16.3 Taxes in your life Flashcards
income tax filing status
refers to a married couple filing a joint return
married filing jointly
income tax filing status
refers to individuals wo are unmarried, divorced or legally separated with no dependents
single
an amount subtracted directly from taxes owed
tax credit
tax based on earnings and is used to finance retirement and disability benefits
social security tax
examples of taxes on property
real estate property tax, personal property tax
the process of completing the federal income tax return requires ____ to determine their filing status and which tax form is appropriate for their situation
the process of completing the federal income tax return requires taxpayers to determine their filing status and which tax form is appropriate for their situation
what are the 3 conditions that are required for a person to qualify as a dependent?
- the person must not earn more than a certain amount unless he or she is under age 19 or is a full time student under 24
- the taxpayer must provide more than half of the dependent’s support
- the dependent must live with the taxpayer or be a relative
a tax deduction for the taxpayer, spouse and each dependent
exemption
Not everyone pays ____ kind of tax
not everyone pays every kind of tax
Examples of taxes on purchases
sales tax, excise tax
describe tax preparation services
- many taxpayers pay for professional tax preparation
- can be as little as $35 or as much as thousands of dollars
- fee varies based on how complex the tax return is and the level of training the tax preparer has
- services include:
- tax services range from local, one person organizations to national companies that have hundreds of offices
- enrolled agents who are government approved tax preparers with specific training
- Certified public accountants (CPA) with specific tax training to assist with tax planning and preparation of tax returns
- some tax preparation services and other businesses offer refund anticipation loans (you get the money now for whatever amount of refund you’re supposed to get back)
- in most cases the interest rate on this type of loan is very high
- in some cases the annual interest rate is more than 100% of the amount being borrowed
- should be very cautious of any loan or special financing that is dependent on a tax refund!
Your personal and financial situation will _____ over time and you will need to be aware of how these changes relate to taxes
Your personal and financial situation will change over time and you will need to be aware of how these changes relate to taxes
How can tax deferred investments limit the amount of income tax you owe?
- income from tax deferred investments has the advantage of lowering current taxes
- a common tax strategy for workign people is the use of tax deferred retirement plans to reduce their current taxes
tax based on the value of items received from a deceased person
inheritance tax
certain items that are subtracted from gross income to obtain adjusted gross income
adjustments to income
ex. deposits made to retirement accounts (401k) and alimony payments
What does the IRS require taxpayers to do in order to make sure people pay the taxes they owe?
- IRS requires taxpayers to file (submit) a federal income tax return each year
- this return is due by April 15 each year
How often are real estate taxes done?
once or twice a year
income not subject to tax
tax exempt income
What is the main difference between tax exempt investments and tax deferred investments?
- on tax deferred investments you will not pay taxes until you withdraw the funds
- on tax exempt investments you will never have to pay taxes on it
offers free tax help to low and moderate income taxpayers who cannot prepare their own tax returns
Volunteer Income Tax Assistance (VITA)
many ____ prepare their own federal income tax returns by hand or with tax preparation software
many taxpayers prepare their own federal income tax returns by hand or with tax preparation software
what determines a taxpayer’s filing status?
marital status and the number of dependents
tax based on the value of personal property such as boats, cars and trucks
personal property tax
is the amount on which taxes are calculated
taxable income
income that will be taxed at a later date
tax deferred income
How can tax exempt investments limit the amount of income tax you owe?
- interest income from municipal bonds, issued by state and local governments, is not subject to federal income tax
- other tax exempt investments are also not subject to federal income tax
the agency responsible for collecting federal income tax
Internal Revenue Service (IRS)
a summary of a worker’s earnings for the previous year and includes the amounts deducted for taxes, given to workers every January
W-2
How can mistakes be avoided when preparing a federal tax return?
just read…..
