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Personal finance > Chapter 4 > Flashcards

Chapter 4 Flashcards

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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
Q

Calculating adjusted gross income

A

Adjusted gross income (AGI) is gross income less allowable adjustments (ex. retirement contribution, student loan interest paid, etc)

26
Q

How do you subtract deduction?

A
  • Take greater deductions between standard & itemized deductions
27
Q

Itemize deductions

A

List of deductible expenses, such as medical expenses, tax expenses, mortgage interest payments, gifts to charity, etc

28
Q

Standard deduction

A

Government’s best estimate of what the average person would deduct if itemizing

29
Q

Taxable income

A

Subtract deduction from AGI

30
Q

Base income tax

A

Intersection of filling status & taxable income in the federal income tax tables

31
Q

Alternative minimum tax (AMT)

A

Ensures that wealthy pay enough taxes

32
Q

________ reduced actual taxes paid

A

Tax credits

33
Q

_______ phase out as AGI increase

A

Tax credit

34
Q

What are the different types of credits to reduce tax?

A
  • Child credit
  • Education credits
    -Child dependent care credit
    -Earned icnome credit
  • Health care premium credit
  • Adoption credit
35
Q

Tax returns start with form _______

A

1040 (can be filed mail or e-file (online)

36
Q

Benefits to doing e-file?

A

-Faste refunds
-More accurate returns
-Quick electronic confirmation
- Delete paperwork
-federale/state e-filing

37
Q

File late

A

Form 4868- request an extension if unable to file by april 15th & include estimated tax payment

38
Q

Amended return

A

For 1040X- file with 3 years of original tax date (amend state & local forms as well)

39
Q

An _________ is an examination of tax return by the IRS

A

Audit (selection is higher if been audited in the past)

40
Q

What are the ways to help in preparing taxes?

A
  • Handle taxes by yourself
  • Use IRS publication, IRS hotlines, & self help resources
  • Hire a tax specialist
41
Q

What are some strategies to lower taxes?

A
  • 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
Q

What are ways to maximize deduction?

A

-Use tax-deffered retirement programs
- Use you home as tax shelter
- Shift & bunch deductions

43
Q

Long term _______ rate is lower than ordinary income

A

Capital gain (no tax for lower income earner of AGI 40k or lesss, 15% for most taxpayer earning 40k+, 20% for wealthy)

44
Q

Don’t have to claim capital gains until assets is ___

A

Sold

45
Q

Qualified dividnds from corporations are taxed at same ________ as long- term capital gains

A

Low rates

46
Q

What is one simple way to shift income to family members in lower tax brackets?

A

Make gifts, recipients don’t pay taxes on gifts (allowed to give 15k tax free per yr)

47
Q

Interest from state & local government debt, such as bonds, is ___________

A

Tax exempt

48
Q

The higher your marginal tax bracket the more ___________ tax free income is

A

Beneficial

49
Q

Equivalent taxable yield equation (used to determine which is the better investment)

A

= tax - free yield on the municipal bond/ (1- investor’s marginal tax bracket)

50
Q

____________ retirement plans allow you to defer tax payments to the future

A

Tax0deferred retirement plans

51
Q

__________ allows taxes to be paid on contributions & never again

A

Roth IRAs

52
Q

Capital gains taxes are postponed until you sell the _______

A

Asset

Personal finance (4 decks)

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