“Overview of Taxes”

Javkhlan Batsukh, CPAjanemgl.cpa@gmail.com

(310)425-9052

Cartoon of the day..

Purpose of Taxes?

• Raise $$ for Government• + Social goals: child credit, earned

income credit, home credit, charitable contributions, etc..

• + Economic goals: reducing unemployment, encouraging business activities & industries, etc..

Can you believe..?• Tax code: from 400,000 words in

1955 to 1,300,000 words today. • Tax code = 6 x Tolstoy’s “War and

Peace”.• Wall Street journal: “Joke: Reading

tax code will cause the ordinary taxpayer’s brain to explode”.

Taxable and ReportingEntities in the USA

• Individuals• Corporations• Partnerships (reporting)• Estates• Trusts

2008 Tax Revenue

Payroll Tax• Employers are required to withhold taxes from amounts

paid to employees. 1. Federal Income Tax2. FICA Tax:

– The Federal Insurance Contributions Act (FICA) imposed Social Security Taxes. It was passed in 1935 by Congress to provide benefits for qualified retired and disabled workers.

– The original FICA tax in 1935 was 1% of the first $3,000 in earnings.– Now: 1. Social Security -6.2%(old age, survivors and disability

insurance) 2. Medicare-1.45%3. State Income tax4. State Disability tax5. FUTA Tax, Federal Unemployment Tax – (Employer pays): Federal

Unemployment Tax. 6. SUTA Tax (State Unemployment Tax)- 6.2% of wages up to $7,000

New Job? “W-4 Form”• Got a New Job? Need to fill out W-4 form.• Payroll accountant use this form to submit

your payroll.• Your paycheck $$ depends on this form.• More Box#5 -> Less Tax -> More $$ on

your hand -> But More Tax to pay 4/15• Less Box#5 -> More Tax -> Less $$ on

your hand -> But maybe “Tax Refund”

W-4 Form

Example: Alimaa's Paycheck

W-2 or 1099?• If you are a company EMPLOYEE, you will receive W-2

at the year-end. (W-2= How much $$ you made) ! Alima’s company pays ½ of FICA tax (6.2%+1.45%).

• If you are independent contractor or self-employed, you will receive 1099. (1099 = Self-employed earnings)! No tax deducted at all. You have to pay all taxes, + ½ of FICA tax. Because you are your own BOSS. But

you can deduct all your business expenses.

“Nanny Tax”• Over the years, the taxation and reporting of household employee wages

has caused many problems for taxpayers and the IRS. Congress addressed this problem in 1994 by enacting “Nanny Tax”.

• Household employer is responsible for the proper reporting. They must withhold income taxes if requested by the employee and are required to pay FUTA tax.

Household workers include:• Babysitters• Caretakers• Cooks• Drivers• Gardeners• Housekeepers

Who, When, Why & What? Who Must File?

• Sarah explained..What to bring?

• Sarah explained..Why?

Civil duty, Good moral character..When to file?

DUE DATE: APRIL 15!

INDIVIDUAL TAXATION

Filing Status

• Single• Married Filing Jointly • Married Filing Separately• Head of Household• Qualifying Widow(er)

*12/31 is important!

Overview of Credits• First-Time Homebuyer Credit

-Refundable credit to 1st time homebuyers. The credit is 10% of the purchase price of the home limited to $7,500.

• Making Work Pay Credit -$400 ($800 -joint return).• Child Tax Credit - Children under age 17 are entitled to a

child tax credit of $1,000 per child. • Child and Dependent Care Credit• Higher Education Tax Credits

-The American Opportunity Credit-The Lifetime Learning Credit

• Earned Income Credit• Adoption Credit -Credit of up to $12,150 (2009 amount) for

qualified adoption expenses.

10 Facts about Child Tax Credit

• Amount – Your tax will reduce by up to $1,000 for each child <17. • Qualification – 6 tests: age, relationship, support, dependent, citizenship,

and residence. • Age Test - <17 – age 16 or younger – at the end of 2009. • Relationship Test - Your son, daughter, stepchild, foster child, brother,

sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew.

• Support Test - Child must not have provided > ½ of their own support. • Dependent Test – Child to be as a dependent on your federal tax return. • Citizenship Test - Child must be a U.S. citizen or U.S. resident alien. • Residence Test - The child must have lived with you for > ½ of 2009. • Limitations - The credit is limited if your modified adjusted gross income. • Additional Child tax Credit - If the amount of your Child Tax Credit is

greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.

ITIN (Tax ID Number)• Why do you need ITIN?

• Sarah explained..• Who Must Apply?

• Any individual who is not eligible to obtain an SSN. • The ITIN is for federal tax purposes only. It does not

change your immigration status or your right to work in the USA and get earned income credit (EIC).

• In order to get ITIN, you will file a tax return. Of course, the IRS wants people to pay $$ taxes.

How to get ITIN?

• Notarized copy of Passport • Tax Return -1040• ITIN Application- (W-7)

– Can apply for your spouse and children.

• I’m a Notary and I can notarize a copy of your passport. All I need is a copy of your passport. But I need to see your original passport.

Need Help?

• Ask me..• Ask Sarah..• You can do it yourself:

– www.irs.gov; then “Free File” section– H&R Block– Turbotax

• Get help from others..

More information..

Javkhlan Batsukh, CPAjanemgl.cpa@gmail.com

(310)425-9052