- create a filing system for tax documents, receipts and tax forms
- follow instructions carefully
- use the proper tax form, tax table and correct filing status
- check, and recheck, calculations carefully
- include all required documents, such as a copy of your w-2 form
- sign the tax return
- make your check payable to the US Treasury
- write your Social Security number and the tax year on your check
- file online or mail your return before the deadline
- use the proper amount of postage
- keep a copy of the tax return
the decision regarding which ____ form to use depends on your income level, the amount of your deductions, and other complexities of your tax situation
the decision regarding which tax form to use depends on your income level, the amount of your deductions, and other complexities of your tax situation
When is sales tax collected? Give example.
at the time of a purchase
ex. you buy a video game for $80, Pennsylvania has a 6% sales tax. $80x.06= $84.80 total price
_____ income tax must also be paid on other types of income such as alimony, awards, lottery winnings and prizes
federal
What are the 7 main steps in preparing a federal income tax return?
- determine gross income
- calculate adjusted gross income
- subtract deductions
- determine exemptions
- compute taxable income
- calculate tax owed
- make tax payments or ask for a refund or credit
examples of taxes on earnings
social security tax, income tax
an amount that reduces taxable income
tax deduction
- all taxpayers are eligible for a standard deduction, an amount on which no taxes are paid
- an alternative is that a taxpayer may choose to itemize deductions
- rules regarding what can be included in itemized deductions are very specific and change to reflect tax policies and laws
a state or local tax on goods and services that is collected by the seller. food and prescription drugs are often exempt
sales tax
in PA clothes are not taxable either
What can happen if you have filing errors?
- can cost time and money
- might delay a refund
- might pay more tax than you really owe
- can get a penalty or interest charges for not filing on time or underpayment of taxes
Tax laws and tax forms ____ frequently
tax laws and tax forms change frequently
What does tax preparation software allow taxpayers to do?
- allow taxpayers to use a computer to prepare federal and state tax forms by answering some questions or entering info on forms
- tax forms can be printed for filing by mail or can file online
What are the two most common ways to pay real estate taxes?
- some property owners choose to pay the bill when its due
- some property owners add money to their mortgage payments, the financial institution sets the money aside until the taxes are due then pays the bill
What are 3 common ways to limit the amount of income tax you owe?
- home ownership
- tax exempt investments
- tax deferred investments
what is the difference between a tax credit and a tax deduction?
- a tax credit lowers taxes by the full dollar amount
- a tax deduction reduces the amount on which the taxes are calculated
name the professionals from whom a person can obtain tax assistance
CPA’s
Certified Professional Accountants
tax based on the value of a person’s property at death
estate tax
a ‘pay as you go system’ in which an employer deducts income tax from the earnings of workers each pay period
withholding payments
example on income that is tax exempt
interest earned on most state and city bonds
What federal income tax return form is for people who:
- have less than $50,000 in taxable income fromw ages, salaries, tips, unemployment compensation, interest or dividends
and
- use the standard deduction
1040A
- tax based on the value of land and buildings
- most of this tax revenue is used to pay for schools and local government services
real estate property tax
Cami Bartosz calculated that she owed taxes of $254 and had $278 withheld from her pay during the year. This would result in…
- a refund of $278
- a refund of $24
- additional taxes owed of $254
- additional taxes owed of $24
a refund of $24
$254 owed - $278 paid = -$24 (negative means you get a refund)
What are the 3 forms that can be used to file a federal income tax return?
- form 1040
- form 1040A
- form 1040EZ
tax based on earnings and other sources of income and is a source of revenue for government
income tax
How can home ownership limit the amount of income tax you owe?
- may reduce taxable income if the taxpayer itemizes deductions
- amounts paid for real estate taxes and mortgage interest are itemized deductions that reduce taxable income
- interest on home equity loans up to $100,000 are also an itemized deduction
the ____ dependents a taxpayer can claim, the greater the reduction in taxable income
the more dependents a taxpayer can claim, the greater the reduction in taxable income
Commercial tax ____ are available to assist taxpayers
commerical tax guides are available to assist taxpayers
tax guides cover a wide range of topics, some intended for specific groups like small businesses and are updated annually
a charge imposed by a government to finance public services
tax
The use of tax preparation software can save ____ or more hours of time
the use of tax preparation software can save 10 or more hours of time
What does filing online mean?
