Perfi chapter 10 study guide

A 1040 Schedule A Form is required in any year you choose to itemize your deductions.

Schedule A

How do you calculate how much income tax you owe?

Take gross income and subtract tax deductions

A tax credit is an amount of money a taxpayer can subtract from the taxes they owe. ​​​​​​​

Tax credit

Tax Day is April 15th.

Tax day

A tax refund payment to the taxpayer has paid more tax than they owed.

Tax refund

A tax return is the completion of documentation that calculates an entity or individual's income earned and the amount of taxes to be paid to the government or government organizations or, potentially, back to the taxpayer.

Tax return

Taxable income is your adjusted gross income (AGI) minus any itemized deductions or your standard deduction.

Taxable income

What are some examples of tax credits?

health insurance premium tax credit; american opportunity tax credit; lifetime learning credit; earned income credit; child and dependent

Sales tax is paid to a governing body for the sales of certain goods and services.

Sales tax

Form 1040 is the basic form used for personal income tax returns filed with the IRS.

1040

A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.

Regressive

What is a standard deduction? And how do you decide if you need to use it?

A standard deduction is the portion of income not subject to tax that can be used to reduce your tax bill. All tax filers can claim this deduction unless they choose to itemize their deductions.

Adjusted gross income is an individual's total gross income minus specific deductions.

Adjusted gross income

Capital gains tax is a tax on the positive difference between the sale price and the value of a gift when it was inherited​​​​​​​.

Capital gains tax

Consumption tax is imposed on consumption spending on goods and services.

Consumption tax

An excise tax is a tax on the production, sale, or consumption of a commodity

Excise tax

FICA (Federal Insurance Contributions Act) is payroll taxes used to fund Social Security and Medicare.

Fica

Gross income

Gross income is the sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before any deductions or taxes.

Gross pay is a person's total earnings before payroll taxes and other deductions are taken out.

Gross pay

A Head of household is legally single, pay more than half of household expenses, and has either a qualified dependent living with you for at least half the year or a parent for whom you pay more than half their living arrangements.

Head of household

How do you calculate the sales tax when the local tax rate is given?

Sales tax = List price x Sales tax rate

How do you calculate deductions on the W-4 Form?

Here's your rule of thumb: the more allowances you claim, the less federal income tax your employer will withhold from your paycheck (the bigger your take-home pay). The fewer allowances you claim, the more federal income tax your employer will withhold from your paycheck (the smaller your take-home pay).

The IRS.GOV is an agency of the federal government and the official US government website

IRS.GOV

A luxury tax is a tax on luxury goods: products not considered essential

Luxury tax

Net pay is a person's earnings after payroll taxes and other deductions are taken out

Net pay

A progressive tax is a tax in which the tax rate increases as the taxable amount increases.

Progressive

Property taxes are paid by anyone who owns the property, such as land, a home, or commercial real estate ​​​​​​.

Property tax

How do you find information on a W-2 Form?

The quickest way to obtain a copy of your current year's Form W-2 is through your employer. Your employer first submits Form W-2 to SSA; after SSA processes it, they transmit the federal tax information to the IRS.

A W-2 (Wage and Tax Statement) Form is used to report wages paid to employees and taxes withheld from their wages; should be completed by the employer for each employee on or before January 31 of each year.

W-2

A W-4 Form is an IRS form that you complete to let your employer know how much money to withhold from your paycheck for federal taxes.

W-4

What is the difference between wages and salary?

Wages are money paid by the hour and for an agreed number of hours per week; especially for unskilled or manual labor​​​​​​​. A salary is a fixed annual amount earned by an employee, typically paid weekly, biweekly, or monthly​​​​​​​. Wages are variable, salaries are fixed.

Withholdings are the money an employer legally has to withhold (take out, deduct) from an employee's earnings, and it is sent to the city, state, and federal governments; this money is applied toward the amount of money an employee will owe the government agency when income taxes are filed.

Withholding

Why is a large tax refund bad?

You overpaid taxes during the year and the IRS is just returned that overpayment to you without interest.