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34 Cards in this Set
- Front
- Back
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taxes |
dues paid for membership in our society; the cost of living in this country typical American family pays more than 1/3 of its gross income |
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tax planning |
to maximize the amount of money that can keep legally by minimizing the amount of taxes you pay |
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taxamgeddon |
need to finance the US governments massive budget deficit. |
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income taxes |
a type of tax levied on taxable income by the federal government and by many state and local governments |
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progressive tax structure |
a tax structure in which the larger the amount of taxable income, the higher the rate at which it is taxed. the more money you make the progressively more you pay in taxes |
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marginal tax rate |
the tax rate that you can pay on the next dollar of taxable income. |
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average tax rate |
the rate at which each dollar of taxable income is taxed on average; calculated by dividing the tax liability by taxable income. |
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single tax payers |
unmarried or legally separated from their spouses by either a separation or final divorce decree |
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married filing jointly |
married couples who combine their income and allowable deductions and file one tax return |
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married filing separately |
each spouse files his or her own return, reporting only his or her income, deductions and examptions |
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head of household |
a taxpayer who is unmarried or considered unmarried and pays more than half of the cost of keeping up a home for himself or herself and an eligible dependent child or relative |
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qualifying widow or widower with dependent child |
a person whose spouse died within two years of the tax year and who supports a dependent child may use joint return tax rates and is eligible for the highest standard deduction |
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FICA |
federal insurance contributions act social security tax |
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taxable income |
the amount of income subject to taxes; it is calculated by subtracting adjustments, the larger of itemized or standard deductions and exemptions from gross income |
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gross income |
the total of all of a taxpayers income subject to federal taxes; it includes active, portfolio, and passive income -wages, salaries, bonuses, commissions, tips, interest and dividends received, alimony received, business and farm income, gains from the sale of assets, income from pensions and annuities, income from rents and partnerships, prizes lottery and gambling winnings |
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active income |
income earned on the job, such as wages and salaries, bonuses and tips; moth other forms of noninvestment income, including pension income and alimony |
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portfolio income |
earnings (interest, dividends, and capital gains) generated from most types of investment holdings; includes savings accounts, stocks, bonds mutual funds, options, and futures |
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passive income |
a special category that includes income derived from real estate, limited partnerships, and other forms of tax shelters |
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capital gain |
whenever an asset is sold for more than it's original cost. |
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solvency ratio |
total networth divided by assets. want solvency ratio to be greater than .1 % degree of exposure to insolvency of how much "cushion" you have as a protection against insolvency |
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liquidity ratio |
how long you could continue to pay current debts with existing liquid assets in the event of income loss total liquid assets divided by total current debts |
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adjustment to gross income |
allowable deductions from gross income, including certain employee, personal retirement, insurance, and support expenses |
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adjusted gross income (AGI) |
the amount of income remaining after subtracting all allowable adjustments to income from gross income |
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standard deduction |
a blanked deduction that depends on the taxpayers filing status, age, and vision and can be taken by a taxpayer whose total itemized deductions are too small |
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itemized deductions |
personal expenditures that can be deducted from AGI when determining taxable income |
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exemptions |
deductions from AGI based on the number of persons supported by the taxpayers income |
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tax credits |
deductions from a taxpayers tax liability that directly reduce his or her taxes due rather than taxable income -more valuable than a deductions or an exemption because it directly reduces, dollar for dollar, the amount of taxes due, whereas a deduction or an exemption merely reduces the amount of taxable income |
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estimated taxes |
tax payments required on income not subject to withholding that are paid in four installments |
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amended return |
a tax return filed to adjust for information received after the filing date of the taxpayers original return or to correct errors |
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tax audit |
an examination by the IRS to validate the accuracy of a given tax return |
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tax evasion |
the illegal act of failing to report income or deductions accurately and in extreme cases, failing to pay taxes altogether |
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tax avoidance |
the act of reducing taxes in ways that are legal and compatible with the intent of Congress |
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income shifting |
a technique used to reduce taxes in which a tax payer shifts a portion of income to relatives in lower tax brackets |
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tax deferred |
income that is not subject to taxes immediately but will be subject to taxes later |
