Terms and definitions

Question 1

Entitlement Programs

Answer 1

If you meet certain conditions you are entitled to income from the government

Question 2

TCJA

Answer 2

Tax Cuts and Job Act - new tax law changes that effect 2018 +

• most personal tax changes expire 2025
• most business tax changes are permanent

Question 3

tax incidence

Answer 3

person economically responsible for the tax - may not be the person responsible for paying the tax

Question 4

Marginal Tax Rate (MTR)

Answer 4

tax rate that applies to the next additional increment of the TPs taxable income

Question 5

Gross Income (GI)

Answer 5

All income from whatever source deprived except as otherwise provided

Question 6

Adjusted Gross Income (AGI)

Answer 6

Gross Income - deductions

* used as a baseline for many phase outs*

Question 7

Alimony

Answer 7

1. transfer of assets between spouse under a separation agreement/divorce decree
2. must end at spouses death to be considered alimony

Question 8

Annuity

Answer 8

A financial instrument the TP buys that pays a set amount every month/year until the death of the TP

Question 9

Basis

Answer 9

tax free return of capital and usually calculated as cost with certain adjustments

Question 10

Deduction

Answer 10

An expense that congress allows you to use to lower your taxable income

Question 11

Dependent

Answer 11

A qualifying child or qualifying relative claimed on the tax return that entitles the TP to certain benefits

Question 12

Discharge of indebtedness

Answer 12

A debtor either forgiving or reducing the amount a taxpayer owes them

Question 13

Effective Tax Rate

Answer 13

TPs average rate of taxation on each dollar of total income

Total Tax Liablity/Taxable income + Nontaxable income

Question 14

Employment Tax

Answer 14

payroll tax formally known as the FICA tax

Question 15

Excise tax

Answer 15

tax per unit (ie: gas tax = tax/gallon)

Question 16

Exclusions

Answer 16

income tax item not subject to tax (municipal bond interest)

Question 17

Fair Market Value (FMV)

Answer 17

the cash two unrelated parties would be willing to exchange for an asset

Question 18

Federal customs duties

Answer 18

tariffs (taxes) on certain imported goods

Question 19

FICA (Federal Insurance Contributions Act)

Answer 19

Taxation of wages for funding of Social Security and Medicare

Question 20

FUTA (Federal Unemployment Tax Act)

Answer 20

Wage tax paid by employer to fund state unemployment benefits

Question 21

For AGI deductions (Above the Line deductions)

Answer 21

Adjustments subtracted from Gross Income to determine AGI

Question 22

Franchise taxes

Answer 22

Taxes levied on a business for the privilege of doing business in a state

Question 23

From AGI deductions (Below the line deductions)

Answer 23

Deductions subtracted from AGI to determine Taxable Income

Question 24

Inheritance tax

Answer 24

Tax on an individual for the right to receive or inherit property by the heirs of the decedent’s estate

Question 25

Internal Revenue Code (IRC)

Answer 25

Statutory source of tax law, which is passed by both houses of Congress, and signed into law by the president

Question 26

Judicial tax law

Answer 26

tax law derived by resolution of tax disputes between the IRS and TPs in the federal court system

Question 27

Gift

Answer 27

Voluntary transfer of property
without compensation/consideration
and made out of “affection” or like impulse

Question 28

Inheritance

Answer 28

Gift made subject to state law

Question 29

Device

Answer 29

Gift of real property through a will

Question 30

Bequest

Answer 30

Gift of personal property through a will

Question 31

Inter vivos gift

Answer 31

Gift between the living