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  • Welcome to Basic Income Tax. This is Accounting 109. So this is Basic Income Tax, and this

  • is the introduction section, and I am Lisa Cole, and I will be your instructor over the

  • next 14 programs. We have 15 programs total, including this one. Today what I would like

  • to do is do an introduction, kind of introduce myself, go over the syllabus and what texts

  • we're going to be using, kind of the format of how the class will run, and then we're

  • going to get a little bit in Chapter 1. So I do want to cover some of that today.

  • At this point, you should have received a syllabus from me. If you have not, it's in

  • the mail, it's on the way. Send me an e-mail and let me know. On the syllabus, it will

  • have my e-mail, my telephone number, my office, and also my particular office hours for whatever

  • semester you're taking the class. The text that we're going to be using is the Income

  • Tax Fundamentals, so you should make sure you have the 2009 edition. If you're taking

  • this in the spring of '09, or also if you're taking it in the fall of '09, we'll be using

  • the 2009 edition, so make sure you have the correct textbook.

  • Let's just kind of go over a little bit of the syllabus and what's on the syllabus. You'll

  • have some course objectives. This is a Basic Income Tax class. And on campus I teach a

  • federal income tax class in which we cover more material, so this is a one-credit Basic

  • Income Tax class. So we're going to be covering the basics. My goal is that when you complete

  • this class, you should be able to do a basic tax return, and we'll go over what that means.

  • Basic versus one that's a little bit more complicated.

  • So we want to make sure you understand the individual tax model. We want to make sure

  • you understand what is gross income and what deductions that you can take from gross income,

  • and then we're going to look at how to calculate tax, how do we get to our tax.

  • So we're going to look at the tax formula, we're going to look at tax tables, who can

  • I claim on my tax return, exemptions. We're going to look at our Schedule A deductions,

  • you know, can I take my interest on my home. So we'll look at all those type of items,

  • what's included in gross income, do I have to include babysitting money if I babysit

  • for someone. So we're going to look at all those little details, what's included in our

  • gross income and then what can I take as a deduction. If I have to go on a trip or do

  • something for my job as an employee, can I take that as a deduction?

  • So we're going to be looking at those items and then, finally, how do I calculate tax,

  • what tax credits, and then how do I pay tax, you know, how do I make my payment. So we'll

  • be looking at those items. Also in your syllabus you should have the course requirements. You

  • will have three multiple choice exams that should be in your packet that you received

  • with my syllabus. You will also have to do a final tax return. That information is also

  • in the packet. And then a couple of homework assignments, which will consist of multiple

  • choice questions at the end of the chapter, which should also be in your packet. So your

  • packet is full of information. It's full of the syllabus, it's full of the outlines. As

  • I lecture and go over materials, I'll be filling out chapter outlines. You should have that.

  • It should be full of PowerPoints, the PowerPoints that I use from time to time, that's in your

  • packet. And then also your exams are in your packet, along with your schedule of the programs

  • that we'll be covering. So the withdrawal policy is in there, and then as I said before,

  • the schedule that we'll be covering over the next couple of programs is also in there,

  • okay. Make sure that if, as we go through, if you

  • have questions or concerns or issues, that you send me an e-mail immediately so that

  • I can address them. You also will have due dates. You should have due dates on your schedules

  • of when the first test is due, when do I need to turn in Chapter 1 multiple choice questions,

  • all that's in your packet and part of your syllabus. So make sure that you just take

  • some time and go through that information so that you'll understand what's due and when

  • it's due, okay. I wanted to, like I said, introduce myself.

  • I'm Lisa Cole. This is my seventh year at Johnson County Community College teaching

  • full-time. Prior to teaching here full-time, I've taught at Park University prior to this.

  • Also I was the ticket operations accountant for the Kansas City Royals. I also worked

  • for the Internal Revenue Service as an auditor, and I also worked for Arthur Andersen, when

  • there was an Arthur Andersen, in the tax division. So I've had a number of years of teaching

  • experience, along with a number of years of tax experience and other accounting experience,

  • so just to give you a little background on my history, okay.

  • Also with your textbook you should receive inside the inside cover is a disc for Tax

  • Cut. Tax Cut is H&R Block's tax preparation software. So that comes with the book, which

  • is a great asset because you can load it on your computer. It also comes with a state

  • return. We do not have time in this class to go over the details of how to work through

  • that software, but that software is for you to keep, and you are welcome when it's time

  • to do your final tax return, you're welcome to do it using that software. So it is definitely

  • a great asset, and so make sure you load that and begin to explore it. You learn to use

  • it by just exploring it. It doesn't come with any specific instructions. You can get some

  • instructions online. But just spend some time working through the forms and going through

  • the process, okay. What we will cover in class is the preparation

  • of the 2008 tax return. So everything that we cover is going to be related to your 2008

  • tax return, so everything that happened last year financially.

