16.3 Taxes in your life Flashcards Preview

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Flashcards in 16.3 Taxes in your life Deck (85):
1

income tax filing status

refers to a married couple filing a joint return

married filing jointly

2

income tax filing status

refers to individuals wo are unmarried, divorced or legally separated with no dependents

single

3

an amount subtracted directly from taxes owed

tax credit

4

tax based on earnings and is used to finance retirement and disability benefits

social security tax

5

examples of taxes on property

real estate property tax, personal property tax

6

the process of completing the federal income tax return requires ____ to determine their filing status and which tax form is appropriate for their situation

the process of completing the federal income tax return requires taxpayers to determine their filing status and which tax form is appropriate for their situation

7

what are the 3 conditions that are required for a person to qualify as a dependent?

  1. the person must not earn more than a certain amount unless he or she is under age 19 or is a full time student under 24
  2. the taxpayer must provide more than half of the dependent's support
  3. the dependent must live with the taxpayer or be a relative

8

a tax deduction for the taxpayer, spouse and each dependent

exemption

9

Not everyone pays ____ kind of tax

not everyone pays every kind of tax

10

Examples of taxes on purchases

sales tax, excise tax

11

describe tax preparation services

  • many taxpayers pay for professional tax preparation
  • can be as little as $35 or as much as thousands of dollars
  • fee varies based on how complex the tax return is and the level of training the tax preparer has
  • services include:
    • tax services range from local, one person organizations to national companies that have hundreds of offices
    • enrolled agents who are government approved tax preparers with specific training
    • Certified public accountants (CPA) with specific tax training to assist with tax planning and preparation of tax returns
  • some tax preparation services and other businesses offer refund anticipation loans (you get the money now for whatever amount of refund you're supposed to get back)
    • in most cases the interest rate on this type of loan is very high
    • in some cases the annual interest rate is more than 100% of the amount being borrowed
    • should be very cautious of any loan or special financing that is dependent on a tax refund!

12

Your personal and financial situation will _____ over time and you will need to be aware of how these changes relate to taxes

Your personal and financial situation will change over time and you will need to be aware of how these changes relate to taxes

13

How can tax deferred investments limit the amount of income tax you owe?

  • income from tax deferred investments has the advantage of lowering current taxes
  • a common tax strategy for workign people is the use of tax deferred retirement plans to reduce their current taxes

14

tax based on the value of items received from a deceased person

inheritance tax

15

certain items that are subtracted from gross income to obtain adjusted gross income

adjustments to income

ex. deposits made to retirement accounts (401k) and alimony payments

16

What does the IRS require taxpayers to do in order to make sure people pay the taxes they owe?

  • IRS requires  taxpayers to file (submit) a federal income tax return each year
  • this return is due by April 15 each year

17

How often are real estate taxes done?

once or twice a year

18

income not subject to tax

tax exempt income

19

What is the main difference between tax exempt investments and tax deferred investments?

  • on tax deferred investments you will not pay taxes until you withdraw the funds
  • on tax exempt investments you will never have to pay taxes on it

20

offers free tax help to low and moderate income taxpayers who cannot prepare their own tax returns

Volunteer Income Tax Assistance (VITA)

21

many ____ prepare their own federal income tax returns by hand or with tax preparation software

many taxpayers prepare their own federal income tax returns by hand or with tax preparation software

22

what determines a taxpayer's filing status?

marital status and the number of dependents

23

tax based on the value of personal property such as boats, cars and trucks

personal property tax

24

is the amount on which taxes are calculated

taxable income

25

income that will be taxed at a later date

tax deferred income

26

How can tax exempt investments limit the amount of income tax you owe?

  • interest income from municipal bonds, issued by state and local governments, is not subject to federal income tax
  • other tax exempt investments are also not subject to federal income tax

27

the agency responsible for collecting federal income tax

Internal Revenue Service (IRS)

28

a summary of a worker's earnings for the previous year and includes the amounts deducted for taxes, given to workers every January

W-2

29

How can mistakes be avoided when preparing a federal tax return?

 

 

just read.....

