FIN 381 Chapter 4

purchase investment

Common goals related to tax planning are knowing tax law, maintaining tax records, and making ______ and _____ decisions reducing tax liability.

Average tax rate

Based on the total tax do divided by taxable income

marginal

A _____ tax rate is a rate used to calculate the tax on the last or next dollars of taxable income.

Tax audit

A detailed examination of your tax return by the Internal Revenue Service

deferred

A major tax strategy is the use of tax _____ retirement and education plans such as IRAs, Keogh plans, 401(k) plans and education savings accounts.

Income shifting

A process that attempts to reduce the taxable income of parents by shifting the ownership of investments to children in lower tax bracket's

credit

A tax _____ is subtracted directly from the amount of taxes owed.

deduction

A tax _____ is subtracted from adjusted gross income to arrive at taxable income.

Inheritance

A tax levied on the value of property bequeathed buy a deceased person.

tax-deferred retirement

A traditional IRA, Keogh plan, and 401(k) plan are examples of _____-_____ _____ plans.

529

A type of education savings plan that helps parents save for the college education of their children.

Keogh

A type of plan if you are self-employed and under own business for retirement a.k.a. HR 10 plan

Exclusion

An amount not included in gross income; aka tax exempt income

Tax credit

An amount subtracted directly from the amount of taxes owed

Tax deduction

And amount subtracted from adjusted gross income to arrive at taxable income

federal social

The two main types of federal taxes on wages and salary are _____ and _____ security.

losses

Capital _____ can be used to offset capitol gains and up to $3000 of ordinary income, may be carried forward into future years to offset

law

Common goals related to tax planning are knowing tax _____, maintaining tax records, and making purchase and investment decisions reducing tax liability.

records

Common goals related to tax planning are knowing tax law, maintaining tax _____, and making purchase and investment decisions reducing tax liability.

taxes

Deductible IRA's provide tax relief upfront as contributions reduce current _____.

Estate tax

Elizabeth Gleason just died. At the time of her death the total value of her assets was $150,000. The federal government collected $7,500 in taxes based on this value. What type of tax is this most likely to be?

Alternative minimum tax (AMT)

Ensures that those who receive tax breaks also pay their fair share of taxes

Itemized deduction

Expenses a tax payer is allowed to deduct from adjusted gross income such as medical and dental, state and local taxes, interest, contributions, casualty and theft losses, moving expenses, job-related

Home equity loan

For which types of credit plans is the interest tax deductible?

14,000

Gift amounts greater than $_____ are subject to a federal tax.

Enrolled agents

Government approved tax experts

Adjusted gross income (AGI)

Gross income after certain reductions have been made

Exemption

I deduction from adjusted gross income for your self, your spouse, and qualified dependents

Tax evasion

Illegal actions to avoid ones taxes

Tax exempt income

Income that is not subject to tax; aka exclusion

Tax deferred

Income that will be taxed at a later date

Tax shelter

Investments that provide immediate tax benefits and a reasonable expectation of a future financial return

federal income

Other types of income subject to _____ _____ tax included alimony, awards, lottery winnings, and prizes.

expenses

Itemized deductions are _____ that a taxpayer is allowed to deduct from adjusted gross income

Enrolled agent

Kelly Vernon wants her tax return prepared by a government approved tax expert. Which of the following tax preparers should Kelly use? Local tax preparer Enrolled agent Tax attorney CPA Nationally-certified tax preparer

Earned income

Money received for personal effort usually in the form of wages, salary, commission, fees, tips, or bonuses

Investment income

Money received in the form of dividends, interest, or rent from investments; also called portfolio income

Dependent

Must not earn more than a set amount unless he or she is under the age of 19 or is a full-time student under 24, you must provide more than half of their support, and they must reside in your home or be a specified relative while meeting certain citizenship requirements. This describes a _____.

shelters reduces

Owning a home is one of the best tax _____ as real estate property taxes and interest on the mortgage are deductible and _____ your taxable income.

1099

People with income from savings, investments, independent contracting, royalties, and lump sum payments from pensions or retirement plans have their earnings reported on Form _____.

Capital gains

Profits from the sale of a capital assets such as stocks, bonds, or real estate; are also tax deferred

indefinitely

Record such as copies of past tax returns and home ownership documents should be kept _____.

Capital gains

Refers to earnings from investments such as dividends or interest.

Passive income

Results from business activities in which you do not actively participate such as a limited partnership

Standard deduction

Set amount on which no taxes are paid

T

T/F: A tax credit is an amount subtracted directly from the amount of taxes owed.

T

T/F: Exemptions are deductions for yourself, your spouse, and qualified dependents that you can deduct from adjusted gross income.

F

T/F: The principal purpose of taxes is to control economic conditions.

T

Tax evasion is the use of illegal actions to reduce one's taxes.

reduce

Tax planners advise people to contribute as much as possible to a Keogh or 401(k) plan since the increased value of the investment accumulates on a tax-free basis until the funds are withdrawn and contributions _____ your adjusted gross income for computing your current tax liability

tables schedules

The first step in calculating your total tax due begins by using your taxable income with either tax _____ or tax rate _____.

property earnings

The major categories of taxes are on purchases, _____, wealth, and _____.

purchases wealth

The major categories of taxes are on______ , property, _____, and earnings.

Taxable income

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

third

The portion of income that usually goes toward taxes is one-_____.

Marginal tax rate

The rate used to calculate tax on the last and next dollar of taxable income; aka tax brackets

passive

The three components/categories of income are earned, investment, and ______.

investment

The three components/categories of income are earned,______ , and passive.

earned

The three components/categories of income are______ , investment, and passive.

Social security income

The two main taxes on wages and salaries are _____ _____ and _____.

quarterly

Those who make _____ deposits for estimated taxes must submit their payments by April 15, June 15, and September 15 of the current tax year with the final payment due by January 15 of the following year.

correspondence

Three types of audits are _____, office, and field.

office field

Three types of audits are correspondence, _____, and _____.

Personal Property tax

Tim Bridges owns a bass fishing boat. His state imposes an annual 3.25 percent tax on the current value of this boat. What type of tax is this most likely to be?

Tax avoidance

Use of legitimate methods to reduce ones taxes

Exclusion

Which one of the following is not included in gross income? Exemption Earned income Exclusion Portfolio income Tax credit

accelerate

You can _____ deductions by paying real estate property taxes, make your mortgage payment, or charitable donation before the years end.

three

You should keep tax records for _____ years from the date you file your return, but you may be held responsible for providing back up documentation up to six years.

Short term

_____ _____ Capital gains are taxed as ordinary income

Long term

_____ _____ Capital games will be taxed at a rate that is lower than ordinary income

Real estate property

_____ _____ _____ taxes are the major revenue source for local government.

Adjusted gross

_____ _____ income is income reduced by IRA contributions, alimony, and other adjustments.

estate

_____ tax is imposed on the value of a persons property at the time of his or her death.