ACC250 Chapter 7 Flashcards
A tax on a broader tax base than the base for the ‘regular’ tax; the additional tax paid when the tentative minimum tax (based on the alternative minimum tax base) exceeds the regular tax (based on the regular tax base). This is designed to require taxpayers to pay some minimum level of tax even when they have low or no regular taxable income as a result of certain tax breaks in the tax code.
ALTERNATIVE MINIMUM TAX (AMT)
Adjustments (positive or negative) to regular taxable income to arrive at the alternative minimum tax base.
ALTERNATIVE MINIMUM TAX ADJUSTMENTS
Alternative minimum taxable income minus the alternative minimum tax exemption.
ALTERNATIVE MINIMUM TAX BASE
A deduction to determine the alternative minimum tax base that is phased out based on alternative minimum taxable income.
ALTERNATIVE MINIMUM TAX EXEMPTION
A secondary or parallel tax system calculated on an alternative tax base that more closely reflects economic income than the regular income tax base. The system was designed to ensure that taxpayers generating economic income pay some minimum amount of income tax each year.
ALTERNATIVE MINIMUM TAX SYSTEM
Nonrefundable credits designed to provide incentives for taxpayers to hire certain types of individuals or to participate in certain business activities.
BUSINESS TAX CREDITS
Claimed for each qualifying child ($1,000) under the age of 17 at the end of the year and who is claimed as taxpayer’s dependent.
CHILD TAX CREDITS
A refundable credit designed to help offset the effect of employment taxes on compensation paid to low-income taxpayers and to encourage lower income taxpayers to seek employment
EARNED INCOME CREDIT
A person who is hired to provide services to a company on a regular basis in exchange for compensation and who does not provide these services as part of an independent business.
EMPLOYEE
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
The quarterly interest rate used to determine the interest charged for tax underpayments (federal short-term rate plus 3%).
FEDERAL SHORT-TERM INTEREST RATE
Denotes both the Social Security & Medicare taxes upon earned income. For self-employed taxpayers, it is synonymous with self-employment tax.
FICA TAXES
A person who provides services to another entity, usually under terms specified in a contract. They have more control over how and when to do the work than does an employee.
INDEPENDENT CONTRACTOR
A tax imposed at the parent’s marginal rate on a child’s unearned income.
KIDDIE TAX
A penalty assessed if a taxpayer does not file a tax return by the required date (the original due date plus extension).
LATE FILING PENALTY
Imposed when a taxpayer fails to pay the entire balance of tax owed by the original due date of the tax return.
LATE PAYMENT PENALTY
The tax rate that applies to the next additional increment of a taxpayer’s taxable income (or to deductions).
MARGINAL TAX RATE
The tax savings married couples receive by filing a joint return relative to the tax they would have paid had they each filed as single taxpayers. This typically occurs when one spouse is either not working or earns significantly less than the other spouse.
MARRIAGE BENEFIT
The extra tax cost a married couple pays by filing a joint return relative to what they would have paid had they each filed as single taxpayers. This typically occurs when both spouses earn approximately the same amount of income.
MARRIAGE PENALTY
This tax helps pay medical costs for qualifying individuals.
MEDICARE TAX
Credit available in certain situations for the alternative minimum tax paid. It can be used only when the regular tax exceeds the tentative minimum tax.
MINIMUM TAX CREDIT
The amount of earnings subject to self-employment income taxes. The amount is 92.35% of the net income from a taxpayer’s Schedule C.
NET EARNINGS FROM SELF-EMPLOYMENT
A 3.8% tax on the lesser of (a) net investment income or (b) the excess of modified adjusted gross income over $250,000 for married-joint filers and surviving spouses, $125,000 for married-separate filers, and $200,000 for other taxpayers.
NET INVESTMENT INCOME TAX
Unearned income in excess of a specified threshold amount of a child under the age of 19 or under the age of 24 if a full-time student.
NET UNEARNED INCOME
Tax credits that reduce a taxpayer’s gross tax liability but are limited to the amount of gross tax liability. Any credit not used in the current year is lost.
NONREFUNDABLE CREDIT
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
Provision of the tax law that reduces or eliminates a taxpayer’s liability under the law if the taxpayer meets certain requirements.
SAFE-HARBOR PROVISIONS
A schedule on which a taxpayer reports the income and deductions for a sole-proprietorship.
SCHEDULE C
SS and Medicare taxes paid by the self-employed on a taxpayer’s net earnings from self-employment.
SELF-EMPLOYMENT TAXES
Tax intended to provide basic pension coverage for the retired and disabled.
SOCIAL SECURITY TAX
A range of taxable income taxed at a specified rate.
TAX BRACKET
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
The tax on the AMT tax base under the alternative minimum tax systems.
TENTATIVE MINIMUM TAX
The penalty that applies when taxpayers fail to adequately prepay their tax liability. This penalty is determined by multiplying the federal short-term interest rate plus three percentage points by the amount of tax underpayment per quarter.
UNDERPAYMENT PENALTY
Taxes collected and remitted to the government by an employer from an employee’s wages.
WITHHOLDING
