AFC Module 11 - Taxes

Question 1

Adjusted Gross Income (AGI)

Answer 1

Gross income less any exclusions and adjustments.

Gross income includes your wages, dividends, capital gains, business income, retirement distributions as well as other income. Adjustments to Income include such items as Educator expenses, Student loan interest, Alimony payments or contributions to a retirement account. Your AGI will never be more than your Gross Total Income on you return and in some cases may be lower.

Question 2

Adjustments to income

Answer 2

Allowable subtractions from gross income.

Question 3

American Opportunity Tax Credit

Answer 3

A partially refundable tax credit to help defray college expenses for the first four years of postsecondary education.

Question 4

Child and Dependent Care Tax Credit

Answer 4

A nonrefundable tax credit that may be claimed by workers who pay employment-related expenses for care of a child or other dependent if that care gives the employee the freedom to work, seek work, or attend school full time.

Question 5

Defined contribution retirement plan

Answer 5

An IRS-approved retirement plan sponsored by employers, allowing employees to make pretax contributions that lower their tax liability.

Most common one is a 401k

Question 6

Dependent

Answer 6

A relative or household member being financially supported by the taxpayer.

Question 7

Earned Income Tax Credit (EITC)

Answer 7

A refundable tax credit that may be claimed by workers with a qualifying child, and in certain cases by childless workers.

Refundable tax credit designed to benefit the working poor, especially those with Children.

Low- to moderate-income workers with qualifying children may be eligible to claim the Earned Income Tax Credit (EITC) if certain qualifying rules apply to them.
E-file will ask the right questions to see if you qualify.

Question 8

Exclusions

Answer 8

Income not subject to federal tax.

Question 9

Filing status

Answer 9

Description of a taxpayer’s marital status as of the last day of the tax year; includes Single, Married Filing Jointly, Married Filing Separately, and Head of Household.

Question 10

Gross income

Answer 10

All income received in the form of money, goods, services, and/or property.

Question 11

Individual Retirement Account (IRA)

Answer 11

Investment account that reduces current-year income, and allows the funds in the account to accumulate tax-free.

Question 12

Itemized deduction

Answer 12

Tax-deductible expense.

Question 13

Lifetime Learning Credit

Answer 13

A nonrefundable tax credit that may be claimed every year for tuition and related expenses paid for all years of postsecondary education undertaken to acquire or improve job skills.

Question 14

Matching contributions

Answer 14

Employer programs that match employees’ 401(k) contributions up to a particular percentage.

Question 15

Nonrefundable tax credits

Answer 15

A tax credit that can reduce one’s tax liability, but only to zero, with no possibility of a refund.

Question 16

Refundable tax credits

Answer 16

A tax credit that can reduce one’s income tax liability to below zero, with the excess being refunded to the taxpayer.

Question 17

Roth IRA

Answer 17

An individual retirement account of investments made with after-tax money.

Question 18

Standard deduction

Answer 18

Fixed amount that all taxpayers may subtract from their adjusted gross income if they do not itemize their deductions.

Question 19

Tax avoidance

Answer 19

Reducing tax liability through legal techniques.

Question 20

Tax credits

Answer 20

Dollar-for-dollar decrease in tax liability.

Question 21

Tax evasion

Answer 21

Deliberately and willfully hiding income from the IRS, falsely claiming deductions, or otherwise cheating the government out of taxes owed.

Question 22

Tax refund

Answer 22

Amount the IRS sends back to a taxpayer if withholding and estimated payments exceed the tax liability.

Question 23

Taxable Income

Answer 23

Income upon which income taxes are levied.

Question 24

Taxes

Answer 24

Compulsory (required by law) government-imposed charges levied on citizens and their property.

Question 25

Progressive Taxes

Answer 25

A tax that progressively increases as a taxpayer’s taxable income increases.

Higher your income the higher the tax bracket.

ex: Federal Income tax

Question 26

Regressive Taxes

Answer 26

Tax rate are unconnected to income and thus are proportionally higher for lower incomes (ex: sales, and property tax)

Question 27

Marginal Tax Rate

Answer 27

The tax rate at which your last dollar earned is taxed, and it refers to the highest tax bracket that your taxable income puts you in.

Question 28

W-2

Answer 28

Completed by an employer and contains important information that you need to complete your tax return.

• Provided by employer
• Documents incomes and deductions
• Used to file taxes

Question 29

W-4

Answer 29

An IRS form that you complete to let your employer know how much money to withhold from your paycheck for federal taxes.

• Provided to employer by employee
• State withholdings

Question 30

I-9

Answer 30

Used to verify the identity and employment eligibility/authorization of individuals hired for employment in the United States.

Question 31

1099s

Answer 31

Used to report non-employment income, including dividends paid from owning a stock or income that you earned as an independent contractor.

• A range of different forms
• Used to document non-wage income
• Withdrawal from retirement (reporting Income)

Question 32

1040

Answer 32

What individual taxpayers use to file their taxes with the IRS.

• A range of different forms
• Used to file tax returns