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.
