Personal Finance Chapter Three

Front 1

Taxes

Back 1

The dues paid for membership in our society. The cost of living in this country

Front 2

The largest Tax you will pay

Back 2

Federal Income Tax

Front 3

The average family pays__________ of its gross income in taxes.

Back 3

One-Third

Front 4

Progressive Tax Structure

Back 4

A tax structure in which the lrager the amount

of taxable income, the higher the rate at which

it is taxed.

Front 5

marginal tax rate

Back 5

The tax rate that you pray o the next dollar of taxable income.

Front 6

Average Tax rate

Back 6

The rate at which each dollar of taable income

is taxed on averate... Tax Liability / Taxable income

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Name 5 Filing Status ( based on marital status and family situation on last day of year)

Back 7

Single, Married filing Jointly, Married filing seperately, Head of household ,Qualifying

widow

Front 8

FICA

Back 8

Federal Insurance Contibutions ACt or social security tax - Law establishing Old age,

survivors disability, and hospital insurance tax levied o both employer and employee.

Front 9

Take-Home Pay

Back 9

The amount youre left with after subtracting the amount whitheld from your gross earnings.

Front 10

The amount of Federal witholding taxes deducted from your gross earnings depends

on:

Back 10

1) The leve of your earnings and the number

of witholding allowances you have claimed on your W-4.

Front 11

Socially security tax is paid by_____

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It's paid equally by the employee and

employer.

Front 12

Single Taxpayers:

Back 12

Unmarried or legally seperated from their spoused by either seperationg or final divorce

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Married Filing Jointly

Back 13

Married couples who combine their income

and allowable deductions and file one tax

return

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Married filing Seperately

Back 14

Each spoud files his or her own return,

reporting only his or her income, deductions,

and exemptions

Front 15

Head of Household

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Taxpayer who is unmarried or considered unmarried and pays more than half of the cost

of keeping up a home for himself and

an eligible dependent child.

Front 16

Widow

Back 16

A peron whose spoud died within two years of the tax year, and who supports a dependent child

Front 17

Taxable Income

Back 17

The amount of Tax subject to taxes. Subtract

1) adjustments, 2) the larger of itemized or standard deductions, and 3) Exemptions from

gross income.

Front 18

Explain the process of finding taxable income

Back 18

1. Gross Income, 2. Adjusted Gross Income, 3. Taxable income, Total Tax Liabilty owed.

Front 19

Examples of Tax-Exempt income

Back 19

Child-suport payments, municipal bond

interest payments, certain types of employee finge benefits, compesenation from accident, health and life insurance policies, scholarships, gifts, inheritances

Front 20

What are the three types of Income

Back 20

Active Income, Portfolo Income,

Passive Income

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Active Income:

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Income earned on the job, such as wages, salaries, bonuses, most other forms of noninvestment income.

Front 22

Portfolio Income:

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Earnings (intereste, dividends, and capital gains) generated from most types of investment holdings --savings accounts, stocks, bonds, mutual funds

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Passive Income

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A special category that includes income derived from real estate, limited patnerships and other forms of tax sheleters.

Front 24

Capital Gains and what income category do

they fall under?

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whenever an asset (such as stock, a ond, or real estate) is sold for more than its original cost.

Portfolio income

Front 25

What is the rule about writing off capital losses?

Back 25

Taxpayers can write- off capital losses dollar for dollar against capital gains, and an additonal 3,000 past that.

Front 26

Explain the special treatment of home sellers when it comes to capital gains.

Back 26

Can exclude a certain amount of capital gain from the selling of their house from their taxable income.

Front 27

Definition: Adjustments to (gross) income:

Back 27

Allowable deductions from gross income, including certain employee, personal

retirement, insurance, and support expenses. Used to calculdate limits for certain itemized deductions.

Front 28

Name five examples of ajustments to gross income

Back 28

Educator expenses, higher tuition costs, IRA contributions, alimony paid, moving expeneses

Front 29

Def: Itemized Deductions:

Back 29

Personal expenditure that can be deducted

from AGI when determining taxable income.

Front 30

Name some of the most common itemized deductions

Back 30

1) Mediacal and dental expenses, 2) Sate local and foreign income and property 3) Casualty

and theft losses, Charitable contributions, job and other expenses

Front 31

Standardized Deduction VS.

Itemized Deductions

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Standard: A "blanket" deduction base don filing

stauts, age, and vision. Itemized is personal

Front 32

Def: Exemptions

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Deductions from AGI based on the number of persons supported by the taxpayers income are called exemptions.

Front 33

Def: Tax Credits Deductions from a taxpayer's liability that directly reduce his or her taxes due

rather than taxable income.

Back 33

Deductions from a taxpayer's liability

that directly reduce his or her taxes due

rather than taxable income. Reduces Taxes due Dollar for Dollar

Front 34

Give some examples of Tax Credits

Back 34

Adoption tax credit, child care expenses,

child tax credit,

Front 35

Def:Estimated Taxes , which form is used, who pays them

Back 35

Tax payment required on income not subject

to withholding that are paid in four

installments. Form 1040-ES, Lawyesr,

business ownwers, investors

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Tax Audit:

Back 36

An examination by the IRS to validate the accuracy of a given tax return

Front 38

Def: Income Shifting

Back 38

A twchnique used to reduce taxes in which a taxpayer shifts a portion of income to relatives

in lower tax brackets.

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Def: Tax Deffered, give an example

Back 39

Income that is not subject to taxes immediately but that will be subject to taxes later, IRA or municipal bonds