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18 Cards in this Set
- Front
- Back
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Tax (definition of) |
An enforced, involuntary contribution to government authority. It is used to raise revenue for public or governmental purposes. |
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Tax (characteristics of) |
1. The payment is required by law 2. Legislative tax power determines payments 3. Purpose of payments is to provide revenue for public and government purposes 4. Special benefits are not a result of making payments |
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Tax (purposes of) |
1. Generate revenue 2. Promote social changes 3. Promote economic changes 4. Equity *NOT CONSIDERED A PENALTY |
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Adam Smith's Four Criteria |
1. Equality 2. Certainty 3. Convenience 4. Economy |
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Adam Smith - Equality Criterion |
Tax should be based on the taxpayer's ability to pay 1. Horizontal Equity - two people in a similar situation are taxed the same 2. Vertical Equity - two people in different situations are taxed differently, but fairly |
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Adam Smith - Certainty Criterion |
When and how a tax is to be paid should be known to the taxpayer. The taxpayer should be able to determine the amount of the tax. |
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Adam Smith - Convenience Criterion |
Tax should be levied when the taxpayer has funds available to pay. |
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Adam Smith - Economy Criterion |
The costs of complying with the tax system should be minimal. |
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Tax (formula) |
Tax = taxBase x taxRate |
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Marginal Tax Rate |
the rate of tax on the next dollar of taxable income |
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Average Tax Rate |
the rate equal to the TOTAL TAX divided by the TAX BASE |
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Effective Tax Rate |
The rate equal to the TOTAL TAX divided by the ECONOMIC INCOME |
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Gross Income |
Gross Income = broadlyDefinedIncome - Exclusions |
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For Deductions |
Expenses that CAN be deducted. Not restrictly based on taxpayer's income. Mostly business and other deductible expenses. |
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From Deductions |
Expenses that CAN NOT be deducted. Mostly personal expenses. |
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Adjusted Gross Income |
AGI = grossIncome - forDeductions |
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Taxable Income |
Taxable Income = AGI - fromDeductions/Exemptions AGI = grossIncome - forDeductions |
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Tax/Refund Due |
Tax Due = (taxableIncome x taxRate) - prePayments/credits Income Tax Liability = taxableIncome x taxRate |
