Everything About Taxes Flashcards
Write the calculation for general tax liability?
How does graduated tax liability work?
A progressive tax system which consists of tax brackets where tax rates increase according to the amount of your income
Know the three government institutions that levy taxes
- Federal
- State
- Local
Know the primary purposes for levying taxes
- To fund public operations provided by government
- To encourage or discourage behavior of citizens (for example: cigarettes have tax because unhealthy)
List the types of taxes associated with production tax
Production Tax
Consumption Tax
Wealth Tax
Define production tax
Production tax comprises four different arenas, income, social security, medicare, and capital gains.
Define income tax
a tax under production taxes, taxed at the federal, state, and local level
Define Social Security
Social insurance program, taken out of income at about 6.2%
Define Medicare
federal health insurance program for the elderly, taken out of active income at about 2.9%
Capital Gains
- tax based on passive income, from the sale of an asset
Define consumption tax
A tax on the purchase of any good or service. No federal level, state level.
Excise tax
Tax a government puts on goods to discentivize people from using it, such as tobacco or alcohol or ; you need a license to sell
Wealth tax
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.
What is indiana’s sales tax
7%
Know the type of Tax the US government uses for income tax
progressive
Explain the concept of a regressive tax (flat tax) and examples.
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
Explain the process associated with paying taxes - use the term witholding and identify the government form (W-4) uesd to define withholding
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.
What is the w-4 form
A withholding certificate that an employee fills out to instruct the employer what to withhold from their paycheck in taxes
What is the w-2 form?
contains important information that you need to complete your tax return.
Explain the difference between a tax refund and owing money.
Tax refund happens when you overpay, and a liability happens when you underpay
Share definitions and examples of ADEC - the test will focus mostly on Deductions and Credits
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
Understand what AGI means.
Adjusted Gross income, the income after you take out adjustments and exemptions
Understand the difference between the standard deduction and itemized deduction.
standard deduction is set by the federal reserve yearly, while itemized deductions are a list of deductions that you can take out manually
Life situations that significantly shift tax liabilities.
Death of a spouse or child
Getting married
Getting Divorced
Having a Child
Difference between a tax return and owing taxes.
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
target date fund and why is it so popular
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).
individual stock
investment where one has individual ownership of a portion of a company. Medium risk medium reward
Mutual fund
investment where one’s ownership is pooled with other investors and investors earn from dividends. Diverse
index fund
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
ETFs
investment funds traded on stock exchange, cheaper and lower fees.
What is CD
Cash investment tool that locks money up at a set rate for a set duration
T-bill
Government issued treasury bill, short-term debt instrument that matures at a certain time, usually one year or less
When can you see a change in compound interest
10-15 years
You are responsible for ___ other ___ is split by employer for FICA taxes
7.65%, 7.65%
