Chapter 3 Flashcards
Taxes and ____ in our society; they’re the cost of living in this country
Dues
_______ is the largest tax that you will pay. A typical American family currently pays more than ____ of its gross income in taxes; federal income and social security taxes and numerous state and local income, sales and property taxes
Federal Income Tax; 1/3
The major objective of tax planning is to: _____________ must be done legally and honestly with tax codes
maximize the amount of money that you can keep legally by minimizing the amount of taxes you pay
Income taxes are the major _______ for the Federal Government. Personal income taxes are scaled on _____ rates
Source of Revenue; Progressive
The tax rate for each bracket is called the _______ rate or the rate applied to the taxable income earned
marginal tax
Marriage status and family situation on the last day of your tax year, five different filing status categories
Filing status
unmarried or legally separated
Single
_____ - filing jointly - combine ___ and ____, file one return
married, income and deduction
Married filing ____ - each spouse files his or her own tax return
separately
Head of household:
taxpayer who is unmarried and pays more than 1/2 support of a dependent and keeping up for themselves and dependent or relative
Qualifying widow or widower with dependent child - a person whose spouse died within two years of the tax year and who supports a dependent child. They may be eligible for the _______ and use the joint tax return rates. After two years they must file under the ______ if they qualify.
Highest stand, deduction; head of household status
Federal Insurance Contribution Act (FICA) or ________. This tax is paid equally by the ____ and the ____. In 2011 this tax was 13.3 percent - allocating 10.4 and 2.9 to medicare.
FICA Social Security; Employer and Employee
Federal Withholding Taxes - _____ taxes withheld from your paycheck. These are based upon the _______ and the number of ____ you have claimed on a form called the W-4
Federal; Lever of earnings or income; withholding allowances
Withholding allowances ____ the amount of ______. A taxpayer is entitled to ___ allowance for him/herself. one for a nonworking spouse and one for each _____ claimed (Children or parents being supported mainly by taxpayer)
reduce; taxes withhold from your income; dependent
Taxable Income - _______ it is calculated by subtracting the adjustment, the larger of ______ or _____ from gross income
The amount of income that subjected to taxes; itemized or standard deduction/exemptions
_____ includes any and all income subject to federal taxes
Gross Income
Three types of income: ______ - earned on the job, wages, salaries, and tips.
Active
______ - interest or dividends, capital gains
Portfolio
____ - income derived from the real estate limited partnerships and other forms of tax shelters
Passive
w-4
Before a job
w-2
employer send to you with your taxes on it
Capital Gains
occurs when an ASSET such as a STOCK or BOND or real estate is sold for MORE than its original cost. they are TAXED AT DIFFERENT RATES
_______ - receive special treatment in tax codes. Example pg. 88
Homeowners
Adjustments to gross income pg. 88 KNOW THESE REFERENCES
Property tax and mortgage interest = itemized
Deductions
fixed amount that depends on your filing status or itemized - specified tax deductible personal expense. You should use the one that results in the largest allowable deduction
Standard Deductions
this is a blanket deduction. In 2011 the standard deduction ranged from 5800-16,200 depending on status. For single fibers the deduction is 5800 and married 11,600. Those over 65 or blind have higher deduction. Each year the standard deduction amounts are usually adjusted in response to any changes in the COST of living
Itemized deductions
allow taxpayers to reduce their AGI ( ADUSTED GROSS INCOME) by the amount of their allowable personal expenditures. Examples are on pg. 90
Exemptions
deductions based on the # OF PERSONS SUPPORTED BY TAXPAYERS INCOME A taxpayer can claim a deduction for him/herself, their spouse, and any dependents- children or other relatives earnings less than a stipulated level of income, for the taxpayer who provided more than half of their total support. In 2011 the exemption was 3700. A personal exemption can only be claimed ONCE. If a child is claimed by their parents; they cannot claim themselves
To find out the amount of ______ income, we subtract itemized deductions, or the ____ standard deduction for non-itemizes, and personal ______ from AGI. This is a key calculation in determining your tax liability. This reportable taxable income determines ____________. Once you know the taxable income you refer to the tax rate tables to find the amount of taxes you owe.
taxable; standard; exemptions; amount of income subject to federal income tax
One may only file a 1040 EZ form if: 4 things
you make under 100,000, under 65, single or filing jointly, no dependence
Medical and job
Medical is excess of .075 of AGI. AGI time .075 = expenses have to be higher than what you calculated
job - .02
The federal income tax is a
progressive tax
Tax avoidable is ___ , tax evasion is ___
legal; illegal
main objective of tax planning
minimize tax income
If you are eligible to receive a tax refund, you will have to file a
tax return
Mortgage ___ and paid home ____ are both itemized deduction items
interest; property tax
The regular income tax filing deadline is April ___ of each year
15th
Dividends received from the stock you own ___ taxable income
are
Adjustments to income will _____ your ____ income
decrease; taxable
You should itemize deductions when total itemized deductions ____ the standard deductions
exceed
Personal exemptions are ________ and ____ in the taxpayer’s household
tax deductions based upon # of dependents ; tax payers
The personal exemption for a student ___ be taken both by the parent and by the child
not
A married couple filing a joint return has Ms. CIndy Cook, a CPA, complete their return. This IRS will hold ____ responsible for any errors on the return
tax payer
Tax avoidance is a(n) ____ means to ____ ax liabilities
legal; minimize
The federal government gets the majority of its revenue from the _____ tax
Federal income
Henry is married to Lillian, and they have two dependent children. Henry can legally file using which of the filing statuses
married filing jointly
Your take home pay is what you are left with after subtracting withholds from your
Gross earnings
Your income tax withholding is dependent on
income level and dependent
A standard deduction is a blanket deduction that depends on the taxpayers ______
filing status, age, vision
Capital gain is the result of
result of a sale of an investment for more than a purchase price
Mr. and Mrs. Davenport have three children ages 3, 6, and 13. Their financial matters for 2008 are as follows:
AGI: 65,000
Un reimbursed Medical: 5250
How much will the medical expenses contribute to their total itemized deductions?
375
Itemized non-business expenses (not is crossed out) include
charitable contributions, state income tax, mortgage and medical
If you do not wish to itemize deductions you can use
standard deductions
Connie is a 20 year old college student who earned 8,000 and spent it all in her support during the year. Her parents may claim her as a tax dependent as long as
they provide her half of their support
Each personal exemption reduced taxable income by
3,700
Which of the following are legal methods of reducing your current tax liability?
shifts in income in investing in tax of different program
How is averaged tax rate calculated?
tax liabilities/ tax income
The income shifting tax strategy is least effective when income producing gifts are given to person
under the age of 14
The lowest tax rate is currently
14 percent
The highest tax rate is currently
35 percent
Christy lives by herself with her dog, Tex. She files
Single status
Usually a married couple will pay less income tax if they file
jointly
The form you fill out to give your employer an idea of how much income tax to withhold is called
w-4
My son, age 21, earned 5,000 last year. He still lives at home, and I provide over 50% of his support. I claim him as a dependent on my tax return if he is a full time college student or cannot claim him
They can claim him
A tax credit is subtracted from
tax liability
A specific date by which the tax liability must be paid
April 15th
The standardized or itemized deduction, reduces the taxpayers,
taxable income
