Ch. 3 Personal Finance

gross income reduced by certain adjustments, such as contributions to an individual retirement account (IRA) and alimony payments

AGI; adjusted gross income

which type of audit is the least complicated for taxpayers

a correspondence audit (mail)

which of the following would qualify a person for an exemption when computing taxable income?

a dependent; allowance; exemption

which of the following people is least likely to file a federal income tax return?

a person earning less than 8,000

Kelly Vernon wants her tax return prepared by a government approved tax expert, who should she go to?

an enrolled agent- IRS

a deduction from adjusted gross income for yourself, your spouse, and qualified dependents is...

an exemption

total tax due divided by taxable income

average tax rate

an example of an itemized deduction is...

certain job-related travel expenses

money received by an individual for personal effort is...

earned income ( wages, salary..etc)

the Roth IRA differs from the regular IRA in that...

earnings on the account are tax free after five years

a tax imposed on specidic goods and services, such as gasoline, cigarettes, alcholoic beverages, tires, and air travel

excise tax

an amount not included in gross income

exclusion

a general sales tax is also referred to as an excise tax

false; a luxury

interest is paid on credit cards and charge accounts may be deducted for taxes purposes

false; absolutely NOT

tax avoidance refers to illegal actions to reduce one's taxes

false; tax AVOIDANCE

the main purpose of taxes is to...

generate revenue for funding government programs (schools, hospitals, etc.)

taxable income is used to compute a person's...

income tax

a tax levied on the value of a property bequeathed by a deceased person

inheritance tax

money received in the form of dividends or interest is...

investment income; also called portfolio income

expenses that can be deducted from the AGI, such as medical expenses, real estate property taxes, home mortgage interest, charitable contributions, causality losses and certain work-related expenses

itemized deductions

the rate used to calculate tax on the last (and next) dollar of taxable income

marginal income

the "head of household" filing status is for people who are...

not living with a spouse and have dependent children

earnings from a limited partnership (business activities in which you inactively participate in) would be an example of...

passive income

a set amount on which no taxes are paid

standard deduction

a detailed examination of your tax return by the IRS

tax audit

an amount subtracted directly from the amount of taxes owed

tax credit

an amount subtracted from AGI to arrive at taxable income

tax deduction

income that will be taxed at a later day

tax deferred income

tax deferred retirement plans are a type of.. .

tax shelter

an IRA, Keough plan, and 401k plans are examples of...

tax-deferred retirement plans

the net amount of income, after allowable deductions, on which income tax is computed

taxable income

a person's filing status is affected by marital status and dependents

true

a tax credit is an amount subtracted directly from the amount of taxes owed

true

an ESTATE TAX is imposed on the value of an individual's property at the time of his or her death

true

an office audit requires that a tax payer visit an IRS office to clarify some aspect of his or her tax return

true

capital gains refer to profits from the sale of investments (profits from the sale of a capital asset such as stocks, bonds, or real estate)

true

real-estate property taxes are a major source of revenue for local governements

true

parents can reduce their taxes by...

using a child-care tax credit