CHAPTER 20 Slide 1 of 6

Chapter 20. INCOME TAXES

How the basic tax laws work… How to Keep Yours at a Minimum…

How Audits Work

A. Be Prepared (See Personal Action Worksheet, Text page 611)B. The Importance of Knowing About Income Taxes - Examples

1. The Pervasiveness of Taxes in our LivesC. The Basic Concept of Income Taxes - Step-by-step

1. Who must file?2. Which forms should you use?3. Choosing your filing status4. Exemptions and Dependents

CHAPTER 20 Slide 2 of 6

C. The Basic Concept of Income Taxes, (continued)

5. Declaring your incomea. Taxable income - wages, interest, dividends, alimonyb. Separately scheduled income - from business, capital gains, pensions, annuities, rents, royaltiesc. Miscellaneous income - from fees, gambling, barter, etc.

6. Non-taxable income - gifts, inheritance, life insurance proceeds, scholarships, etc.

CHAPTER 20 Slide 3 of 6

C. The Basic Concept of Income Taxes, (continued)

7. Total of all taxable income8. Minus “Adjustments” - IRA and Keogh payments, alimony paid, etc.9. Equals “Adjusted Gross Income”10. Deductions - To Itemize or claim the “standard deduction?”

a. What is deductible and what is not?11. Computing your taxes:

a. Adjusted gross income less deductions (standard or itemized) equals taxable incomeb. Subtract value of exemptionsc. Compute from tax tablesd. Add credits, subtract taxes withheld or otherwise paid = tax due

CHAPTER 20 Slide 4 of 6

D. Tax Cutting Strategies1. Tax exempt and tax deferred income2. Tax withholding and the W-4 form3. Year-end strategies4. Children’s income5. Tax “shelters”

E. Filing Your Return1. Extensions and amended returns

CHAPTER 20 Slide 5 of 6

F. What Happens to Your Return? Examinations and Audits

1. Initial screenings2. Audits - Why might your return be audited?3. Audit strategies - Yours4. Audit strategies - Theirs5. Resolving an audit if you and the IRS agree6. Resolving an audit if you and the IRS disagree7. Your best protection

CHAPTER 20 Slide 6 of 6

TALKING POINTS…Chapter Twenty, Number One

Discuss the pros and cons of these various ways of getting your income taxes prepared:

1. Doing it yourself using IRS forms and instructions.

2. Buying a computer program to do it for you.

3. Using a tax preparation service that advertises “low prices, bigger deductions, and fastest refunds.”

4. Using a tax preparation service that is more conservative, and probably more expensive than the one that advertises.

5. Using a practicing accountant.

6. Using your cousin Murray, who is an accountant. He won’t charge you but he’ll remind you of that fact often.