Chapter 3 Flashcards
A tax structure in which additional taxable income is taxed at a higher rate is referred to as a _____________.
Progressive tax structure
The tax paid on the next dollar of taxable income is referred to as the _______ tax rate.
Marginal
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.
Average
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 ___________.
Head of household
A person who is unmarried or legally separated from their spouses by either a separation or final divorce decree.
Single taxpayer
A married couple who combine their income and allowance deductions and file one tax return.
Married filling jointly
Each spouse files his or her own return, reporting only his or her income and deductions.
Married filling separately
The amount of income subject to taxes; it is calculated by subtracting adjustments, the larger of itemized or standard deductions, from gross income.
Taxable income
What is the major source of revenue for the federal government.
Income taxes
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.
Gross income
Income earned on the job, such as wages and salaries, bonuses and tips; most other forms of noninvestment income, including pension income and alimony.
Active income
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.
Portfolio income
A special category that includes income derived from real estate, limited partnerships, and other forms of tax shelters
Passive income
A blanket deduction taken in lieu of itemizing deductions.
Standard deduction
Allowing taxpayer to reduce their AGI by the amount of their allowable personal expenditures.
Itemized deductions
Deductions from AGI based on the number of persons supported by the taxpayer’s income ( suspended for years 2018-2025)
Exemptions
This term essentially includes all subject to federal tax
Gross income
To qualify for exclusion during this transaction, you must have owned and occupied for two of the five prior years.
Sale of a home
This is calculated by determining income subject to taxes less adjustments, deductions, and exemptions and applying the appropriate rate(s).
Tax liability
This item is taxed at different rates depending on the holding period.
Capital gains
This is used to offset passive income
Real estate or limited partnership expenses
Allowance deductions from gross income, including certain employee, personal retirement, insurance, and support expenses.
Adjustment to (gross) income
The amount of income remaining after subtracting all allowable adjustments to income from gross income
Adjusted gross income (AGI)
Using taxable income, it is based on tax tables or tax rate schedules.
Tax liability
During this transaction, you can exclude the first $250,000 ($500,000 for married taxpayers) of gain on sale.
Sale of a home
This term includes income from tax shelters
Passive income
Investment income is offset with this related expense.
Investment expense
This term includes wages, salaries, bonuses/commissions, and interest/dividends/alimony.
Gross income
This term refers to an asset sold for more than its original value.
Capital gains
This is a claim made by the taxpayer for each person supported by the taxpayer’s income
Exemption
Many of these are based on a percentage of AGI
Itemized deduction
Taken against gross income, they result in AGI
Adjustments
This term equals gross income less adjustments
Adjusted gross income
This term refers to allowable expenses that are deducted from AGI
Deductions
Examples of this term include charitable deductions, state and local taxes, and moving expenses
Itemized deduction
This can be either standard or itemized
Deductions
This can be claimed if taxpayer provides more than half their support
Exemption
This term includes all income less certain allowable adjustments
Adjusted gross income
This is a blanket deduction that includes various deductible expenses normally incurred by taxpayers
Standard deduction
This is adjusted gross income less deductions and exemptions
Steps to taxable income
Deductions such as employee, personal retirement, higher education, and support expenses are included in this category
Adjustments
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 national or local tax service firm
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 ___________.
Certified public accountant (CPAs)
Individuals federally licensed to assist individuals with tax preparation at various levels of complexity are referred to as ___________.
Enrolled agents
Individuals who specialize in legal issue and tax planning are referred to as __________.
Attorneys
Individuals in work situations where taxes are not withheld are required to _________.
Make estimated tax payments
Individual tax filers must file their annual federal return no later than __________.
April 15
With a filing extension in hand, a taxpayer must pay any taxes owed ____________.
When the extension request is filed.
If a taxpayer wants to amend a return previously filed, they can complete Form ________.
1040X
The act of reducing taxes in ways that are legal and compatible with the intent of Congress is called _________.
Tax avoidance
An examination by the IRS to validate the accuracy of a given tax return.
Tax audit
The illegal act of failing to report income or deductions accurately and, in extreme cases, failing to pay taxes altogether
Tax evasion
Income that is not subject to taxes immediately but that will be subject to taxes later
Tax deferred
