Terms and definitions Flashcards
Entitlement Programs
If you meet certain conditions you are entitled to income from the government
TCJA
Tax Cuts and Job Act - new tax law changes that effect 2018 +
- most personal tax changes expire 2025
- most business tax changes are permanent
tax incidence
person economically responsible for the tax - may not be the person responsible for paying the tax
Marginal Tax Rate (MTR)
tax rate that applies to the next additional increment of the TPs taxable income
Gross Income (GI)
All income from whatever source deprived except as otherwise provided
Adjusted Gross Income (AGI)
Gross Income - deductions
* used as a baseline for many phase outs*
Alimony
- transfer of assets between spouse under a separation agreement/divorce decree
- must end at spouses death to be considered alimony
Annuity
A financial instrument the TP buys that pays a set amount every month/year until the death of the TP
Basis
tax free return of capital and usually calculated as cost with certain adjustments
Deduction
An expense that congress allows you to use to lower your taxable income
Dependent
A qualifying child or qualifying relative claimed on the tax return that entitles the TP to certain benefits
Discharge of indebtedness
A debtor either forgiving or reducing the amount a taxpayer owes them
Effective Tax Rate
TPs average rate of taxation on each dollar of total income
Total Tax Liablity/Taxable income + Nontaxable income
Employment Tax
payroll tax formally known as the FICA tax
Excise tax
tax per unit (ie: gas tax = tax/gallon)
Exclusions
income tax item not subject to tax (municipal bond interest)
Fair Market Value (FMV)
the cash two unrelated parties would be willing to exchange for an asset
Federal customs duties
tariffs (taxes) on certain imported goods
FICA (Federal Insurance Contributions Act)
Taxation of wages for funding of Social Security and Medicare
FUTA (Federal Unemployment Tax Act)
Wage tax paid by employer to fund state unemployment benefits
For AGI deductions (Above the Line deductions)
Adjustments subtracted from Gross Income to determine AGI
Franchise taxes
Taxes levied on a business for the privilege of doing business in a state
From AGI deductions (Below the line deductions)
Deductions subtracted from AGI to determine Taxable Income
Inheritance tax
Tax on an individual for the right to receive or inherit property by the heirs of the decedent’s estate
Internal Revenue Code (IRC)
Statutory source of tax law, which is passed by both houses of Congress, and signed into law by the president
Judicial tax law
tax law derived by resolution of tax disputes between the IRS and TPs in the federal court system
Gift
Voluntary transfer of property
without compensation/consideration
and made out of “affection” or like impulse
Inheritance
Gift made subject to state law
Device
Gift of real property through a will
Bequest
Gift of personal property through a will
Inter vivos gift
Gift between the living