  • create a filing system for tax documents, receipts and tax forms
  • follow instructions carefully
  • use the proper tax form, tax table and correct filing status
  • check, and recheck, calculations carefully
  • include all required documents, such as a copy of your w-2 form
  • sign the tax return
  • make your check payable to the US Treasury
  • write your Social Security number and the tax year on your check
  • file online or mail your return before the deadline
  • use the proper amount of postage
  • keep a copy of the tax return

30

the decision regarding which ____ form to use depends on your income level, the amount of your deductions, and other complexities of your tax situation

the decision regarding which tax form to use depends on your income level, the amount of your deductions, and other complexities of your tax situation

31

When is sales tax collected?  Give example.

at the time of a purchase

ex.  you buy a video game for $80,  Pennsylvania has a 6% sales tax.  $80x.06= $84.80 total price

32

_____ income tax must also be paid on other types of income such as alimony, awards, lottery winnings and prizes

federal

33

What are the 7 main steps in preparing a federal income tax return?

  1. determine gross income
  2. calculate adjusted gross income
  3. subtract deductions
  4. determine exemptions
  5. compute taxable income
  6. calculate tax owed
  7. make tax payments or ask for a refund or credit

34

examples of taxes on earnings

social security tax, income tax

35

an amount that reduces taxable income

tax deduction

  • all taxpayers are eligible for a standard deduction, an amount on which no taxes are paid
  • an alternative is that a taxpayer may choose to itemize deductions
    • rules regarding what can be included in itemized deductions are very specific and change to reflect tax policies and laws

36

a state or local tax on goods and services that is collected by the seller.  food and prescription drugs are often exempt

sales tax

in PA clothes are not taxable either

37

What can happen if you have filing errors?

  • can cost time and money
  • might delay a refund
  • might pay more tax than you really owe
  • can get a penalty or interest charges for not filing on time or underpayment of taxes

38

Tax laws and tax forms ____ frequently

tax laws and tax forms change frequently

39

What does tax preparation software allow taxpayers to do?

  • allow taxpayers to use a computer to prepare federal and state tax forms by answering some questions or entering info on forms
  • tax forms can be printed for filing by mail or can file online

 

40

What are the two most common ways to pay real estate taxes?

  • some property owners choose to pay the bill when its due
  • some property owners add money to their mortgage payments, the financial institution sets the money aside until the taxes are due then pays the bill

41

What are 3 common ways to limit the amount of income tax you owe?

  1. home ownership
  2. tax exempt investments
  3. tax deferred investments

42

what is the difference between a tax credit and a tax deduction?

  • a tax credit lowers taxes by the full dollar amount
  • a tax deduction reduces the amount on which the taxes are calculated

43

name the professionals from whom a person can obtain tax assistance

CPA's

Certified Professional Accountants

44

tax based on the value of a person's property at death

estate tax

45

a 'pay as you go system' in which an employer deducts income tax from the earnings of workers each pay period

withholding payments

46

example on income that is tax exempt

interest earned on most state and city bonds

47

What federal income tax return form is for people who:

  • have less than $50,000 in taxable income fromw ages, salaries, tips, unemployment compensation, interest or dividends

and

  • use the standard deduction

1040A

48

  • tax based on the value of land and buildings
  • most of this tax revenue is used to pay for schools and local government services

real estate property tax

49

Cami Bartosz calculated that she owed taxes of $254 and had $278 withheld from her pay during the year.  This would result in...

  • a refund of $278
  • a refund of $24
  • additional taxes owed of $254
  • additional taxes owed of $24

a refund of $24

$254 owed - $278 paid = -$24 (negative means you get a refund)

50

What are the 3 forms that can be used to file a federal income tax return?

  1. form 1040
  2. form 1040A
  3. form 1040EZ

51

tax based on earnings and other sources of income and is a source of revenue for government

income tax

52

How can home ownership limit the amount of income tax you owe?

  • may reduce taxable income if the taxpayer itemizes deductions
  • amounts paid for real estate taxes and mortgage interest are itemized deductions that reduce taxable income
  • interest  on home equity loans up to $100,000 are also an itemized deduction

53

the ____ dependents a taxpayer can claim, the greater the reduction in taxable income

the more dependents a taxpayer can claim, the greater the reduction in taxable income

54

Commercial tax ____ are available to assist taxpayers

commerical tax guides are available to assist taxpayers

 

tax guides cover a wide range of topics, some intended for specific groups like small businesses and are updated annually

55

a charge imposed by a government to finance public services

tax

56

The use of tax preparation software can save ____ or more hours of time

the use of tax preparation software can save 10 or more hours of time

57

What does filing online mean?

