Chapter 3 Personal Finance Test

Child Support

Money paid to a former spouse (which is not taxable income) for the support of dependent children is called Child Support.

Alemoney

Money paid to a former spouse (which is taxable income) for that person's support is called Alemoney.

Tax Evasion

To intentionally fail to pay taxes owed is to commit a serious crime called Tax Evasion.

Gross Income

When all sources of taxable income are added together, the total is called Gross Income.

Standard Deduction

In order to avoid itemizing deductions, a person may elect to take the Standard Deduction, which is a flat amount.

Adjusted Gross Income

The amount remaining when adjustments are subtracted from gross income.

Taxable

After the standard deduction and exemptions are subtracted from adjusted gross income, you arrive at your taxable income.

IRS (Internal Revenue Service)

An administrative agency of the federal government that collects taxes and enforces tax laws.

Exemption

An amount that can be subtracted from your income for each person who depends on your income to live is an Exemption.

Audit

An examination of tax returns by the IRS.

Revenue

Incoming taxes, which are treated as income by the government, are called Revenue.

Itemized Deductions

Expenses that can be subtracted from adjusted gross income to determine your taxable income.

Regressive Tax

A Regressive tax allows a higher-income person to pay a lower percentage of income in taxes than a lower-income person.

Tax Credit

A Tax Credit is an amount subtracted directly from tax owed.

Voluntary Compliance

A tax system that is based on Voluntary Compliance requires all citizens to be responsible for preparing and filing their tax returns on time and paying taxes due.

Progressive Tax

A tax that increase in proportion to increase in income is known as a Progressive tax.

Proportional Tax

A type of tax for which the rate stays the same regardless of income is called Proportional Tax.