Managing Taxes and Banking Accounts Flashcards
Define Progressive Tax
Tax rate progressively increases as a tax payer’s taxable income increases.
Define Regressive Tax
Tax imposed in such a manner that the tax rate state the same for all income (i.e. state sales tax)
Define Marginal Tax Bracket. Why is it important to know?
7 income-range tax segments are taxed at increasing rates as income goes up. It is important because it tells you the portion of any extra taxable earnings you must pay in income taxes. It also measures the tax reduction benefits of a tax deductible expense.
Give examples of deductions. Explain why they are also called above-the-line deductions.
Subtractions from gross income such as moving expenses, education, student loan interest, mortgage interest. They may be subtracted from gross income even if the itemized deductions are not claimed.
Explain difference between taking the standard deduction and itemizing deductions? Can an individual do both?
Standard deduction is a fixed amount that all taxpayers may subtract from the AGI. Itemized deductions include medical/dental, taxes and interest paid, gifts to charity, job expenses. etc. You cannot claim both but you can claim the greater of the two.
What is an exemption?
A legally permitted amount deducted from AGI based on the number of people supported by the taxpayer’s income.
Why are tax credits so valuable?
Because it reduces your tax liability dollar for dollar. It reduces the amount of your taxable income which is used to calculate your tax liability.
What is a nonrefundable tax credit? Give a few examples.
Reduces your tax liability to zero but not below. Mortgage interest, Child tax credit, Lifetime Learning Credit,
What is a refundable tax credit? Give a few examples
Reduces your tax liability to zero and the excess amount will be refunded. You must file an income tax return to claim this. Credits are often subject to income limits. Earned income credit, Health Insurance Premiums, Child and Dependent Care Credit (part or all may be refundable).
Explain 2 ways you can pay taxes
Withholding and payments
What is the difference between Tax Evasion and Tax Avoidance?
Evasion involves deliberate and willfully hiding income, falsely claiming deductions or otherwise cheating. Avoidance is reducing tax liability through legal techniques by applying knowledge of tax code and regulations.
Which 2 federal organizations administer insurance for financial institutions?
Federal Deposit Insurance Corporation (FDIC) and National Credit Union Share Insurance Fund (NCUSIF)
What is the maximum amount covered by FDIC on different accounts at any one institution?
$250,000
How can you avoid overdraft fees?
Keep check register and always know your available balance.
Name and describe the safest form of check endorsement
Restrictive Endorsement. “For Deposit Only” along with signature and include name of financial institution and account number.
How can you make sure funds are allotted to savings?
Have it directly deposited from your paycheck into a savings account every pay period.
Define a Money Market Account
Interest earning accounts that offer limited check writing priviledges
Define Money Market Mutual Funds
Money market account in a mutual fund rather than at a bank. Usually in short-term debt securities such as US Treasury Bills and commercial paper, they can be used like a checking account.
What is a CD?
Certificate of Deposit - Interest earning savings instrument purchased for a fixed period of time. Range from $100-$100,000. Time periods range from 7 days to 8 years. Interest rate is usually fixed for the entire loan.
What is the APY?
Annual Percentage Yield expresses an annual rate of interest taking into account the effect of compounding, usually for deposit or investment products. Does not take transaction costs into account.
List ways to use electronic banking safely.
Use complicated pins and passwords. Review your statements frequently for accuracy. Notify your bank immediately if your card is lost or stolen.
Summarize ways to help couples talk about finances.
Address questions openly and calmly. Write down questions and answering them in a meeting can be an effective way to handle money matters. Understand your own approach to money, focus on commonalities, learn to manage disagreements.
How can parents encourage good money management?
Give them an opportunity to earn commission so they can practice money management. Encourage work opportunities age appropriate. Set reasonable limits. Help them learn about delayed gratification. Talk about family finances. Be a good role model.
What is the tax rate applied to a taxpayer’s last dollar of income?
Marginal Tax Rate
What provides for a dollar for dollar reduction in taxes?
Tax Credit
What are specific expenses that can be subtracted from AGI to reduce taxable income?
Itemzied Deductions
What is a tax credit that reduces one’s final tax liability below $0 resulting in a payment from the government?
Refundable tax credit
What is the disclosed standardized rate of interest paid on accounts at depository institutions?
Annual Percentage Yield
What is APR?
Annual Percentage Rate (APR) is an expression of the effective interest rate that the borrower will pay on a loan, taking into account one-time fees and standardizing the way the rate is expressed.
What is APR?
Annual Percentage Rate (APR) is an expression of the effective interest rate that the borrower will pay on a loan, taking into account one-time fees and standardizing the way the rate is expressed.
