5170 CH 4

Character of income

A type of income that is treated differently for tax purposes from other types of income

From AGI deductions

Deductions subtracted from AGI to calculate taxable income

Adjusted gross income (AGI)

Gross income less deductions for AGI

Gross income

Realized income minus excluded and deferred income

Taxable income

The tax base for the income tax

If an individual qualifies as a dependent of another taxpayer, which of the following statements is true? a. He may not claim a personal exemption on his own tax return b. He must file his income on the tax return with the taxpayer who is claiming the dependency exemption c. He is not required to file a tax return on his own regardless of his income level d. He may not use a standard deduction on his own tax return

A

Which of the following criteria is not necessary to qualify as a dependent of another taxpayer? a. Must be unmarried for at least a portion of the year b. Must not file a joint return unless there is no tax liability on the couple's tax return c. Must be considered either a qualifying child or a qualifying relative d. Must be a citizen of the US or a resident of the US, Canada, or Mexico

A

All-inclusive income concept

A definition of income that sat that gross income means all income from whatever source derived

Standard deduction

A fixed deduction offered in lieu of itemized deductions. The amount depends on the taxpayer's filing status

Abandoned spouse

A married taxpayer who lives apart from his or her spouse for the last six months of the year, who files a tax return separate from his or her spouse, and who maintains a household for a qualifying child

Tax rate schedule

A schedule of progressive tax rates and the income ranges to which the rates apply that taxpayers may use to compute their gross tax liability

Preferential tax rate

A tax rate that is lower than the tax rate applied to ordinary income

Deductions

Amounts that are subtracted from gross income in calculating taxable income

Qualifying relative

An individual who is not a qualifying child of another taxpayer and who meets a relationship, support, and gross income test and thus qualifies to be a dependent of another taxpayer

Qualifying child

An individual who qualifies as a dependent of a taxpayer by meeting a relationship, age, residence, and support test with respect to the taxpayer

Itemized deductions

Certain types of expenditures that Congress allows taxpayers to deduct as from AGI deductions

Which of the choices below is not one of the tests that must be met to qualify as a qualifying child? a. Residence b. Relationship c. Age d. Gross income e. Support

D

Which of the following statements is true regarding the individual income tax formula? a. A taxpayer may deduct the greater of his standard deduction or his personal exemption from AGI to arrive at adjusted gross income b. A taxpayer may deduct the greater of his standard deduction or his itemized deductions for AGI to arrive at adjusted gross income c. A taxpayer may deduct the greater of his standard deduction or his personal exemption from AGI to arrive at taxable income d. A taxpayer may deduct the greater of his standard deduction or his itemized deductions from AGI to arrive at taxable income

D

For AGI deductions

Deductions subtracted from gross income to determine AGI

For tax years prior to 2018, a taxpayer's from AGI deductions include the personal and dependency _____ amounts plus the greater of the standard deduction or the taxpayer's _____ deductions

Exemption, itemized

Expenses such as alimony paid for divorces finalized before 1/1/2019, student loan interest, contributions to qualified retirement accounts, and business expenses for self-employed persons are deductions _____ AGI.

For

Deductions above the line

For AGI deductions or deductions subtracted from gross income to determine AGI

Deductions below the line

From AGI deductions or deductions subtracted from AGI to calculate taxable income

Tax table

IRS-provided tables that specify the federal income tax liability for individuals with taxable income within a specific range

Realized income

Income generated in a transaction with a second party in which there is a measurable change in property rights between parties

Preferentially taxed income

Income taxed at a preferential rate such as long-term capital gains and qualified dividends

Tax credits

Items that directly reduce a taxpayer's tax liability

Filing status

Places taxpayers into one of five categories by marital status and family situation as of the end of the year. Determines whether a taxpayer must file a tax return, appropriate tax rate schedules, standard deduction amounts, and certain deduction and credit limitation thresholds

Examples of a tax _____ include income taxes withheld from a taxpayer's salary by an employer, estimated tax payments paid directly to the IRS, and amounts from a prior year overpayment that were applied to the current year's tax liability.

Prepayment

Dividends from corporations that meet certain requirements may be taxed at a favorable rate. These dividends are referred to as:

Qualified dividends

Estimated tax payments

Quarterly tax payments that a taxpayer makes to the government if the tax withholding is insufficient to meet that taxpayer's tax liability

Exclusions

Realized income that is exempted from income taxation

Deferrals

Realized income that will be taxed as income in a subsequent year

Self-employment taxes

Social Security and Medicare taxes paid by the self-employed on a taxpayer's net earnings from self-employment

Withholdings

Taxes collected and remitted to the government by an employer from an employee's wages

Legislative grace

The concept that taxpayers receive certain tax benefits only because Congress writes laws that allow taxpayers to receive the tax benefits