Dr. Sarah's Tax Lab Continued
The government estimates the average amount of deductions
for each class below and calls this average the standard deduction.
We want the highest possible deduction since this gets subtracted off
of our pay before we pay taxes (and we want to pay the least possible taxes).
For 2000, the standard deductions are
Which is the largest standard deduction that applies to
Married filing jointly: $7350.00
Head of Household: $6450.00
Married filing separately: $3675.00
The amount the taxpayer takes as their deduction is the
larger of the largest applicable
standard deduction (above) OR the exact amount of
tax deductible purchases made over the year
(itemized deduction - for example, state and local taxes,
interest paid on a house, gifts to charity, ...)
in order to pay the least amount in taxes.
We will itemize Homer's deductions and see whether he should itemize
or take a standard deduction. Then we will fill out his taxes.
Compute Homer's YEARLY (52 weeks)
Below is an abbreviated version of Schedule A-Itemized Deductions.
Fill in the yearly state and local taxes and SHOW WORK.
Wages, tips, and other compensation
:Total gross earnings after pretax
deductions (i.e. pretax retirement contributions, pretax
health insurance, etc...), but BEFORE federal tax, FICA, local taxes...
Social Security Wages:
Wages used to compute social security withholdings.
Total gross earnings before pretax deductions.
Federal mandated social security and Medicare deductions.
These may or may not be broken down separately on a paycheck.
Note that you have Homer's Weekly Paycheck, so you must figure out
the YEARLY info (52 weeks in a year)
in order to get necessary info
to do Homer's taxes.
Recall that we use the largest deduction in order to pay the least
amount in taxes.
Should we use the standard deduction or itemized deduction for Homer?
What is this amount?
Taxes Homer Paid
Enter state and all
Interest Homer Paid
Enter home mortgage interest
0 - I can't find this
info for Homer, so we must enter 0.
Gifts to Charity
Enter gifts by cash or check
ADD ALL ENTRIES
Do this for exploration and deep understanding (but do not use it
for Homer's taxes):
We don't have the home mortgage interest
that Homer paid, so we must enter in 0 in the above for that amount. But,
for deep exploration, let's see what would have happened if the year's
mortgage interest was
- around $6500 (similar to
Dr. Sarah's condo first year total interest, but larger since
Homer has a larger house). In this
case would the standard deduction or itemized deduction be larger?
Start filling out Homer's
tax return on the tax return sheet I handed out
by following the directions below:
Put the name of Homer and his wife Marge
on the 1040 form part marked Label.
Check the box that will have Homer paying the least taxes in the
Filing Status section.
Check 1 exemption for Homer on line 6a.
Then check an exemption for Marge on line 6b, and for the
three children (Bart, Lisa and Maggie) in 6c.
Fill in the underlined parts on the right, and then fill in
the box in 6d (which should be 5).
Enter Homer's YEARLY GROSS Pay on line 7
(there are 52 weeks in a year). The
rest of the lines through 21 don't apply to Homer, so you can leave them
blank or fill in 0s.
Fill in the totals in lines 22, 32 (0) , and 33.
Turn the form over and fill in line 34.
Enter Homer's standard or itemized
deduction from our work above on line 36.
Fill in lines 37, 38 (read the instructions carefully!), and 39.
Enter Homer's taxable income from line 39 here:____________
Back to Homer - use the above table and the taxable income from
line 39 to determine what % tax bracket Homer is in?________
Using your newfound knowledge of how taxes work,
compute the total amount of Homer's tax.
Show your work.
Homer's total tax is: ___________________________
Enter Homer's total tax on line 40, line 51, and also on
Write the YEARLY Federal tax (do not include
FICA, which is not tax deductible) withheld from
on lines 58 and 65, then determine lines 66 and 67a.
Sign the tax return.
Then go back to the other page to give Homer advice.