Everything About Taxes

Question 1

Write the calculation for general tax liability?

Question 2

How does graduated tax liability work?

Answer 2

A progressive tax system which consists of tax brackets where tax rates increase according to the amount of your income

Question 3

Know the three government institutions that levy taxes

Answer 3

1. Federal
2. State
3. Local

Question 4

Know the primary purposes for levying taxes

Answer 4

1. To fund public operations provided by government
2. To encourage or discourage behavior of citizens (for example: cigarettes have tax because unhealthy)

Question 5

List the types of taxes associated with production tax

Answer 5

Production Tax
Consumption Tax
Wealth Tax

Question 6

Define production tax

Answer 6

Production tax comprises four different arenas, income, social security, medicare, and capital gains.

Question 7

Define income tax

Answer 7

a tax under production taxes, taxed at the federal, state, and local level

Question 8

Define Social Security

Answer 8

Social insurance program, taken out of income at about 6.2%

Question 9

Define Medicare

Answer 9

federal health insurance program for the elderly, taken out of active income at about 2.9%

Question 10

Capital Gains

Answer 10

• tax based on passive income, from the sale of an asset

Question 11

Define consumption tax

Answer 11

A tax on the purchase of any good or service. No federal level, state level.

Question 12

Excise tax

Answer 12

Tax a government puts on goods to discentivize people from using it, such as tobacco or alcohol or ; you need a license to sell

Question 13

Wealth tax

Answer 13

a tax imposed on an individual’s net wealth. Done when an estate is passed to someone and the value is above a certain amount.

Question 14

What is indiana’s sales tax

Answer 14

7%

Question 15

Know the type of Tax the US government uses for income tax

Answer 15

progressive

Question 16

Explain the concept of a regressive tax (flat tax) and examples.

Answer 16

Same tax rate, regardless of income.
Taxes lower income earners at a higher rate, and higher income earners at a lower rate

Examples: social security and medicare

Question 17

Explain the process associated with paying taxes - use the term witholding and identify the government form (W-4) uesd to define withholding

Answer 17

When you get a new job, your employer will hand you a certificate of withholding, which will instruct them how to withhold taxes from your paycheck for federal, state, and local governments. January 31, 2023 your employer issues a W2– wage and tax form, tells you how much tax was actually paid. In April 15, you will need to file your taxes using the W2 form.

Question 18

What is the w-4 form

Answer 18

A withholding certificate that an employee fills out to instruct the employer what to withhold from their paycheck in taxes

Question 19

What is the w-2 form?

Answer 19

contains important information that you need to complete your tax return.

Question 20

Explain the difference between a tax refund and owing money.

Answer 20

Tax refund happens when you overpay, and a liability happens when you underpay

Question 21

Share definitions and examples of ADEC - the test will focus mostly on Deductions and Credits

Answer 21

Adjustments, Deductions, Exemptions, and Credit

• two forms of deductions: standard and itemized
• Credit is dollar for dollar (foreign tax credit)
  Both deductions and credit is below the line

Question 22

Understand what AGI means.

Answer 22

Adjusted Gross income, the income after you take out adjustments and exemptions

Question 23

Understand the difference between the standard deduction and itemized deduction.

Answer 23

standard deduction is set by the federal reserve yearly, while itemized deductions are a list of deductions that you can take out manually

Question 24

Life situations that significantly shift tax liabilities.

Answer 24

Death of a spouse or child
Getting married
Getting Divorced
Having a Child

Question 25

Difference between a tax return and owing taxes.

Answer 25

a series of forms that you fill out to show the government how much money you earned and how much you’ve already paid in taxes during the year

Question 26

target date fund and why is it so popular

Answer 26

A target date fund is an investment where the risk level of the portfolio decreases over time as it gets closer to the target date. Target date funds have set dates for when they will be “matured”.

They are popular for a few reasons: they are convenient, the decreasing level of risk as you approach the target date is appealing because it means you money is safer, and they allow people to plan ahead better (ex. if you want to retire in 30 years you can select a TDF that matures in 30 years).

Question 27

individual stock

Answer 27

investment where one has individual ownership of a portion of a company. Medium risk medium reward

Question 28

Mutual fund

Answer 28

investment where one’s ownership is pooled with other investors and investors earn from dividends. Diverse

Question 29

index fund

Answer 29

maximize income by matching stock market compounds at an ideal ten percent rate. Larger number of stocks than a mutual fund, meaning low risk because of diversification

Question 30

ETFs

Answer 30

investment funds traded on stock exchange, cheaper and lower fees.

Question 31

What is CD

Answer 31

Cash investment tool that locks money up at a set rate for a set duration

Question 32

T-bill

Answer 32

Government issued treasury bill, short-term debt instrument that matures at a certain time, usually one year or less

Question 33

When can you see a change in compound interest

Answer 33

10-15 years

Question 34

You are responsible for ___ other ___ is split by employer for FICA taxes

Answer 34

7.65%, 7.65%