means that the tax return is submitted electronically
the percentages used to compute the amount owed for taxes
tax rates
all US citizens and residents are required to file a federal income tax return if their ____ exceeds a certain amount
all US citizens and residents are required to file a federal income tax return if their income exceeds a certain amount
examples of taxes on wealth
estate tax, inheritance tax, gift tax
income tax filing status
is an option available to a married couple when each spouse takes responsibility for his or her own own tax return
married filing seperately
this tax applies to gifts of any kind of property, including money, when the value of the gift exceeds a certain dollar amount.
normally the donor is responsible for this tax
gift tax
What are ways of staying informed about taxes?
- using print and online resources
- attending classes
- consulting financial professionals
What are the 4 major tax categories that most people pay taxes?
What are some examples of each?
- purchases - sales tax and excise tax
- property - real estate property tax & personal property taxes
- wealth - estate tax, inheritance tax, gift tax
- earnings - social security tax, income tax
income tax filing status
refers to an unmarried individual or a surviving spouse who maintains a household (paying for more than half of the costs) for a child or a dependent relative
head of household
what are the two main types of income for most people?
- earned income - comes from wages, salary, commissions, fees, tips and bonuses
- investment income - comes from earnings from dividends, interest and rent
a tax on earnings would be an _____ tax
- inheritance
- estate
- income
- excise
income
What federal income tax return form is for people who:
- must use this form if income is over $50,000
or
- if they can be claimed as a dependent by a parent and had interest or dividends over a certain amount
or
- used if person is itemizing deductions
form 1040
______ payments are made directly to the government and are due quarterly
estimated payments are made directly to the government and are due quarterly
What does the types of taxes you pay and how much you pay depend on?
depend on where you live, how much money you earn and how you spend and save your money
what are some examples of items that can be included in itemized deductions on a federal tax return?
- certain medical and dental expenses
- taxes paid for state and local income tax and property taxes
- interest paid on a home mortgage or home equity loan
- contributions to charitable organizations
- casualty and theft losses
- moving expenses when a new job is more than 50 miles away
- certain job related expenses such as union dues, required continuing education, work clothes, tax preparation fees
What is the main purpose of preparing a federal income tax return?
- to determine the amount of tax a taxpayer is required to pay for a year
- since most people make tax payments throughout the year, also used to determine if you have paid all that you owe, you need to pay more, or you are entitled to a refund or credit
two ways people make payments for federal, state and local income taxes?
withholding
estimated payments
Describe tax preparation software
just read…
- allow users to print returns for filing or file electronically
- data entry is quick and easy
- can update info from last year’s return to make easier
- can access income data from employers and financial institutions online
- helps taxpayers to organize records
- helps avoid common mistakes
- helps take advantage of appropriate deductions and credits
- offer strategies for makign financial decisions
What do some taxpayers who do not want to or are unable to prepare their own tax return do?
they use a tax professional to prepare their returns
Federal, state & local ______ levy taxes
federal, state & local governments levy taxes
many people pay taxes through ______ deductions
many people pay taxes through paycheck deductions
What are the 7 steps for preparing a federal income tax return?
- determine gross income
- calculate adjusted gross income
- subtract deductions
- determine exemptions
- compute taxable income
- figure out taxes owed
- make tax payment or ask for refund
what federal income tax return form is used for a person with a simple tax situation?
1040EZ
What are some examples of income that might require estimated payments?
- significant income from savings and investments
- income from royalties and pensions
- income from self employement or working as an independent contractor
examples of tax credits
child care, dependent care
how do you calculate taxable income?
gross income - adjustments to income - deductions - exemptions = taxable income
- tax imposed on specific goods and services
- all states impose this on gasoline
excise tax
most states have an ____ tax to fund the cost of highways, state parks and other public services
most states have an income tax to fund the cost of highways, state parks and other public services
income tax filing status
refers to an individual whose spouse died within the past two years and who has a qualifying dependent child
qualifying widow or widower
