BSAD 009 Exam 2
What is the difference between the marginal income tax rate and the average tax rate?
- Marginal income tax rate: used to calculate tax on the last (and next) dollar of taxable income (Comes in 10, 15, 25, 28, 33, 35 and 39.6 percent rates) - The average tax rate is based on the total tax due divided by taxable income
How does the minimum monthly payment work?
- Minimum monthly payment is the smallest amount you can pay and remain a borrower in good standing - If you are paying only the minimum amount on your monthly statement, you need to plan your budget more carefully. The longer it takes for you to pay off a bill, the more interest you pay
Debt-to-income ratio. What is the general rule of thumb here?
- Monthly Debt / Net Monthly Income - Do not exceed 20% of net income on consumer credit payments.
Open end versus closed end credit.
- Open end credit: using credit cards and overdraft protection - Closed end credit: specific purpose and amount (car or mortgage loans)
What is the standard deduction?
- Standard deduction: a set amount on which no taxes are paid - Single people receive a standard deduction of $6,350 (married couples filing jointly receive $12,700). Blind people and individuals 65 and older receive higher standard deductions.
What is Tax Freedom Day?
- Tax Freedom Day: the time that elapsed from January 1 until mid-April represents the portion of the year people work to pay their taxes. - Happened in mid-April in recent years
What is the annual percentage rate (APR)?
- The annual percentage rate (APR) is the percentage cost (or relative cost) of credit on a yearly basis. - Suppose you borrow $100 for one year and pay a finance charge of $10. If you can keep the entire $100 for one year and then pay it all back at once, you are paying an APR of 10 percent.
How does a rent to own center work?
- The rent-to-own (RTO) industry is defined as stores that lease products to consumers who can own the item if they complete a certain number of monthly or weekly payments. - A $600 computer can result in $1,900 of payments. Many RTO purchases can result in annual interest rates of over 300 percent.
What should you do to combat data theft?
- Use a secure browser. - Keep records of your online transactions. - Review your monthly bank and credit card statements. - Read the privacy and security policies of websites you visit. - Keep your personal information private. - Never give your password to anyone online. - Don't download files sent to you by strangers.
What are Credit Reports & Credit Bureaus?
- Credit reports are a record of your complete credit history - A Credit Bureau is an agency that collects information on how promptly people and businesses pay their bills (Experian, TransUnion, Equifax)
What is a debit card and what is a prepaid debit card?
- Debit card: A bank card that automatically deducts the amount of a purchase from the checking account of the cardholder. - Prepaid Debit Card: An alternative to traditional debit cards that are tied to a checking account, prepaid debit cards are typically tied to a direct deposit or a savings account. These cards charge monthly fees and/or usage fees and do not report payments to the credit reporting companies.
How can you improve your credit score?
- Ensure your credit report is accurate - Pay bills on time - Understand how your credit score is determined - Learn legal steps to improve your credit - Beware of credit repair scams
What does FICO stand for and what are FICO Scores?
- FICO: Fair Isaac and Company - FICO scores are a number generally between 350 and 850 that rates how risky a borrower is
What does FDIC stand for? How much does it insure per depositor per financial institution?
- Federal Deposit Insurance Corporation (FDIC) coverage prevents a loss of money due to the failure of the insured institution. - The FDIC insures amounts of up to $250,000 per depositor per insured financial institution.
What is the definition of liquidity?
- Liquidity allows you to withdraw your money on short notice without a loss of value or fees. - Some savings plans impose penalties for early withdrawal or have other restrictions.
The text lists these companies as the two most popular providers of online tax software.
H&R Block and TurboTax
What does the term "pay yourself first" mean?
Before you pay your bills, before you buy groceries, before you do anything else, set aside a portion of your income to save.
What is a certified check? When would you need to use one?
Certified Check: a personal check with guaranteed payment. The amount of the check is deducted from your balance when the financial institution certifies the check.
What does co-signing a loan mean?
Cosigning a loan means that you agree to be responsible for loan payments if the other party fails to make them.
Who must file an income tax return?
Every US citizen who has made over $10,000
What is a money market fund?
Money market fund: a fund that pools money from small savers to purchase short-term government and corporate securities (not secure but high interest)
What is the difference between a checking account and a savings account?
- Saving Account: bank account that earns interest - Checking Account: A bank account from which payments can be ordered by a depositor
What is a W-2 form? Form 1099?
- W-2 form: where you report income from employment - Form 1099: one of several IRS tax forms used in the United States to prepare and file an information return to report various types of income other than wages, salaries, and tips.
What are the 4 frequent mistakes when managing daily money needs?
1. Overspending due to impulse buying and overusing credit 2. Having insufficient liquid assets to pay current bills 3. Using savings or borrowing to pay for cur- rent expenses 4. Failing to place funds not needed for current expenses in a savings account or investment plan.
7 Baby Steps to Financial Success
1. Save $1,000 (emergency fund) 2. Start the debt snowball 3. Finish emergency fund (3-5 months of expenses) 4. Invest 15% of gross salary for retirement 5. Save for college 6. Pay off your Home Mortgage 7. Build additional wealth (low cost mutual funds)
What are the 4 types of taxes?
1. Taxes on Purchases 2. Taxes on Property 3. Taxes on Wealth 4. Taxes on Earnings
How many states do not have a state Income tax?
7 States
What is a cash advance?
A cash advance is a loan billed to your credit card by using checks linked to your credit card account.
What is a payday loan? How does it work?
A relatively small amount of money lent at a high rate of interest on the agreement that it will be repaid when the borrower receives their next paycheck.
What is form 1040?
A tax form used by people that have other types of income such as royalties, alimony, or prizes; also called the long form for people who make above $100,000
What is the annual percentage yield? How does it work?
The annual percentage yield is the percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365-day period. APY reflects the amount of interest a saver should expect to earn.
What is income tax withholding?
The pay-as-you-go system requires an employer to deduct federal income tax from your pay
What is a VAT tax?
VAT, Value Added Tax: adds a tax to a product for each stage in the manufacturing process
What is a certificate of deposit? How does it differ from a regular savings account?
- A certificate issued by a bank to a person depositing money for a specified length of time. - Earn a specific amount of return on a set amount of money.
What is Adjusted Gross Income? How is it computed?
- Adjusted Gross Income (AGI): Gross income reduced by certain adjustments. - These reductions, called adjustments to income, include contributions to an individual retirement account (IRA) or a Keogh retirement plan, penal- ties for early withdrawal of savings, and alimony payments
What does compounding mean?
- Compounded means that you would pay interest on top of your interest. - If you owe $100 on a credit card and you pay $2.00 in interest the first time, you would then be paying interest on $102.00 on your next payment instead of on $100.00. The interest would continue to rise.