PFP 105 Chapter 4

The two portions of FICA are

Social security taxes, which are used to make payments to retirees, and Medicare taxes, which are used to provide payments to health care providers in thee case of illness

List some common types of tax credits

-earned income credits and adoption credits. -child credits, college expense credits, and earned income credits. Other credits include tax credits for child care and adoptions.

The following would be included in gross income

-included salaries, interest income, divided income, capital gains, and income from a bisness. Also included tips, prizes and awards, rental property, and scholarship that exceed tuition fees and book costs. -excluded from gross income are health and casualty insurance reimbursements, child support payments received, reimbursements of moving expenses and other expenses by an employer, veteran's benefits, and welfare benefits.

itemized deductions ___ exceed the standard deduction

-may -Taxpayers typically work through the process of itemizing their deductions and then compare the total itemized deductions to the standard deduction. The taxpayer will choose the higher of the two amounts.

According to the IRS, gross income is all reportable income from any source including

-prizes and awards, capital gains, scholarships that exceed tuition fees and book costs -salaries, interest income, divided income, capital gains, and income from business. Also included are tips, prizes and awards, rental property, and scholarships that exceed tuition fees and book costs

The five filing statuses are

-single-not married and no dependents -married filing jointly- married and filing on the same return -married filing separately- married and filing different returns -head of household-single but providing care for dependent -qualifying widow or widower- lost spouse and caring for a dependent child

itemized deductions might include

-state taxes and real estate taxes -medical expended, interest expense, state taxes, real estate taxes, charitable gifts,, and certain other expenses (such as causalities or theft).

Some types of payments that you might receive that would not be included in gross income are

-veteran's benefits, reimbursements of moving expenses, and welfare benefits -health and causality insurance reimbursements, child support payments received, reimbursements of moving expenses and other expenses by an employer, veteran's benefits, and welfare benefits.

What does FICA stand for and who pays FICA

Federal Insurance Contributions Act and these taxes are paid equally by the employer and the employee

Taxable income is calculated as

adjusted gross income less either the standard or itemized deductions and less the total exemptions

A standard deduction is

fixed amount of deduction from adjusted gross income to determine taxable income

it is important to understand the tax consequences of your financial decisions because it can help you

minimize tax liability and ultimately increase your level of wealth

A Long-tern capital gain occurs when the asset is held for _ than a year

more than

capital gains occur when individuals

purchase financial assets (such as stocks or bonds) and then sell them for a gain

itemized deductions are

specific expenses that can be deducted to reduce taxable income

Your filing status affects

tax rates and standard deductions

the deduction

the amount of income you earned during the year, but varies according to your filing status

The distinction between short-tern and long tern capital gains is important because the capital gains tax is a maximum of

the capital gains tax is a maximum of 15 percent of the long term capital gain. Short-term capital gains are taxed as ordinary income

How are FICA taxes for self- employed individuals handled?

you pay both the employer and the employee portion of FICA. Therefore, the FICA taxes of self-employed individuals are 15.3 %. One half of the FICA taxes paid by self-employed individuals is tax-deductible.