Students Hear Income Tax Lecture

Ian Caffarel, Staff Writer

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With tax day on April 15 (or, for the last two years, April 18,) how to file taxes is something that seems daunting, but most of those worries are unfounded.

Benjamin Franklin once said, “In this world nothing can be said to be certain, except death and taxes.” Now, while death is a given, taxes are something that can preoccupy people’s minds, and no more so than at this time of year.

As with finances, the San Diego Financial Literacy Center is here to help.

On Tuesday, March 14, Pi Day, Paul Lim from the SDFLC came to Mesa to give a lecture on income taxes. Lim graduated with a bachelor’s degree in Economics from Johns Hopkins University, and is a certified financial planner with the Wealth Consulting Group. He also serves on the SDFLC Board of Directors.

Lim began with a discussion of the income tax sheet, which shows all the tax brackets under different categories: single, married- filing separately, and married-filing jointly. He explained how it works: someone pays a set percentage, plus another fixed amount. Seems simple, but it can be a little more complicated than that.

At this point, another handout went out: A copy of form 1040, which is where someone enters in all their pertinent information. Lim then discussed all the lines on the front page at the top of the form, then the income section (lines 7-22,) as well as going into the above-the-line entries, or “adjusted gross income,” which are all the available and large-size tax breaks. The below-the-line deductions on the back are not as large, but still significant. Some of the deductions on the back can have impact in more ways imaginable.

Here’s an example: going to line 40, itemized deductions, or a standard deduction. Lim discussed medical expenses as an example, By taking the amount, plus 10 percent adjusted gross income (AGI), say $5,000, and then $7,000 gets deducted, so then the $40,000 AGI means only $4,000 need to be paid.

Another example is line 40, schedule A, which is completed separately,, but this uses the example of home mortgage interest, which is deductible; and not only that, but the deduction can be itemized, which simply means that it involves keeping track of each individual deduction, so when presented with a standard deduction of say, $6,350, the itemized one should be the bigger number. In fact, donations, such as to Goodwill, charity, or tithing, are considered deductible.

Line 42 of the form mentions exemptions. The line states, “If line 38 is $155,650 or less, multiply $4,050 by the number on line 6d (total number of exemptions claimed), otherwise, see instructions.” Lim stated that the vast majority of these exemptions are personal- involving dependents, with one exemption per person. Next, Lim brought up the taxable income. For instance, if the person in the example had a taxable income of $39,600, after deductions, the number taken out would be $5,638.

Lim concluded his talk with a discussion on tax credits, and said that they are “far more powerful” than most deductions, and drew a comparison with gift certificates, saying that they are like them, but for taxes. However, Lim said that the credits are mostly usable in special circumstances (such as for the failed healthcare bill.)

And last but not least, Lim reminded the crowd how to use the income tax table, as well as both pages of form 1040, and the amount of taxes owed, which can be found on line 43 of the form. Lim said that “the amount you are paying is bigger than the amount you should have paid”–in order to get an actual tax refund, which wraps up the basics on how income taxes work.

(Writer’s Note: The article was written originally in March.)

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Students Hear Income Tax Lecture