ACC250 Chapter 4 Flashcards
A married taxpayer who:
- lives apart from spouse for last six months of the year
- who files a tax return separate from spouse AND
- maintains residence for qualifying child.
abandoned spouse
Gross income less deductions. This is an important reference point often used in other calculations.
adjusted gross income (AGI)
A definition of income that says that gross income means all income from whatever source derived.
all-inclusive income concept
A tax on a broader tax base than the base for the ‘regular’ tax. Additional tax paid when the tentative minimum tax (based on AMT base) exceeds the regular tax (based on regular tax base). AMT designed to require taxpayers to pay some minimum level of tax even when they have no or no regular taxable income as a result of certain tax breaks in the tax code.
alternative minimum tax (AMT)
Determines the rate at which income will be taxed. Common types include tax-exempt, ordinary and capital.
character of income
Amounts subtracted from reduced gross income in calculating taxable income.
deductions
for AGI deductions or deductions subtracted from gross income to determine AGI.
deductions above the line
from AGI deductions or deductions subtracted from AGI to calculate taxable income.
deductions below the line
Realized income that will be taxed as income in a subsequent year.
deferrals
A fixed deduction allowed for each individual who qualifies as a “dependent” of the taxpayer.
dependency exemptions
A person for whom a taxpayer may claim a dependency exemption. To qualify a person must be a qualifying child or qualifying relative of the taxpayer.
dependent
Quarterly tax payments that a taxpayer makes to the government if the tax withholding is insufficient to meet the taxpayer’s tax liability.
estimated tax payments
Realized income that is exempted from income taxation.
exclusions
A fixed income tax deduction a taxpayer may claim for each person who qualifies as a dependent of the taxpayer. Includes the taxpayer (and spouse on joint return) who does not qualify as a dependent of another.
exemptions
Places taxpayers into one of five categories by marital status and family situation as of the end of the year. Determines whether a taxpayer must file a tax return, appropriate tax rate schedules, standard deduction amounts, and several deduction and credit limitation thresholds.
filing status
above the line deductions
for AGI deductions
below the line deductions
from AGI deductions
Realized income reduced for any excluded or deferred income.
gross income
One of five primary filing statuses. A taxpayer may be this if:
- s/he is unmarried as of end of year AND
- pays more than 1/2 cost of household for qualifying person who lives w/ taxpayer for > 1/2 of year OR
- s/he pays more than half the costs to maintain a parent’s household for a parent who qualifies as taxpayer’s dependent.
head of household
Certain types of expenditures that Congress allows taxpayers to deduct as from AGI deductions.
itemized deductions
The concept that taxpayers receive certain tax benefits only because Congress writes laws that allow taxpayers to receive the tax benefits.
legislative grace
One of five primary filing statuses. Taxpayer may file jointly if:
- s/he is legally married at end of year (or one spouse died during the year and the other did not remarry);
- both spouses agree to file jointly.
This combines married incomes and deductions - they now share joint and several liability for the resulting tax.
married filing jointly
One of five primary filing statuses. Each spouse reports income s/he received during the year and the deductions s/he paid on a tax return separate from the other spouse.
married filing separately
A fixed deduction allowed for an individual taxpayer, and spouse if filing a joint tax return.
personal exemptions
Tax rates lower than the tax rate applied to ordinary income.
preferential tax rate
Income taxed at a preferential rate such as long-term capital gains and qualified dividends.
preferentially taxed income
Individual who qualifies as a dependent of a taxpayer by meeting a relationship, age, residence, and support test with respect to the taxpayer.
qualifying child
Individual who meets a relationship, support, and gross income test may qualify to be a dependent of another taxpayer.
qualifying relative
One of five primary filing statuses. Applies for up to 2 years after the year in which the taxpayer’s spouse dies. Taxpayer files married filing jointly in year of spouse’s death. Applies as long as spouse remains unmarried and maintains household for dependent child.
qualifying widow or widower
Income generated in a transaction with a second party in which there is a measurable change in property rights between parties.
realized income
One of five primary filing statuses. Taxpayer files as single if:
- s/he unmarried at end of year AND
- s/he does not qualify for any other filing status.
Single if divorced, unmarried, legally separated.
single
SS and Medicare taxes paid by the self-employed on a taxpayer’s net earnings from self-employment. aka FICA tax.
self-employment taxes
A fixed deduction offered in lieu of itemized deductions. The amount of the deduction depends upon taxpayer’s filing status.
standard deduction
The tax base for the individual income tax.
taxable income
Items that directly reduce a taxpayer’s tax liability.
tax credits
A schedule of progressive tax rates and the income ranges to which the rates apply that a taxpayer may use to compute her gross tax liability.
tax rate schedule
IRS-provided tables that specify the federal income tax liability for individuals with taxable income within a specific range. The tables differ by filing status and reflect tax rates that increase with taxable income.
tax tables
Taxes collected and remitted to the government by an employer from an employee’s wages.
withholdings
