Money 101 - from money.com

Welcome to Ameritrade Plus University

	Introduction
	Top ten
	The details:
	•	Your tax bracket
	•	Withholding
	•	What's FICA?
	•	Estimated taxes
	•	Penalty and interest charges
	•	1040 mysteries revealed
	•	Alternative minimum tax
	•	The dreaded audit
	•	Tax planning
	•	Tax law changes
	Glossary
	Take the test

Lessons:

1	Setting priorities
2	Making a budget
3	Basics of banking
4	Basics of investing
5	Investing in stocks
6	Investing in bonds
7	Buying a home
8	Investing in mutual funds
9	Controlling debt
10	Employee stock options
11	Saving for college
12	Kids and money
13	Planning for retirement
14	Investing in IPOs
15	Asset allocation
16	Hiring financial help
17	Health insurance
18	Buying a car
19	Taxes
20	Home insurance
21	Life insurance
22	Futures and options
23	Family law
24	Estate planning
25	Auto insurance

About Money 101

1040 mysteries revealed
The lowdown on 1099s, AGI, exemptions, deductions and credits

In January of every year, you will receive a host of tax forms that you'll need to use to fill out your return. Any forms you receive have also been sent to the IRS, so look them over carefully and be sure to report them accurately on your return.

Your W-2 form reports how much money you made at your job, and how much tax you paid for the year.
The 1099-G reports unemployment compensation or state tax refunds.
The 1099-R reports retirement-plan income.
The 1099-MISC reports income if you're an independent contractor, collected rent or received royalties.
Other 1099s, such as the 1099-B, 1099-DIV or 1099-INT, report income from financial transactions (in this case, capital gains, dividends or interest income, respectively).

Many of your 1099 forms get reported on the schedules that round out your 1040. For instance, if you're self-employed, you may need to file Schedule C and Schedule SE. If you received rent or royalties, you may need to file Schedule E. Capital gains get reported on Schedule D. And interest and dividends, if they exceed a certain amount, get reported on Schedule B.

By simply going through the 1040 line by line you'll see what schedules you need.

The number at the bottom of the first page of the 1040 is your adjusted gross income (AGI) -- your total income minus any adjustments, such as contributions to tax-deferred retirement plans, alimony payments or medical savings account payments. Your AGI determines whether or not you're eligible for tax breaks and also determines whether you're eligible to make full IRA contributions.

Your AGI minus all exemptions and deductions equals your taxable income. Say your AGI is $70,000 and you can subtract $7,000 in deductions plus another $8,250 for personal exemptions. Your taxable income is $54,750.

The more exemptions and deductions you take, the lower your taxable income.

You're entitled to take a personal exemption for yourself, a spouse and each dependent. But if your AGI exceeds the limits set (in 2001, they were $132,950 for singles; $199,450 for couples filing jointly; and $166,200 for heads of household), your exemption will be reduced. (A new tax law will reduce the phase-out limits gradually starting in 2006 and eliminate them completely by 2010.)

Everyone is also given a standard deduction, which is inflation-adjusted; in 2001 it is $4,550 for singles, $7,600 for married couples filing jointly, $3,800 for married couples filing separately, and $6,650 for heads of households. But you might be better off itemizing your deductions if you add up everything that you're permitted to deduct, such as mortgage interest, charitable contributions and state taxes -- and that amount exceeds the standard deduction. If that's the case, list all your deductions on Schedule A and attach it to your 1040.

REDUCING YOUR TAXES

A deduction reduces your tax liability by a percent of every dollar deducted. If you're in the 28 percent tax bracket, a $100 deduction means you'll pay $28 less in taxes.

A credit offers a dollar-for-dollar reduction of the tax you owe. If you're in the 28 percent tax bracket, a $100 credit means you'll pay $100 less.

Unlike deductions and exemptions, which lower your taxable income, tax credits are dollar-for-dollar reductions of the taxes you owe and are worth more than a deduction or exemption of the same amount. Say you're in the 28 percent bracket and owe $1,000 in taxes. If you can take a $100 tax credit, you'll only have to pay $900 in tax ($1,000-$900). A $100 deduction, by contrast, only reduces your tax liability by $28 ($100 x 0.28), which means you'll pay $972 in taxes.

There are lots of books to help you sort through your annual return and give you a basic understanding of taxes. Three favorites that you'll find in any bookstore: J.K. Lasser's Tax Guide, Ernst and Young Tax Guide and The Wall Street Journal Guide to Understanding Your Taxes. You also can find online sources of help by checking out CNNmoney's tax page. And if you need federal forms and instructions, go to the IRS Web site.

Next: Alternative minimum tax: What you should know