  • Okay. So that's all the introduction I have. I believe I covered the syllabus. You will

  • be submitting your work to me via e-mail. You can mail it or you can bring it by my

  • office, so you understand how to turn in assignments and when they're due. You know what textbook

  • you should have, and at that point, I think we've covered everything regarding the introduction.

  • So what I want to do is just get started and cover the first couple of pages of Chapter

  • 1. So if you have your book, and you should, let's begin to look at Chapter 1. Chapter

  • 1 deals with just the introduction and the individual income tax return, which is our

  • main focus, is we're going to be looking at the individual income tax return in this class.

  • Okay. It starts off talking about the history and the purpose or the objectives of the tax

  • system. The 16th Amendment of the Constitution that was signed or authorized on March 1st

  • of 1913, they authorized the tax system, the income tax, the ability to prepare a tax return

  • in the United States to collect tax. So it was 1913. So it's been a long time that we've

  • been -- we've had a tax system. Most believe it is just to pay for the benefits of the

  • government, but it's not. It's not just to raise revenue for government; it's also for

  • social and economic policies. Social meaning, for instance, a couple examples

  • that they give you, and they give these to you on Page 1-2 in your book is the social

  • part is that they give you a deduction for making contributions. So if I make contributions

  • to a charitable organization, I can get a deduction. So they are trying to encourage

  • you to contribute so you can get a deduction. Also, there's an earned income credit, which

  • we'll briefly talk about, to where low income, people within certain ranges of income can

  • get an additional credit, which is called the earned income credit, and it helps increase

  • their refund. Child and dependent care credit; if I pay for child care, then I can get a

  • credit for my child care, and so, therefore, encouraging people to pay for child care.

  • So those are considered social reasons or social policies. The other could be economic

  • policies. For instance, if I own a business, I can depreciate certain assets in my business

  • and get a deduction for that. If I hire certain classes or certain type of workers, I can

  • get a credit perhaps for a workforce development credit. There's different types of credit

  • and things that their motive is to spur the economy. When -- if you look on Page 1-2 under

  • the New Law Alert, they talk about what happened when we had Katrina. That disaster caused

  • Congress to come up with a lot of credits and deductions for economic purposes. You

  • could get a credit to help the rebuilding process, a credit in the area of helping to

  • start new businesses or to encourage -- to develop the workforce down there. So a lot

  • of times when there are issues or economic issues, then it encourages different tax credits.

  • So our tax law is not just to raise revenue. It also is there to encourage social and economic

  • policies. Okay. So let's look at Section 1.2, reporting

  • and your taxable entities, okay. We have five taxable entities, or entities that report

  • directly to the Internal Revenue Service. We have individuals, and that's us, and we're

  • going to be looking at the 1040s as we do that, and that's our main focus. But we also

  • have our corporations. Our corporations file tax returns, and they are 1120s. And they

  • file tax returns with the Internal Revenue Service and they pay tax. So they pay tax

  • as an entity, the corporations do. Partnerships file a return, they file a 1065, but they

  • don't pay tax to the IRS. Partnerships file an information return, and then the partners

  • take their share of their income and put it on their tax return and then, therefore, they,

  • the partners, pay tax. So the partnership itself is not a tax paying entity. And then

  • also estates and trusts also file a tax return. So we have individuals, corporations, partnerships,

  • and estates and trusts all that pay -- that file a tax return and pay directly to the

  • IRS. Okay. And so on Page 1. -- 1-5, the main section

  • that I want to cover today is to look at your tax formula. How does it get down to the point

  • of when I do a tax return that I owe versus a refund? That's so important to people. I

  • do tax returns, I volunteer to do tax returns, and sometimes people don't understand, well,

  • why do I owe, you know. Or why didn't I get a refund? I got a refund last year. What makes

  • up this formula that comes down to the fact that I get a refund versus owing at the end

  • of the year? So we're going to look at the tax formula and look at what happens as we

  • -- as individuals -- because that's our focus is looking at individuals this year. So what

  • is the -- how does it get down to me owing, you know, what happens that makes me owe versus

  • getting a refund. I would prefer to get a refund, okay.

