ACC250 Chapter 4

Question 1

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.

Answer 1

abandoned spouse

Question 2

Gross income less deductions. This is an important reference point often used in other calculations.

Answer 2

adjusted gross income (AGI)

Question 3

A definition of income that says that gross income means all income from whatever source derived.

Answer 3

all-inclusive income concept

Question 4

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.

Answer 4

alternative minimum tax (AMT)

Question 5

Determines the rate at which income will be taxed. Common types include tax-exempt, ordinary and capital.

Answer 5

character of income

Question 6

Amounts subtracted from reduced gross income in calculating taxable income.

Answer 6

deductions

Question 7

for AGI deductions or deductions subtracted from gross income to determine AGI.

Answer 7

deductions above the line

Question 8

from AGI deductions or deductions subtracted from AGI to calculate taxable income.

Answer 8

deductions below the line

Question 9

Realized income that will be taxed as income in a subsequent year.

Answer 9

deferrals

Question 10

A fixed deduction allowed for each individual who qualifies as a “dependent” of the taxpayer.

Answer 10

dependency exemptions

Question 11

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.

Answer 11

dependent

Question 12

Quarterly tax payments that a taxpayer makes to the government if the tax withholding is insufficient to meet the taxpayer’s tax liability.

Answer 12

estimated tax payments

Question 13

Realized income that is exempted from income taxation.

Answer 13

exclusions

Question 14

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.

Answer 14

exemptions

Question 15

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.

Answer 15

filing status

Question 16

above the line deductions

Answer 16

for AGI deductions

Question 17

below the line deductions

Answer 17

from AGI deductions

Question 18

Realized income reduced for any excluded or deferred income.

Answer 18

gross income

Question 19

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.

Answer 19

head of household

Question 20

Certain types of expenditures that Congress allows taxpayers to deduct as from AGI deductions.

Answer 20

itemized deductions

Question 21

The concept that taxpayers receive certain tax benefits only because Congress writes laws that allow taxpayers to receive the tax benefits.

Answer 21

legislative grace

Question 22

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.

Answer 22

married filing jointly

Question 23

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.

Answer 23

married filing separately

Question 24

A fixed deduction allowed for an individual taxpayer, and spouse if filing a joint tax return.

Answer 24

personal exemptions

Question 25

Tax rates lower than the tax rate applied to ordinary income.

Answer 25

preferential tax rate

Question 26

Income taxed at a preferential rate such as long-term capital gains and qualified dividends.

Answer 26

preferentially taxed income

Question 27

Individual who qualifies as a dependent of a taxpayer by meeting a relationship, age, residence, and support test with respect to the taxpayer.

Answer 27

qualifying child

Question 28

Individual who meets a relationship, support, and gross income test may qualify to be a dependent of another taxpayer.

Answer 28

qualifying relative

Question 29

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.

Answer 29

qualifying widow or widower

Question 30

Income generated in a transaction with a second party in which there is a measurable change in property rights between parties.

Answer 30

realized income

Question 31

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.

Answer 31

single

Question 32

SS and Medicare taxes paid by the self-employed on a taxpayer’s net earnings from self-employment. aka FICA tax.

Answer 32

self-employment taxes

Question 33

A fixed deduction offered in lieu of itemized deductions. The amount of the deduction depends upon taxpayer’s filing status.

Answer 33

standard deduction

Question 34

The tax base for the individual income tax.

Answer 34

taxable income

Question 35

Items that directly reduce a taxpayer’s tax liability.

Answer 35

tax credits

Question 36

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.

Answer 36

tax rate schedule

Question 37

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.

Answer 37

tax tables

Question 38

Taxes collected and remitted to the government by an employer from an employee’s wages.

Answer 38

withholdings