schedules may be new to you, and the look of the 1040 itself may seem unfamiliar. Form 1040 is the main tax form. It’s the one that virtually every individual or family can use to report their income and file their taxes. Those age 65 and older can use Form 1040-SR for larger print and better readability. Some information that used to be included on the 1040 has been moved to numbered Schedules. Schedule1: Additional Income and Adjustments to Income is used to report less common sources of income (Part l) as well as adjustments to your income – expenses that you can subtract from your income, which reduces the amount of tax you will pay. Not everyone fills out Schedule l. It is required only if you have one of these sources of income or an adjustment to income.Schedule 2: Additional Taxes is used to report other taxes that you owe in addition to your regular income taxes, such as tax on self-employment income. Most people don’t need to file Schedule2. Schedule 3: Additional Credits and Payments shows credits for reduce the amount of tax you owe, dollar for dollar. This includes the credit for child care expenses, education credits, etc. Schedule A: Itemized Deductions is only used by about 10% of tax filers since the tax changes in 2018. You either itemize deductions, or you claim the Standard Deduction. Nowadays, Schedule A is mainly used by those who have very large medical expenses or have made very substantial charitable contributions. Schedule B: Interest and Ordinary Dividends is used to report these sources of income if they total more than $1500. There are other, less common reasons you might be required to use this Schedule.Additional Schedules and Forms: There are several other schedules, and literally hundreds of forms – far too many to cover here. Employer Benefits Can Reduce Your TaxesLook at your W2 from last year. In Box 1, it shows how much income was reported to the IRS. If that number is less than the “gross income” amount shown on your last paycheck for the year, it means that you avoided paying tax on some of your income by using employer benefits. For example, the amount deducted from your paycheck for health insurance isn’t taxed and isn’t included on your W2. There are other benefits that can save you income tax, too. How much could this save you?What’s it worth? If you are in the 22% tax bracket, $1000 of insurance premiums and contributions to flexible spending accounts will save you $220 in income tax plus an additional $77 in FICA (Social Security) and Medicare payroll taxes. Check the box by each type of payroll deductions listed on your paystub or W2. Your employer might use different wording for these items on your paystub. Each of these benefits reduces your taxes.Employer BenefitTax Benefit Medical & dental insurance premiumsYou pay no federal or state income tax, FICA (Social Security), or Medicare taxes on the part of your wages used to pay these expenses. Flexible spending accounts: Medical Dependent Care Commuter ExpensesYou pay no federal or state income tax, FICA (Social Security), or Medicare taxes on money you put into these accounts. Generally, you must use all the money in the account by the end of the year. Your plan may give you a grace period of a few months into the next year, or allow you to roll over a small amount. Contributions to traditional (non-Roth_ retirement plans (401(k), 403(b), 457, etc.). You pay no federal or state income tax on the income you contribute to these plans. The plans are described as tax-deferred because the tax is postponed until you take the money out of the account, presumably once you are retired. If you contribute to a Roth account, it doesn’t reduce your taxes now. But the future growth will be tax free if you leave the money in the account for at least 5 years AND you are at least age 59 ?, dead, or disabled when you take it out. Health savings accountIf your health insurance is a “high deductible health plan” you can put money into a Health Savings Account instead of a Flexible Spending Account. You never pay no federal or state income tax, FICA (Social Security), or Medicare tax on this money as long as you use it for qualified medical expenses, now or in the future. You keep the money even if you change employers. Check your employee benefits handbook or talk to your Human Resources office to see if there are benefits you could be using but aren’t. You can start contributing to a 401(k) or other retirement plan, or change the amount, whenever you want. For other benefits, you may only be able to enroll or make changes during your employer’s annual open enrollment period. Get Familiar with Your Tax ReturnLook at your tax return from last year. Use it to answer these questions. It will show you what kinds of income you paid taxes on, and what kinds of deductions you had that reduced your taxes. Line numbers for 2019 tax forms are listed first. If they changed in 2020, those lines numbers are listed second. IncomeLines 1 to 7A on the 1040 for 2019 (lines 1 to 8 on the new form for 2020) are each for different types of income, including wages, interest, dividends, and Social Security. If you have income listed in line 7a (2019; line 8 for 2020), look at Schedule 1, Part l: Additional Income for the precise source of that income. Which types of income did you have last year? List each type of income that you receive below. ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Adjustments to IncomeThese are expenses you get to deduct (subtract) from your income even if you don’t itemize deductions (See #4). These deductions reduce the amount of income on which you pay taxes. They were previously referred to as Above-the-Line deductions, because they are subtracted before your Adjusted Gross Income is calculated. Adjustments include deductible IRA contributions; for a self-employed person, part of their self-employment (FICA/Medicare) tax, retirement plan contributions, and health insurance deductions; and student loan interest. Adjustments to Income are listed on Schedule 1, Part ll, lines 10-21. List your deductions below.What’s it worth? If you are in the 22% tax bracket, a deduction of $1000 will save you $220 in taxes. Note: The Tuition and Fees deduction (Schedule l, line 21) will no longer be available beginning in 2021. Instead, most taxpayers will be able to claim the Lifetime Learning Credit (calculated on Form 8880 and reported on Schedule 3, Line 3) since the income limits for that credit will be raised. _____________________________ _____________________________ _____________________________ _____________________________ Adjusted Gross IncomeLine 8b on the 1040 for 2019 is your Adjusted Gross Income (AGI). On the 2020 form, look at line 11. This is an important number, because eligibility for some tax breaks and government benefits is determined by your AGI. How much was your AGI? $ __________________________________What’s it worth? A single person receiving Social Security will pay no tax on their Social Security benefits if their AGI (including ? of their Social Security benefits) is less than $32,000. From $32,000 to $44,000, half of their benefits could be taxable. For someone in the 22% tax bracket with annual benefits of $15,000, a few dollars difference in their AGI could cost them $1650 (half of $15,000 is $7500. And 22% tax on $7500 is $1650). Delaying a distribution from a retirement account, postponing the sale of mutual fund shares, or carefully tracking all their eligible expenses from rental, business, or farm income could make the difference. Standard or Itemized DeductionsYou subtract either the Standard Deduction or Itemized Deductions from your Adjusted Gross Income. Find your deduction line 9 of your 1040 for 2019, or line 12 on a 2020 return. You’ll see the amounts of the standard deduction for single, married filing jointly, etc. in a bubble beside that line. Persons 65 and older, and/or disabled receive an additional standard deduction. Special rules apply if you or your spouse can be claimed as a dependent on someone else’s return or if your spouse itemizes on a return that they file separately from you. If you itemized, you will see a Schedule A included in your tax return. Which deduction did you use? How much was it? Standard deduction Itemized deduction$ __________________________________If you itemize deductions, list how much you deducted on Schedule A for each type of expense. Schedule A Line #Type of expenseAmountLine 4 Medical & dental expenses that exceed 7.5% of your AGILine 5d and Line 7State and local taxes including property taxes and either state income tax or sales tax, but only up to a total of $10,000. Your total actual expenses are in Line 5d. The amount you get to deduct is in line 7. Line 10 Mortgage & investment interestLine 14 Gifts to charityLine 15 Casualty & theft lossesLine 17TotalWhat’s it worth? Some people think they’re getting a tax benefit from things like interest on their mortgage, property taxes, and charitable contributions when they really aren’t. If you are claiming the standard deduction, the types of expenses listed above have no tax benefit for you. The standard deduction amount nearly doubled starting in 2018, so only about 10% of tax filers itemize now. So you might have gotten a tax benefit from these things in the past, but not now. Taxable IncomeLine 11b on your 1040 is your Taxable Income (2019; line 15 for 2020). This is the amount of income on which you actually pay taxes. You do not pay tax on all of your income. How much is your taxable income?__________________________________What’s it worth? Use this number to figure out your marginal tax bracket. (link)Tax Owed1040 Line 16 (2019; 24 for 2020) is the amount of tax you owe. Write that number on the line below. $ __________________________________Tax CreditsCredits offset the tax you owe dollar for dollar. Below, list the types of credits shown on your 1040 on lins 13a and 18a – 18c (2019; lines 19 and 27-29 for 2020). Also list any additional credits from Schedule 3, such as the credit for child and dependent care expenses and education credits. ______________________________________________________________________________________________________________________________Refund or owe? If the tax withheld from wages, Social Security benefits, and/or retirement account distributions, plus your credits is more than the amount of tax that you owe, you get a refund. If they add up to less than what you owe, you must pay when you file your taxes. Did you get a refund, or did you owe money when you filed your taxes? Refund: $ _____________ Owed: $ ______________If you get a large refund, you might want to reduce the amount withheld from your paycheck or other income. If you owe more than $1000, you might have to pay an underpayment penalty. You might want to increase the withholding from your paycheck, Social Security, or retirement income. Or you can pay quarterly estimated taxes. If your situation changes, you might end up owing tax next year, even if you haven’t previously. Retiring and beginning to take distributions from retirement accounts or switching from being an employee to being self-employed often result in people owing a substantial amount when they file their taxes due to less withholding. Prepare by paying estimated taxes during the year, or arranging for withholding from those retirement plan distributions ................
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