Personal Finance chapter 3
is the practice of using various legal strategies to reduce one's tax liability. It's legal. (slide 38)
Tax avoidance
what is income remaining after subtracting allowable adjustments to income from gross income? what is a use of this term? (slide 24)
adjust gross income -limit certain itemized deductions and other calculations
what is the role of the IRS? (slide 5)
administering and enforcing federal tax laws
when are standard and itemized deductions from AGI made? (slide 26)
after you can conduct standard and itemized deductions from AGI
what is the first rule of finding gross income? what are the steps in determining adjust gross income? (step A) (slide 16)
all gross income is subject to federal taxes 1) adjust including: -tax-deducts expenses -retirement contributions 2) find AGI (adjust gross income) gross income - adjustments
the difference between the sale price and the cost basis of the asset? (slide 20)
gain or loss
a review of tax returns to prove its accuracy with regards to proper reporting of income and deductions. taxpayers can be notified that they are subject to filling after a number of years. (slide 36, HW problem 7)
tax audits
subtracts from amount of taxes owed. (slide 32)
tax credits.
income that allows you to reduce or eliminate taxes today by postponing them to sometime into the future after retirement. Give some examples of these incomes. (slide 39)
tax-deferred. -IRAs and 401K plans.
how are short-term capital gains taxed? (slide 22)
taxed same as ordinary income.
the dues paid for membership in our society, the cost of living in this country (slide 5)
taxes
The amount of allowable, deductible expenses associated with portfolio and passive income is determined by what? (slide 19)
the amount of income derived from these two sources
these individual are beast for complex tax situations which may involve court. (HW problem 6)
tax attorneys.
a deductions from AGI based on the number of persons supported by taxpayer's income. (slide 30)
exemptions.
where do adjustments occur on the 1040? (slide 25)
first page.
Certain professional service businesses are not allowed the deduction. What is the minum ranged of income to allow for deductions? (slide 29)
-157,500 single -31500 joint.
tax payments that must be made by persons earning income from sources that are not subject to withholding taxes. what are these taxes based on? (slide 35)
-Estimated taxes -The taxes are based upon estimated earning for the year. Quarterly payments are due 4/15, 6/15, 9/15 and 1/15 of the following yea
what are examples of other filing considerations? (slide 35)
-Quarterly payment of estimated taxes -April 15 filing dead line -filing extensions -amended returns 1040x -audited returns
what are the these types of individual incomes? (slide 19)
-active income -portfolio income -passive income
what are some examples of tax credits? how can you receive a tax credit? (slide 32)
-adoptions tax credits -credit for the elderly or the disabled -qualified college deductions expenses -retirement savings credits -credit for qualified plug-in electric vehicles -taxpayers must file a return along with a separate schedule in support of the tax credit claimed.
how does amending returns works? (slide 35)
-by filling a 1040x (if you made an error or mitted a deduction on your return.) -have three years from the date you file your original return or 2 years from the date you paid taxes
what are examples of gross income that is tax exempted? (slide 18)
-child support payments received -municipal bonds interest
what examples of things that can be subtracted from gross income? adjustment to gross income. (slide 25)
-educators expenses (limited) -higher education cost, which include tuition, fees, books, and related expenses -IRA contributions (limited) -self-employment taxes paid (limited to 50 % of the amount) -self-employed health insurance payments.
what if FICA? what are the two parts of FICA? (slide 13)
-federal insurance contribution act -social security and Medicare
what are some examples of itemized expenses? (slide 27)
-medical, dental expenses -state, local, foreign income and property taxes -mortgage interest -charitable contribution -causally and theft losses
what are the types of taxes? (slide 5)
-purchases (Sale tax, taxes on certain goods) -property (property or personal tax) -wealth (federal estates tax) -earnings (income, social security taxes)
what are examples of other taxes? (slide 16)
-self-employment taxes -penalties on the early distribution from retirement accounts
what are the five filing statuses for taxes? (slide 11)
-single -married filing jointly -married filing separate -head of household -surviving spouse
Homeowners receive special tax treatment on the sale of a home. Explain the advantages of selling a house as a homeowner. what are the requirements? (slide 23)
-single taxpayer can exclude from income the first $250,00 of gains -married $500,000 Requirements: -lives at least 2-5 years prior to sale -exclusions available on only one sales every two years
amount of income subject to taxes? (slide 15)
-taxable income
what is your tax filing based on?
-the martial and family situation as of December 31st of your tax year.
what are some common forms of gross income? (slide 18)
-wages and salaries -bounces, commissions, and tips -interest and dividends received -alimony received before 2019, -business and farm income -gains from the sale of assets -income from pensions and annuities -income from rents and partnerships -prizes, lottery, and gambling winnings.
on the other hand, refers to illegal means of reducing taxes, such as underreporting income or overstating deductions. This is illegal and could result in civil penalties and/or criminal penalties or imprisonment. (slide 38)
.Tax evasion
what are the steps in finding the tax liability? (single taxpayer rate) (slide 9, HW problem 2)
1) take the first income amount and find it's tax bracket. then multiply by its tax bracket. 2) subtract the next income by the previous income amount and multiply by the next income amount's tax bracket. Continue this until you reach the taxable income amount (replace the final tax bracket) 3) add up the difference of each tax bracket to get tax liability.
