midterm - chapter 16 Flashcards
tax used to pay fro healthcare for age 65+
medicare tax
tax based on the value of items received from a deceased person
inheritance tax
tax on personal income; a major source of revenue for federal and state governments
income tax
the difference between a person’s assets and liabilities
assets - liabilities = _____
net worth
Why do we pay taxes?
to help finance government projects like roads, schools, libraries, police department, etc
form filled out by the employee so that the employer will withhold the correct federal income tax fromt he employee’s paycheck
W-4 form
payments made by self-employed people and paid directly to the government quarterly
estimated payments
a financial statement that reports net wages and other income along with spending for a period, such as for a month
cash flow statement
actual spending is less than budgeted amount
budget surplus - spent less than budgeted so have extra money left over
What type of taxes are in ‘taxes on wealth’ category?
- estate tax - based on person’s property at death
- inheritance tax - based on items received from deceased person
- gift tax - tax on any property or cash received as a gift
a tax deduction for the taxpayer, a spouse, and each dependent (child)
exemption
costs that occur on a regular basis and are for the same amount each time
fixed expenses
shows personal assets, personal liabilities and a person’s net worth/owner’s equity
personal balance sheet
tax form that reports income and deductions to determine the amount of taxes owed or amount of refund
1040 form
tax based on the value of a person’s property at death
estate tax
a charge imposed by a government to finance public services
tax
your expenditures; money spent on all needs and wants
cash outflows
ex. rent/mortgage, food, clothing, utilities, telephone, entertainment, etc
a state or local tax on goods and services that is collected by the seller
sales tax
due date to file your federal income tax return
april 15
What type of taxes are in ‘taxes on earnings’ category?
- social security tax
- income tax
What are the 5 characteristics of an effective budget?
- must be realistic
- should be flexible
- should be evaluated regularly
- must be well planned and clearly communicated
- should have a simple format
What type of taxes are in ‘taxes on property’ category?
- real estate property tax - tax on land and buildings, helps pay for schools
- personal property tax - tax on boats, cars and trucks
costs that differ each time and may not be as easy to estimate
variable expenses
What determines how much a person pays in taxes?
is related to where you live, how much money you earn and how you spend and save your money
tax based on the value of personal property such as boats, cars and trucks
personal property tax
examples of personal assets
- money in bank - checking or savings
- investments
- furniture
- clothing
- automobiles
- jewelry
- rare coins
- etc
What are the 6 purposes of a budget?
- Live within your income
- Make wise buying decisions
- Avoid credit problems
- Plan for financial emergencies
- Develop money management skills
- Achieve your financial goals
- form provided by the employer to the employee
- it reports wage and salary info for the employee as well as the amount of federal, state and other taxes withheld fromt he employee’s paycheck
W-2 form
an amount that reduces your taxable income
tax deduction
tax based on immovable property - land and structures - that are permanently attached to the ground such as houses, buildings, barns, etc
real estate property tax
tax on gifts of any kind (property and money) when the value of the gift exceeds a certain dollar amount
gift tax
amount that reduces taxable income
tax deduction
ex. standard deduction or itemized deductions (medical expenses, property taxes, mortgage interest, etc)
any difference between actual spending and budgeted amount
budget variance
What type of taxes are in ‘taxes on purchases’ category?
- sales tax - tax on everything you buy except food and clothing
- excise tax - imposed on specific goods and services, ex. gas
total income - tax deductions = taxable income
taxable income x tax rate = ______
final taxes owed
a charge imposed by a government to finance public services
tax
- the amount on which taxes are calculated
- Gross Income - Tax Deductions = ______
taxable income
What are the 8 common budget categories?
- savings
- food
- clothing
- househoold
- transportation
- health and personal care
- recreation and education
- gifts and contributions
actual spending is greater than budgeted amount
budget deficit - spent more money then you were supposed to
US government agency that collects taxes and enforces the internal revenue laws
IRS - Internal Revenue Service
the day to day financial activities associated with using limited income to satisfy your unlimited needs and wants
money management
detailed plans for the financial needs of individuals, families and businesses; allows you to meet your personal goals with a system of saving and wise spending
budget
examples of personal liabilities
- credit card balances
- car loans
- personal loans
- home mortgage
- etc
tax used to finance retirement and disability benefits
social security tax
What are the 4 major tax categories?
- taxes on purchases
- taxes on property
- taxes on wealth
- taxes on earnings
the money you have available to spend as a result of workign or from other income such as interest earned
cash inflows
ex. take home pay/net pay, interest income
determines the amount of tax a taxpayer is required to pay for a year
federal income tax return
a tax imposed on specific goods and services; built in to the price
excise tax
What are the 4 steps in a personal budget process?
- set financial goals
- plan budget categories
- maintain financial records
- evaluate your budget
a ‘pay as you go’ system in whcih an employer deducts income tax from the earnings of workers
withholding