  • So the first thing we want to do is what happens as we work? As we work, we pay the IRS in

  • the form of withholdings, okay. So as you work and you get paid, the IRS withholds a

  • portion of your income and they keep it. They keep it for tax purposes. And so the IRS does

  • not want me as an employee to say, oh, I'll just wait and I'll pay you everything I owe

  • you at the end of the year. They have a pay-as-you-go program. So that's withholdings. So when you

  • get your paycheck, every time, you give a little bit to the IRS, along with the State,

  • along with, if you live or work in Kansas City, Kansas City earnings. And so we know

  • that. So that's what's happening, our federal withholdings is going directly to the Internal

  • Revenue Service on our behalf. So as we work, we -- what we do is all our -- a portion of

  • our income is withheld by the IRS, withheld by our job, and they send it in to the IRS.

  • So then what we do at the end of the year, we say, okay, how much income did I make this

  • year? What is my gross income? And so, therefore, that is the starting point for our tax formula

  • that is on Page 1.5 and that we're going to look at here. So I want to blow this up a

  • little bit so you can see this. Okay. So let's look at our tax formula. So,

  • remember, we are at the point of gross income, and that's the starting point. And we will

  • begin a chapter and look at our gross income. But that's our starting point. The basic for

  • the IRS says that all your income is considered or included in your gross income. They want

  • you to put it all in there, okay. That's our starting point. And then what they may allow

  • you to do is have some deductions, okay. They're going to let you deduct some things or make

  • some adjustments to your gross income, okay. And so gross income being the starting point,

  • then we have less what we call adjustments to income. Okay. So we start off with our

  • gross income and then we deduct from that what we call our adjustments. We get to make

  • some adjustments to our income and we'll look at that. And that gets us to what we call

  • our adjusted gross income. Okay. So that gets us to our adjusted gross

  • income, which we label as our AGI. So that will get us to our adjusted gross income.

  • So basically we have our gross income. They say, okay, you can make a few adjustments,

  • so we can reduce that gross income by some adjustments that they may give us, okay. And

  • we get down to our adjusted gross income at that point. Okay. And so next we get to -- blow

  • that up just a little bit more. Okay. So next we get to have a deduction from our adjusted

  • gross income. We have what we call a standard deduction. This deduction is a deduction given

  • to you by the IRS. And it's based on your filing status, which we will look at. It's

  • the standard deduction. If I'm single it's a certain amount, if I'm married filing jointly

  • it's a certain amount, or if I'm head of household, and we'll look at all that in detail.

  • And then we also have the possibility of taking what we call itemized deductions, taking what

  • we call itemized deductions, and they appear on Schedule A. You may hear them called Schedule

  • A deductions or people may say they filed a long form, okay. You hear that a lot, too.

  • So what you do is you say, okay, these are my itemized deductions and that's like your

  • -- your charitable deductions, your medical deductions, your mortgage on your house, your

  • tax, personal property tax, and we'll look at that. So you look at your itemized deductions

  • and then you're going to compare it to the deduction that the government gives you, that

  • the IRS gives you, and you're going to take the greater of these two, okay. So if my standard

  • deduction is higher, then I'm going to take it. But if the itemized deduction is higher,

  • I'm going to take it. So you take the greater of the two, and then you also subtract from

  • that your exemptions. And this represents you get a deduction for the individuals or

  • the dependents that you claim on your tax return, you get a deduction for yourself,

  • if you're married you get a deduction for your spouse. If you claim children, you get

  • a deduction for them. So those are considered your exemptions, okay. And that gets us to

  • our taxable income. Okay. So as I said, we started off with our

  • gross income, we've already took some adjustments out of it, and then we're going to take either

  • the standard deduction from that or we're going to take our itemized deduction, and

  • then they say, okay, you can take out a little bit for your exemptions, okay. And then that

  • gets you to your taxable income, okay. That gets you to your taxable income. And that

  • represents the amount of income that you earned that is taxable to you, meaning that I'm going

  • to pay tax on. It's not the gross, it's not what you started off with, but it's after

  • I get to take all these things out and I get a deduction for this. It gets down to, oh,

  • this is what I owe in tax or this is the amount of my income that is going to be taxable to

  • me. So you get down to your taxable income, and then from that taxable income, you determine

  • your tax, okay. So I'm at my taxable income and there's two ways in which I can determine

  • what my tax is. I'm going to look at a tax rate schedule, okay, or I'm going to look

  • at a tax table. And we will go over that in detail. One of the two I'm going to look at

  • my taxable income number, let's say it's 10,000. I'm going to go to the tax table and say,

  • okay, I'm single, my taxable income is 10,000, ah, this is my tax. Then that represents the

  • tax that I owe to the IRS. That's going to represent my tax. Okay.

  • Then I take my tax number and then I get some tax credits from it. I mentioned a tax credit

  • already, child care credit. That's a credit, it reduces my tax. Some things are a deduction,

  • deducted from my taxable income. Some things are a credit, it reduces my tax. Okay.

