Ch. 7- Federal Income Tax

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Revenue

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In a free enterprise system such as ours, the government collects money from citizens and businesses in the form of taxes.

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Progressive Taxes

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Are taxes tht take a larger share of income as the amount of income grows. Federal income taxes are progressive.

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Regressive Taxes

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Are taxes that take a smaller share of income as the amount of income grows. Sales taxes are regressive because people with lowere incomes pay a larger percentage of their income for sales taxes than do people with higher income.

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Proportional Taxes

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Or Flat taxes, are taxes for which the rate stays the same, regardless of income.

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Tax Brackets

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Our income tax system is graduated. This means that tax rates increase as taxable income increases. Tax rates apply to income, ranges, or tax brackets.

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Tax Evasion

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Failure to pay taxes, which is a serious crime punishable by a fine or imprisonment or both.

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Audit

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Or examination of their tax returns.

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Exemption

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Is an amount you may subtract form your income for each person who depends on your income to live.

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Gross income

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Is all the taxable income you receive, including wages,tips,salaries, interest, dividends,unemployment compensation, alimony, workers' compensation benefits, and so forth.

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Child Support

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Money paid to a former spouse for support of dependent children.

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Alimony

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Money paid to support a former spouse.

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Adjusted Gross Income

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After these adjustments are subtracted from gross income.

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Deductions

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Are expenses that law allows you to subtract from your adjusted gross income to determine your taxable income.

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Itemize

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To get the tax benefit from your deductions you must list or itemize these allowable expenses on your tax return.

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Standard Deductions

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This is a stated amount that you may subtract form adjusted gross income instead of itemizing your deductions.

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Taxable Income

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which is the income on which you will pay tax.

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Tax Credit

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Is an amount subtracted directly from the tax owed.