Income Tax Flashcards

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A criterion of tax fairness that people with different amounts of wealth or different amounts of income should pay different amounts of taxes. Wealth may include assets and property such as house, cars, stocks, bonds, savings, accounts, or valuables. Income includes wages, rents, interest, profits, and other payments

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Ability to Pay

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Total income reduced by certain adjustments such as the IRA deduction and the deduction for alimony paid.

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Adjusted Gross Income

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A criterion of tax fairness that people should pay taxes in rough prportion to the benefitsthey recieve from governmentgoods and services.

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Benefits Received

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Taxes levied on business by federal, state or local governments. these may include, in addition to corporate income taxes on earnings and profits, unemployment insurance, workmen's compensation, contrbutions to social security, and Medicare insurance

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Business Taxes

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a direct reduction of the tax owed. Credits may be allowed for purposes such as child care and the eaned income credit for low-income taxpayers.

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Credits

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A person who relies on someone else for support. A dependent generally may not be the taxpayeror his or her spouse. A taxpayer may claim an exemption for a depndent if the dependency tests are met.

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Dependent

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a tax that cannot be shifted to others. The federal income tax is a good example of a direct tax.

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Direct Tax

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Oridinary dividends are corporations's distributions to its shareholders from it earnings and profits.

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Dividends

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Includes wages, salaries, tips, and net earnings from self-employment and other income received for personal services.

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Earned Income

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A refundable credit for low-income workers with children. This credit may be poaid to the worker even if no income tax was withheld fromt he worker's pay. To receive the earned income credit, a taxpayer must file a tax return.

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Earned Income Credit

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Taxes on the sale or use of specific products or tansactions.

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Excise Tax

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Free from federal income tax withholding requirementsby meeting certain income, tax liability, and dependency criteria.

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Exempt (From Withholding)

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Tax law provides for a set amount which taxpayers can claim for themselves, their spouses, and eligible dependents. The total of these amounts is subtracted from adjusted gross income before any tax is computed on the remaining income.

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Exempt (From Tax Liability)

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To file means to mail or otherwise convey to a regional IRS Service Center the appropriate IRS forms(s)-the return- on which a taxpayer has entered information about income and tax liability.

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File a Return

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based on taxpayer;s marital status and other factors, the filing status determines the tax bracket and the rate at which income is taxed.

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Filing Status

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A form that helps an employer determine how much to withhold from an employee's paycheck for federal income tax purposes.

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Form W-4 (Employee's Withholding Allowance Certificate)

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The striuct constitutional steps (incolving Congress and the president) that a proposed tax must pass through before it becomes law.

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Formal Tax Legislation Process

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Money, goods, and property you received that must be included in taxable income

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Gross Income

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The concept that people in the same income group should pay the same amount of taxes. "Equal should be taxed equally"

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Horizontal Equity

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Taxes on income both earned (e.g. salaries, wages, tips, commisions) and unearned (e.g. interest dividends) Income taxes can be levied on individuals(personal income tax) and business (business and corporate income tax)

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Income taxes

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A tax that can be shifted to others. The one who pays the tax to the government may be able to shift it to others. Business property taxes are examples of indirect taxes.

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Indirect Taxes

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Individuals and iterest groups expressing and promoting their opinons tax legislation

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Informal Tax Legislation Process

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Income received from savings accounts or from lending money to someone else.

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Iterest Income

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Taxes collected from employers and employees to finance specific programs; levied on earned income such as wages, salaries, and self-employment earnings.

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Payroll Taxes

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A tax based on the amount of taxable income that people receive annually. Taxable income is less than total income becauswe of exemptions and tax deductions

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Personal Income Tax

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A tax that takes a larger percentage of income from high-income groups than from low-income groups.

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Progressive Tax

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Taxes on property, especially real estate, and also boats, automobiles (often paid along with license fees) recreational vehicles, and business inventories.

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Property Taxes

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A tax that takes the same percentage of income from all income groups.

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Proportional Tax

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A public good is one that cannot be withheld from those who don't pay for it, and one that may be "consumed" by one person without reducing the amount of the product available for others. Examples include national defense, street lights, and roads and highways. Public services include welfare programs, law enforcements, monitoring and regulating of trade and the economy, and education.

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Public Goods and Services

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A governement-designated area (usually in a city) that is declared in need of restoration and revitalization. To encourage restoration, tax reductions may be available.

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Redevlopment or Enterprise Zone

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A tax that takes a larger percentage of income from low-income groups than from high-income groups.

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Regressive Tax

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Taxes on retail products, based on a set percentage of retail cost.

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Sales Tax

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A form on which taxpayers ("Itemize") spefigic sources of incoem, or specigic expenses for which they claim deductionsor credits.

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Schedule

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An mount fixed by law and based on filing status and age, which taxpayers may deduct from their adjusted gross income before tax is determined.

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Standard Deduction

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Taxes on products imported from foriegn countries.

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Tariff (Duties: Customs Duties or Import Duties)

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Amounts based on certain expenditures, that a taxpayer can deduct from taxes owed.

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Tax Credits

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A person's or a business's expenses that can be deducted in determination taxable income.

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Tax deductions

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A part of a person's total income on which no tax is imposed.

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Tax Exemptions

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The amount of tax that must be paid. Taxpayers meet (or pay) their federal income tax liability through withholding, estimated tax payments and payments to the tax forms they file with the governement.

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Tax Liability (or Total Tax Bill

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The process that occurs when a tax that has been levied on one person or group is in fact paid by others.

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Tax Shift

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Money that an employer takes from an employee's paycheck an that is used to pay part or all of the employee's taxes.

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Tax Withholding

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The income on which tax is computed

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Taxable Income

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Required payments of money to governments that are used to provide public goods and services for the benefit of the communoty as a whole.

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Taxes

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Taxes on economic transactions, such as the sale of goods and services. Such taxes can be based on a set percentage of the sales value (advalorem-sales taxes) or they can be a set amount on physical quantities ("per unit"-gasoline taxes.

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Transaction Taxes

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The concept that people in different income groups should pay different amounts of taxes, or different percentages of the incomes as taxes. "Unequals should be taxed unequally"

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Vertical Equity

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A system of compliance that relies on indivdual citizens to report their incoe freely and voluntarily, calculate their tax liability correctly and gile a tax return on time.

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Voluntary Compliance