CSR 103 Exam 1

credit vs. deduction

$100 tax credit reduces your taxes by $100 $100 tax deduction: amount of tax reduction is based on your tax bracket

Calculate Federal Income Tax

1. Determine AGI 2. Calculate Taxable income 3. compute taxes owed

taxable income

AGI amount minus personal exemptions and itemized deductions

financial plan

Advantages of a ___________ ________: -improves effectiveness with financial resources -increased control of financial affairs -sense of freedom from financial worries -improves personal relationships

specific, measurable, action-oriented, realistic, time-based

Effective Goals should be: S M A R T

global

Financial Planning in our Economy: ____________ Influences -US economy affected by foreign investors and competition from foreign companies -level of imports/exports affects available supply of dollars -level of foreign investment affects domestic money supply

filing

Five __________ Status Categories: -single, or legally separated -married, filing jointly -married, filing separately -head of household -widow/widower with dependent (2+years)

Domestic Influences in our economy

Money from providers goes to Financial intermediaries or financial markets, then to the users.

1-10

Most states' state income tax rate ranges from _________% -usually require income tax reports filed when federal income tax return is due

goal of paying taxes

Pay your fair share of taxes, but still take advantage of tax benefits to reduce it

strategy

Planning your Tax ____________: -know tax laws as they affect you -keep tax records -make purchase and investment decisions that reduce your tax liability

Federal reserve

Sets the nation's monetary policy to promote the objectives of maximum employment, stable prices, and moderate long-term interest rates -private organization

purchases

Taxes on _____________: -sales tax, excise tax

purchases, property, wealth, earnings

The four major types of taxes are taxes on your: 1. 2. 3 4

adjusted gross income (AGI)

Total gross income minus specific deductions Includes: -earned income, investment income, passive income, other income Subtracted: -exclusions -tax-deffered income -contributions to a IRA or Keogh -alimony payments tax shelter

exclusions, tax-deferred income

Total income is affected by 1. 2.

you

Ultimately, ____________ are responsible for providing complete and accurate tax information

time value

Ways to calculate the ________ ______ of money: -formula calculation -time value of money tables -financial calculator -spreadsheet software -widgits and apps

1

What if Return is Audited? -only ___% of returns are audited -more likely if you claim unusually large deductions

form

Which tax ________ to use? -1040EZ -1040A -1040 -depends on type of income, amount, number of deductions, and complexity of situation

liquid

______ asset: something you can convert to cash super fast with no risk to investment

bull

_______ market: prices going up

bearish

_________ market: prices going down

other

__________ income: -alimony, awards, lottery winnings, prizes

passive

__________ income: -results from business activities in which you do not directly participate, such as a limited partnership -where you only contribute money

records

__________ provide basis for: -handling daily business affairs (bill paying) -planning and measuring financial progress -completing required tax reports -making smart investment decisions

investment

___________ income: -money received in the form of dividends, interest, or rent from investments

earned

___________ income: -usually includes wages, salary, commissions, fees, tips, bonuses -from the 'sweat of your brow'

current

___________ liabilities are less than 1 year

Financial planning

____________ __________ in our economy involves: -domestic economic influences -global influences -inflation -interest rates

itemized

____________ deductions: -medical and dental expenses, taxes, interest, contributions, casualty and theft losses, moving expenses, job related or other expenses

successful

_____________ budgets are: -well planned, realistic, flexible, clearly communicated (3rd grade level)

property

_______________ taxes primarily fund schools and education in Indiana

financial plan

a formalized report that summarizes your financial situation, analyzes your financial needs, and recommends future financial activities

7

all but ______ states have a state income tax

tax deduction

amount of money subtracted from AGI to arrive at taxable income

tax credits

amount subtracted directly from the amount of taxes owed -foreign tax credits, adopting a child

exclusions

amounts excluded from gross income -also referred to as tax-exempt income -ex.) intérêt on most municipal bonds

financial intermediaries

banks, credit unions, insurance companies, investment companies, other financial institutions

users

borrowers, spenders -individuals, businesses, governments, foreign entities

insolvency

can't pay debts when due -liabilities far exceed debts

balance sheet

components of a ___________ __________: 1. Assets (liquid, real estate, personal possessions, investments) 2. current and long-term liabilities 3. compute your net worth

income statement (cash flow statement)

components of an _____________ ___________: 1. Record income (net income) 2. Record cash outflows (fixed & variable expenses) 3. Determine net cash flow

present value

current value of a future amount based on a certain interest rate and time period -current value of an amount desired in the future -discounting: How much to deposit now to obtain desired total in the future

money management

day-to-day financial activities necessary to manage current personal economic resources, while working toward long-term financial security -store info (now) -creating personal finance sheets -implementing a plan

deflation

decline in prices

risk premium

depends on: -length of time funds are in use -expected inflation -uncertainty

income statement

document that shows what you earn, spend, save -cash flow

balance sheet

document that shows what you own, owe, and what you're worth -net worth - assets-liabilities=networth

tax evasion

illegally not paying all the taxes you owe, such as not reporting all of your income -cash businesses sometimes do this

tax-deferred income

income that will be taxed at a later date, such as earnings from a traditional individual retirement account (IRA)

time value of money

increase in the amount of money as a result of the interest earned -saving today=more money tomorrow -spending today=lost interest

adult life cycle

involves life situation and personal values -marital status, household size, employment. -Major events: graduation, marriage, divorce, birth or death, adoption of a child, career or health changes

net worth

measurement of current financial position -does not equal cash available

payroll witholding

money automatically withheld of every paycheck based on the number of exemptions and the expected deductions claimed

exemptions

money subtracted from AGI -a deduction for yourself, your spouse, or qualified dependents -ex.) in 2014, it was $3950 per person

avoidance

practice tax__________________: -legitimate methods to reduce your tax obligation to your fair share but no more -financial decisions related to purchasing, investing, and retirement planning are the most heavily affected by tax laws

inflation

rise in the general level of prices -reduces buying power of the dollar -most harmful to those on fixed incomes

providers

savers, investors -individuals, businesses, governments, foreign entities

annuity

series of equal deposits at equal intervals earning a constant interest rate -ex. retirement savings

budget

spending plan -helps you: live within your income, spend money wisely, reach financial goals, prepare for financial emergencies, develop wise financial management habits

financial markets

stock markets, money markets, bond markets, commodity markets

wealth

taxes on _________: -federal estate tax (only applies above $5million) -state inheritance tax

earnings

taxes on __________: -income tax -social security

property

taxes on __________: -real estate property tax -personal property tax

interest rate

the cost of money -affected by supply and demand -major impact on financial planning

values

the ideas and principles you consider correct, desirable, and important

future value

the increased value of money from interest earned -amount to which current savings will increase -total amount available in future compounding: earning interest on your interest

financial planning

the process of managing your money to achieve personal economic satisfaction

tax table rates (marginal rates)

the tax rate paid on the last (or next) dollar of taxable income ex.) after deductions and exemptions, a person in 15% tax bracket pays 15 cents in taxes for every dollar of taxable income in that bracket

average tax rate

the total tax due divided by the taxable income -ex.) taxable income=$90,000 total tax bill=$14,219 Average tax rate= 15.8%

opportunity cost

what you give up when making a choice -trade-off decision -not always measurable in dollars: may be time -consider lost opportunities resulting from your decisions

hidden inflation

when inflation for different types of goods happens at different rates