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FINANCE > Chapter 3 > Flashcards

Chapter 3 Flashcards

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1
Q

A tax structure in which additional taxable income is taxed at a higher rate is referred to as a _____________.

A

Progressive tax structure

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2
Q

The tax paid on the next dollar of taxable income is referred to as the _______ tax rate.

A

Marginal

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3
Q

The overall rate at which income is taxed, determined by dividing the tax liability by the taxable income, is referred to as the ___________ tax rate.

A

Average

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4
Q

A person who is unmarried or considered unmarried and pays more than half of the cost of keeping up a home for himself/herself and an eligible dependent child or relative is called ___________.

A

Head of household

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5
Q

A person who is unmarried or legally separated from their spouses by either a separation or final divorce decree.

A

Single taxpayer

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6
Q

A married couple who combine their income and allowance deductions and file one tax return.

A

Married filling jointly

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7
Q

Each spouse files his or her own return, reporting only his or her income and deductions.

A

Married filling separately

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8
Q

The amount of income subject to taxes; it is calculated by subtracting adjustments, the larger of itemized or standard deductions, from gross income.

A

Taxable income

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9
Q

What is the major source of revenue for the federal government.

A

Income taxes

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10
Q

The total of all of a taxpayer’s income (before adjustments, deductions, or exemptions) subject to federal taxes; it includes active portfolio, and passive income.

A

Gross income

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11
Q

Income earned on the job, such as wages and salaries, bonuses and tips; most other forms of noninvestment income, including pension income and alimony.

A

Active income

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12
Q

Earnings (interest, dividends, and capital gains [profits on the sale of investments]) generated from most types of investment holdings; includes savings accounts, stocks, bonds, mutual funds, options, and features.

A

Portfolio income

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13
Q

A special category that includes income derived from real estate, limited partnerships, and other forms of tax shelters

A

Passive income

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14
Q

A blanket deduction taken in lieu of itemizing deductions.

A

Standard deduction

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15
Q

Allowing taxpayer to reduce their AGI by the amount of their allowable personal expenditures.

A

Itemized deductions

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16
Q

Deductions from AGI based on the number of persons supported by the taxpayer’s income ( suspended for years 2018-2025)

A

Exemptions

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17
Q

This term essentially includes all subject to federal tax

A

Gross income

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18
Q

To qualify for exclusion during this transaction, you must have owned and occupied for two of the five prior years.

A

Sale of a home

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19
Q

This is calculated by determining income subject to taxes less adjustments, deductions, and exemptions and applying the appropriate rate(s).

A

Tax liability

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20
Q

This item is taxed at different rates depending on the holding period.

A

Capital gains

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21
Q

This is used to offset passive income

A

Real estate or limited partnership expenses

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22
Q

Allowance deductions from gross income, including certain employee, personal retirement, insurance, and support expenses.

A

Adjustment to (gross) income

23
Q

The amount of income remaining after subtracting all allowable adjustments to income from gross income

A

Adjusted gross income (AGI)

24
Q

Using taxable income, it is based on tax tables or tax rate schedules.

A

Tax liability

25
Q

During this transaction, you can exclude the first $250,000 ($500,000 for married taxpayers) of gain on sale.

A

Sale of a home

26
Q

This term includes income from tax shelters

A

Passive income

27
Q

Investment income is offset with this related expense.

A

Investment expense

28
Q

This term includes wages, salaries, bonuses/commissions, and interest/dividends/alimony.

A

Gross income

29
Q

This term refers to an asset sold for more than its original value.

A

Capital gains

30
Q

This is a claim made by the taxpayer for each person supported by the taxpayer’s income

A

Exemption

31
Q

Many of these are based on a percentage of AGI

A

Itemized deduction

32
Q

Taken against gross income, they result in AGI

A

Adjustments

33
Q

This term equals gross income less adjustments

A

Adjusted gross income

34
Q

This term refers to allowable expenses that are deducted from AGI

A

Deductions

35
Q

Examples of this term include charitable deductions, state and local taxes, and moving expenses

A

Itemized deduction

36
Q

This can be either standard or itemized

A

Deductions

37
Q

This can be claimed if taxpayer provides more than half their support

A

Exemption

38
Q

This term includes all income less certain allowable adjustments

A

Adjusted gross income

39
Q

This is a blanket deduction that includes various deductible expenses normally incurred by taxpayers

A

Standard deduction

40
Q

This is adjusted gross income less deductions and exemptions

A

Steps to taxable income

41
Q

Deductions such as employee, personal retirement, higher education, and support expenses are included in this category

A

Adjustments

42
Q

Non-licensed preparers for straight forward returns because they are trained only in tax preparation and are usually less expensive. They would be categorized as _____________.

A

A national or local tax service firm

43
Q

These individuals assist with more complex types of income and expense expenditures while providing guidance on tax planning strategies: prepare and audit financial statements; and prepare tax returns. These individuals or groups of individuals have passed a certification examination are ___________.

A

Certified public accountant (CPAs)

44
Q

Individuals federally licensed to assist individuals with tax preparation at various levels of complexity are referred to as ___________.

A

Enrolled agents

45
Q

Individuals who specialize in legal issue and tax planning are referred to as __________.

A

Attorneys

46
Q

Individuals in work situations where taxes are not withheld are required to _________.

A

Make estimated tax payments

47
Q

Individual tax filers must file their annual federal return no later than __________.

A

April 15

48
Q

With a filing extension in hand, a taxpayer must pay any taxes owed ____________.

A

When the extension request is filed.

49
Q

If a taxpayer wants to amend a return previously filed, they can complete Form ________.

A

1040X

50
Q

The act of reducing taxes in ways that are legal and compatible with the intent of Congress is called _________.

A

Tax avoidance

51
Q

An examination by the IRS to validate the accuracy of a given tax return.

A

Tax audit

52
Q

The illegal act of failing to report income or deductions accurately and, in extreme cases, failing to pay taxes altogether

A

Tax evasion

53
Q

Income that is not subject to taxes immediately but that will be subject to taxes later

A

Tax deferred

FINANCE (8 decks)

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