Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
20 Cards in this Set
- Front
- Back
Types of Taxes
|
1. Taxes on Purchases
- sales & excise tax 2. Taxes on Property - real estate property tax & personal property tax 3. Taxes on Wealth - federal estate tax, state inheritance tax 4. Taxes on Earnings - Social Security, income tax |
|
Types on Income
|
1. Earned Income - usually in the form on wages, salaries, tips or bonuses
2. Investment income - money received in the form of dividends or interest 3. Passive Income - results from business activities in which you don't actively participate (limited partnership) |
|
exclusion
|
amount not included in gross income
|
|
tax-exempt income
|
income that is not subject to tax
ex - bonds are exempt from tax |
|
tax-deferred income
|
income that will be taxed at a later date
|
|
Basics of Federal Income Tax
|
step 1: determining adjusted gross income
step 2: computing taxable income step 3: calculating taxed owed step 4: making tax payments step 5: watching deadlines and avoiding penalties |
|
Adjustments to Income
|
Adjusted Gross Income (AGI) - gross income reduced by certain adjustments
ex) contributions to individual's retirement account or alimony payments |
|
tax deduction
|
an amount subtracted from adjusted gross income to arrive at taxable income
|
|
standard deduction
|
a set amount on which no taxes are paid
|
|
itemized deductions
|
expenses that can be deducted from adjusted gross income
ex) medical expenses, real estate property, home mortgage, charitable contributions, theft losses, interest, moving, job-related |
|
exemptions
|
a deduction from adjusted gross income for yourself, spouse and qualified dependents
|
|
marginal tax vs average tax
|
marginal tax - the rate used to calculate tax on the next dollar earned
average tax - total tax due divided by taxable income |
|
tax credit
|
an amount subtracted directly from the amount of taxes owed
ex) child care, EIC, foreign tax credit, retirement tax credit, adoption tax credit, scholarship tax credit |
|
You can pay federal taxes 2 ways:
|
1.) Payroll Withholding - pay as you go system
2.) Estimated Payments |
|
5 status categories for filing a federal income tax return
|
1.) single 2.) married, filing joint returns 3.)married filing separate returns 4.) head of household 5.) qualifying widow or widower
|
|
What tax records to keep
|
- current tax forms
- social security numbers - copy of previous year's returns - W-2 forms from employers - 1099 forms (interest, self employment) - 1098 (mortgage, interest paid) - receipts and documentation for expenses - investment & business expense documents |
|
1040EZ
|
- use for least complicated situations
- single or married filing jointly, under age 65 w/ no dependents - taxable income less than $50,000 - you do not itemize deductions |
|
1040A
|
- taxable income less than $50,000
- adjustments to income allowed - tax credits for child care allowed |
|
Most frequent tax filing errors
|
forgetting to sign a tax return
|
|
3 types of tax return audits
|
1.) correspondence audit - for minor questions
2.) office audit - takes place at IRS office 3.) field audit - most complex; IRS agent visiting your home |