means that the tax return is submitted electronically

58

the percentages used to compute the amount owed for taxes

tax rates

59

all US citizens and residents are required to file a federal income tax return if their ____ exceeds a certain amount

all US citizens and residents are required to file a federal income tax return if their income exceeds a certain amount

60

examples of taxes on wealth

estate tax, inheritance tax, gift tax

61

income tax filing status

is an option available to a married couple when each spouse takes responsibility for his or her own own tax return

married filing seperately

62

this tax applies to gifts of any kind of property, including money, when the value of the gift exceeds a certain dollar amount.

normally the donor is responsible for this tax

gift tax

63

What are ways of staying informed about taxes?

  • using print and online resources
  • attending classes
  • consulting financial professionals

64

What are the 4  major tax categories that most people pay taxes?

What are some examples of each?

  1. purchases - sales tax and excise tax
  2. property - real estate property tax & personal property taxes
  3. wealth - estate tax, inheritance tax, gift tax
  4. earnings - social security tax, income tax

65

income tax filing status

refers to an unmarried individual or a surviving spouse who maintains a household (paying for more than half of the costs) for a child or a dependent relative

head of household

66

what are the two main types of income for most people?

  • earned income - comes from wages, salary, commissions, fees, tips and bonuses
  • investment income - comes from earnings from dividends, interest and rent

67

a tax on earnings would be an _____ tax

  • inheritance
  • estate
  • income
  • excise

income

68

What federal income tax return form is for people who:

  • must use this form if income is over $50,000

or

  • if they can be claimed as a dependent by a parent and had interest or dividends over a certain amount

or

  • used if person is itemizing deductions

form 1040

69

______ payments are made directly to the government and are due quarterly

estimated payments are made directly to the government and are due quarterly

70

 What does the types of taxes you pay and how much you pay depend on?

depend on where you live, how much money you earn and how you spend and save your money

71

what are some examples of items that can be included in itemized deductions on a federal tax return?

  • certain medical and dental expenses
  • taxes paid for state and local income tax and property taxes
  • interest paid on a home mortgage or home equity loan
  • contributions to charitable organizations
  • casualty and theft losses
  • moving expenses when a new job is more than 50 miles away
  • certain job related expenses such as union dues, required continuing education, work clothes, tax preparation fees

72

What is the main purpose of preparing a federal income tax return?

  • to determine the amount of tax a taxpayer is required to pay for a year
  • since most people make tax payments throughout the year, also used to determine if you have paid all that you owe, you need to pay more, or you are entitled to a refund or credit

73

two ways people make payments for federal, state and local income taxes?

withholding

estimated payments

74

Describe tax preparation software

 

just read...

  • allow users to print returns for filing or file electronically
  • data entry is quick and easy
  • can update info from last year's return to make easier
  • can access income data from employers and financial institutions online
  • helps taxpayers to organize records
  • helps avoid common mistakes
  • helps take advantage of appropriate deductions and credits
  • offer strategies for makign financial decisions

75

What do some taxpayers who do not want to or are unable to prepare their own tax return do?

they use a tax professional to prepare their returns

76

Federal, state & local ______ levy taxes

federal, state & local governments levy taxes

77

many people pay taxes through ______ deductions

many people pay taxes through paycheck deductions

78

What are the 7 steps for preparing a federal income tax return?

  1. determine gross income
  2. calculate adjusted gross income
  3. subtract deductions
  4. determine exemptions
  5. compute taxable income
  6. figure out taxes owed
  7. make tax payment or ask for refund

79

what federal income tax return form is used for a person with a simple tax situation?

1040EZ

80

What are some examples of income that might require estimated payments?

  • significant income from savings and investments
  • income from royalties and pensions
  • income from self employement or working as an independent contractor

81

examples of tax credits

child care, dependent care

82

how do you calculate taxable income?

gross income - adjustments to income - deductions - exemptions = taxable income

83

  • tax imposed on specific goods and services
  • all states impose this on gasoline

excise tax

84

most states have an ____ tax to fund the cost of highways, state parks and other public services

most states have an income tax to fund the cost of highways, state parks and other public services

85

income tax filing status

refers to an individual whose spouse died within the past two years and who has a qualifying dependent child

qualifying widow or widower