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Personal finance > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

What is the federal income tax structure?

A
  • Progressive or graduated tax
  • Tax rates & tax brackets
  • Itemized or standard deductions
  • Taxable income
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2
Q
A
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3
Q

AGI

A

Taxable income from all sources minus specific adjustments but before deducting standard or itemized deductions

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4
Q

___________ is a function of adjusted gross income (AGI) & the standard or itemized deductions

A

Taxable income

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5
Q

Average tax rate

A

The average amount of your total income taken away in taxes

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6
Q

Marginal tax rate

A

The percentage of the last dollar earned that goes to pay taxes

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7
Q

Tax-deferred

A

Income on which the payment of taxes is postponed

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8
Q

Capital assets

A

An assets you own

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9
Q

Capital gain

A

What you make if you sell a capital assets for a profit

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10
Q

Capital loss

A

What you lose when you sell a capital assets for a loss

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11
Q

Capital gain tax

A

Tax you pay on your capital gains

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12
Q

Lower tax rate is imposed on both long -term __________ & dividends

A

Capital gains

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13
Q

_____________ are not claimed or taxed until the assets is sold

A

Capital gains

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14
Q

Capital gain taxes for most homeowners on sale of their ________

A

Home (must be occupied for 2 of the 5 years prior sale)

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15
Q

What the different filling status when filing taxes

A
  • Single
    -Married filling jointly & surviving spouses
    -Married filling separately
    -Head of household
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16
Q

__________ change annually to reflect changes in the cost of living (inflation)

A

Tax brackets

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17
Q

____________ is also adjusted annually to reflect inflation

A

Standard deduction

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18
Q

Bracket creep

A

Tax increase caused by inflation increasing wages

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19
Q

What are the different ways to paying your income taxes?

A
  • Pay as you go basis
    -Withholding from wages
    -Quarterly estimated taxes sent to the IRS
    -Payments with tax return
    -Withholding from stock dividends, retirement funds, and prize winnings
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20
Q

Withholdings are determine by income level & information on _________ form

A

W-4

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21
Q

Income based taxes

A
  • Social security o r FICA
  • State & local income taxes
22
Q

Non income based taxes

A
  • Excise taxes
    -Property taxes
    -Gift & estate taxes
23
Q

Generaly you are not eequired to file a tax return unless your income exceeds the ___________

A

Standard deduction

24
Q

How do you determine your gross or total income?

A
  • Sum of all taxable income from all sources
  • Active income- income from wages or a business
  • Portfolio or investment income- Securities
  • Passive income- activities in which the taxpayer does not actively participate
25
Calculating adjusted gross income
Adjusted gross income (AGI) is gross income less allowable adjustments (ex. retirement contribution, student loan interest paid, etc)
26
How do you subtract deduction?
- Take greater deductions between standard & itemized deductions
27
Itemize deductions
List of deductible expenses, such as medical expenses, tax expenses, mortgage interest payments, gifts to charity, etc
28
Standard deduction
Government's best estimate of what the average person would deduct if itemizing
29
Taxable income
Subtract deduction from AGI
30
Base income tax
Intersection of filling status & taxable income in the federal income tax tables
31
Alternative minimum tax (AMT)
Ensures that wealthy pay enough taxes
32
________ reduced actual taxes paid
Tax credits
33
_______ phase out as AGI increase
Tax credit
34
What are the different types of credits to reduce tax?
- Child credit - Education credits -Child dependent care credit -Earned icnome credit - Health care premium credit - Adoption credit
35
Tax returns start with form _______
1040 (can be filed mail or e-file (online)
36
Benefits to doing e-file?
-Faste refunds -More accurate returns -Quick electronic confirmation - Delete paperwork -federale/state e-filing
37
File late
Form 4868- request an extension if unable to file by april 15th & include estimated tax payment
38
Amended return
For 1040X- file with 3 years of original tax date (amend state & local forms as well)
39
An _________ is an examination of tax return by the IRS
Audit (selection is higher if been audited in the past)
40
What are the ways to help in preparing taxes?
- Handle taxes by yourself - Use IRS publication, IRS hotlines, & self help resources - Hire a tax specialist
41
What are some strategies to lower taxes?
- Maximize deduction -Look to capital gains & dividend income - Shift income to family member in lower tax brackets - Receive tax-exempt income -Defer taxes to the future
42
What are ways to maximize deduction?
-Use tax-deffered retirement programs - Use you home as tax shelter - Shift & bunch deductions
43
Long term _______ rate is lower than ordinary income
Capital gain (no tax for lower income earner of AGI 40k or lesss, 15% for most taxpayer earning 40k+, 20% for wealthy)
44
Don't have to claim capital gains until assets is ___
Sold
45
Qualified dividnds from corporations are taxed at same ________ as long- term capital gains
Low rates
46
What is one simple way to shift income to family members in lower tax brackets?
Make gifts, recipients don't pay taxes on gifts (allowed to give 15k tax free per yr)
47
Interest from state & local government debt, such as bonds, is ___________
Tax exempt
48
The higher your marginal tax bracket the more ___________ tax free income is
Beneficial
49
Equivalent taxable yield equation (used to determine which is the better investment)
= tax - free yield on the municipal bond/ (1- investor's marginal tax bracket)
50
____________ retirement plans allow you to defer tax payments to the future
Tax0deferred retirement plans
51
__________ allows taxes to be paid on contributions & never again
Roth IRAs
52
Capital gains taxes are postponed until you sell the _______
Asset

Personal finance (4 decks)

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