  • So I'm going to subtract that from my tax and then also on the flip side of it we could

  • have some additional taxes. If I take money out of my retirement before I'm 69 and a half,

  • I may have to pay an additional tax, okay. So you have tax credits that reduce our taxes

  • and then we have additional taxes that increase our taxes, okay. So then once we do that,

  • that gets us down to our tax due, the actual amount that I owe the IRS, okay. That gets

  • me down to the actual amount that I owe IRS. So let's say I've done all these calculations

  • and I get down to my tax due was $5,000. My tax due was $5,000. So I owe the IRS $5,000.

  • Okay. But don't forget about my jar here. Remember, as I was working, I was paying the

  • IRS, so they already have some of my money. So the question is, do I have $5,000 paid

  • in? Or do I not? Okay. And that's going to determine if I need to pay more to get to

  • my $5,000 or if the IRS owes me, okay. So that jar that -- or that money that I've been

  • paying into the IRS, that represents what we call our withholding. And so that's what

  • the IRS already has. So I'm going to take my $5,000 and then I'm going to deduct from

  • that the withholding, okay, the amount that I've already paid in. Also, I can deduct from

  • that payments that I made directly to the IRS, maybe not through withholding, but directly

  • to the IRS, and these are maybe quarterly estimated payments that I may make, okay.

  • And so a lot of times people do that, self-employed people who don't have an employer taking that

  • money out, they pay quarterly estimated payments, so every three months they make a payment

  • into the IRS to make sure that they have that jar of money. So that jar of money either

  • comes from your employer, through your paycheck, or if you're self-employed you're making it

  • in directly to them. And then some of us, as employees we also can make estimated payments,

  • if I don't think I'm going to have enough paid in, then because there's penalties, and

  • we'll look at that for not having enough paid in, okay.

  • And so I'm going to -- now I have my tax due of 5,000. I look at my withholdings, and let's

  • say that when I look at the withholding I had $7,000 withheld or paid in. So, therefore,

  • the IRS owes me that $2,000 difference back. They don't get to keep it. I can tell them

  • to keep it and apply it to next year or I can ask for it as a refund. And so, therefore,

  • that would be a refund. The flip side of it is that what if I had 5,000 that was due and

  • I only had 4,000 paid in? Therefore, I would owe $1,000, and that would be my -- considered

  • my balance due. So that's how you get down to the fact of

  • do I owe or do I get a refund. That's confusing to people. It's how much did I have paid in?

  • How, you know, did I -- how many deductions did I get a chance to take? So we start off

  • with our gross income, we get deductions, we get credits, we get down to taxable income,

  • we figure out our tax, and then we compare that to our withholding, our payments that

  • we've paid in to the IRS. So that represents your tax formula that was covered on Page

  • 1-5 in your textbook, okay. And so I do want to stop there for our first

  • session, but what you need to do is begin to read through Chapter 1. At the end of Chapter

  • 1, the multiple choice questions are going to be due, so I would advise you just to begin

  • to read through those and as I go over Chapter 1 it will help you be prepared to answer those

  • multiple choice questions. Also, you already have your Exam 1. And you

  • can begin to read through those questions, and then as we cover Chapter 1, you should

  • be able to answer the questions on your exam that are based on Chapter 1, okay.

  • So the way our class will continue to go is that I will cover the materials, I will do

  • problems to help you understand it, I will try to do illustrations to make it clear to

  • you how everything works, but the goal is, is that when you are completed with this class,

  • you should be able to prepare a basic tax return, which will start with gross income.

  • We will go over the adjustments to gross income to get to your adjusted gross income. We use

  • that number a lot. We will look at our itemized deductions. We will learn what the standard

  • deductions are. And then we will go over who can we take or claim on our tax return and

  • which we can get an exemption for. We will look at how to calculate tax using the tax

  • rate schedules and the tax table. Then we will look at some tax credits. We will look

  • at what may cause us to have some additional taxes. And we will briefly look at the payments,

  • how do I make those quarterly payments and withholding.

  • So we will be able to in this one-credit Basic Income Tax class -- keep in mind there's a

  • federal income tax class that goes into rental and some other depreciation and some other

  • things that we don't cover in this class. So this is the end of program one and the

  • introduction. Look forward to the next session when we will be looking at who do we claim

  • on our tax return, and the filing status, how do I file. Can I file single? If I'm married

  • do I file married filing jointly? If I'm not married but have any children, do I file single

  • or do I have a head of household status? So we will be covering those items in the next

  • program. That's it.

  • (Music.)

Welcome to Basic Income Tax. This is Accounting 109. So this is Basic Income Tax, and this

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