what is the difference between a 1040 and a 1040SR form? (slide 34)
1040: anyone can file 1040SR: seniors over 65 can file
what is the percentage of allowed deductions for business incomes between the year 2018 to 2025? (slide 29)
20%
how long will there be no deductions for personal or dependent exemptions from 2018 to 2025? (slide 30)
2018 to 2025
what is the maximum amount of net loss that could be deducted from an active income? (slide 20)
3000
what are the basic steps in finding your taxable income and total tax liability owed? (slide 15)
A) determine adjusted gross income B) calculate taxable income C) calculate tax liability
how do you find taxable income? what should you do after finding the taxable income? (slide 31)
AGI - itemized deductions or standard deductions. -use the tax rate tables to find the amount of taxes you own.
what is the deadline for individual tax returns? what does the extension apply for? (slide 35)
April 15th. -have you 6-months extensions by filling the 4868 forms, not extension to pay.
how can taxpayer maximize deductions? give an example. (slide 39)
accelerating or bunching their deductions into one tax year. EX: paying for net years property taxes early in order to be able to count both this years and next years. This is advantages because itemize deductions for at least one year versus having to take the standard each year
income earned on the job: alos includes most other forms of noninvestment income. (slide 19)
active income
what rate at which each dollar of taxable income is taxed on average. How is this calculated? (slide 10)
average tax rate -tax liability / taxable income
why is tax filing important? (slide 11)
because it determines the: -amount of your standard deductions, -the tax rate table used, -if you are required to file a return
profits or losses made on the sales of an assets such as stocks, bonds, or real estate investments. (slide 20)
capital gains or loss
these individuals can provide ongoing tax advice and can suggest tax-saving strategies. In addition, some focus in a specialty area of tax. (HW problem 6)
certified public accountant or CPAs
how do employees determine their withholdings for federal, state and local taxes? (slide 13)
completing a form 2-4 for the employer, based on: -number of allowances they are allowed -the level of their earning
what is the difference between deductions and tax credits? (slide 32)
deductions: lowers your taxable income (subtracts from AGI sand reduce taxable income) Tax credits: dollar for dollar reductions of tax (directly reduce amount of taxes owed)
individual federally licensed to assist individuals with tax preparation at various levels of complexity. (HW problem 6)
enrolled agents
is a deductions from AGI for yourself, your spouse, and qualified dependents. (slide 16)
exemption
the total of all of a taxpayer's income subject to federal taxes. (slide 18)
gross income
what are the detailed steps in find your tax income and total tax liability owed? (slide 16, HW problem 5)
gross income -adjustments to gross income adjusted gross income -larger of itemized deductions or standard ductions -total personal exemptions taxable income (then use tax table for next step) -tax credits +other taxes total tax liability
filing category in which single taxpayer who provides a household or qualifying person (a dependent or a relative other than cousins) (slide 11)
head if household
techniques fore reducing taxes by shifting some income to a family member in a lower tax bracket. How is this done? (slide 39)
income shifting -creating trust or custodial accounts or making outright gifts of income-producing property to family members.
a type of tax levied on taxable income by the federal government and by many states and local governments. a major of revenue for the federal government. (slide 7)
income taxes
what is something that is considered tax-free? (slide 39)
municipal bonds. (could be still subject to state or local taxes, and can be taxed by capital gains if sold)
these are national services are as H&R block and independent local firms. These services are best for taxpayers with relatively common types of income and expenditures. (HW problem 6)
national and local tax services
what is taxable income based on? (slide 16)
is the basis for the amount of your income tax
what are the two types of capital gain? define both. (slide 22)
long-term: gain from sale of property held more than one year Short-term: gain from sales of property held less than one year.
give examples of capital gains taxes that are not deductible? (slide 20)
losses on personal assets such as house, car, our boat.
the tax rate you pay on the next dollar of taxable income. How do you find this rate? (slide 10)
marginal tax rate. Find the rate by the tax bracket it falls into.
filing category in which taxpayer are married on the last day of the year and elect to file joint return. When a joint returned is filed, both taxpayers are liable for the tax. (slide 11)
married filing jointly
filing category in which each spouse files their own return and they are only liable for their tax (slide 11)
married filled seperate
what is the objective of tax planning? (slide 6)
maximize the amount of money that you can keep by legally minizine the amount of taxes you pay.
a special category that includes income delivered from real estate limited partnerships, and other forms of tax shelters. (slide 19)
passive income
earnings generated from most types of investment holdings (slide 19)
portfolio income
a tax structure in which the larger the amount of taxable income, the higher the rat at which it is taxed (slide 7)
progressive tax structure.
what is tax credits? (slide 16)
reduces one's tax liability.
What is the pay-as-you-go system? how does it work for self-employed? (slide 13)
required federal tax withholding from each paycheck so that the total federal tax liability is not all due in one lump sum. -self-employed: pays taxes are normal
filing category in which the tax payer is unmarried (slide 11)
single
what is the minimum amount a person must file for tax returns. Both married and unmarried. (slide 11-12)
single: $12,000 married: $24,000
is a fixed amount based on filing status, age of the taxpayer, and if they are legally blind. How is this term adjusted? (slide 26, HW problem 4)
standard deduction -it is adjusted based changes in cost of living.
filing category in which for two years after the death of a spouse, the surviving spouse may use the joint rates if they have a dependent child living with them (slide 11)
surviving spouse
how are personal income taxes determined? (slide 7)
they are scaled by progressive rates
how are capital gains taxed? (slide 20)
they are taxed depending on the holding period of the assets.
what is the formula for finding the itemized deductible? (slide 28)
unreimbursed expense - (AGI * % of unreimbursed expenses)
