Taxes investments and credit test
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127 Terms
What is gross pay?
Total earnings before taxes and deductions.
What is net pay?
The amount of money you take home after deductions.
Which is "take home pay"?
Net pay.
What are deductions?
Money taken out of your paycheck for taxes, benefits, etc.
What are common paycheck deductions?
Federal tax, state tax, FICA, health insurance, retirement contributions.
What is tax withholding?
Money your employer takes out for taxes.
Who determines tax withholding?
You (through the W-4 form).
How do you know if you withheld the right amount?
When you file taxes (refund or amount owed).
What is FICA?
Federal payroll tax.
What programs does FICA fund?
Social Security and Medicare.
Does Virginia have state income tax?
Yes.
How does your employer determine withholding?
Based on your W-4 and income.
Who runs the U.S. tax system?
The IRS.
What is a W-4?
A form to tell your employer how much tax to withhold.
What is a W-2?
A form showing yearly income and taxes withheld.
What is an I-9?
A form verifying employment eligibility.
What is a 1099?
A form for independent contractors income.
What is a 1040?
The main tax return form.
What is the tax cycle?
The yearly process of earning income and filing taxes.
What year is tax season based on?
The previous year’s income.
When do you receive a W-4?
When you start a job.
When do you receive a W-2?
January (end of tax year).
When is Tax Day?
April 15 (usually).
When is the extension deadline?
October 15.
What is the standard deduction?
A fixed amount you subtract from income.
What is itemized deduction?
Listing specific deductible expenses.
What do most Americans choose?
Standard deduction.
What is taxable income?
Income after deductions.
How do tax brackets work?
Higher income is taxed at higher rates in portions.
What is a progressive tax?
Tax rate increases as income increases.
What is a proportional tax?
Same rate for everyone.
What is a regressive tax?
Takes a larger % from low-income earners.
Who is a dependent?
Someone financially supported by another.
Who is self-employed?
Someone who works for themselves.
Who is a household employee?
Someone paid to work in a home (babysitter, etc.).
Do dependents pay federal tax?
Sometimes, if income is high enough.
Do self-employed pay federal tax?
Yes.
Do household employees pay federal tax?
Yes (depending on income).
What is a tax deduction?
Reduces taxable income.
What is a tax credit?
Reduces taxes owed directly.
Downside of large refund?
You gave the government an interest-free loan.
Ways to file taxes?
Online software, tax professional, paper filing.
What is an ad valorem tax?
Tax based on value (like property tax).
What is saving vs investing?
Saving = low risk, investing = higher risk for growth.
Ways to reduce investment risk?
Diversification, long-term investing, asset allocation.
What is a brokerage account?
Account to buy investments.
Where to get a brokerage account ?
Firms
What is a 529 Plan?
College savings plan with tax benefits.
What is a Series EE Bond?
Government bond that doubles in value over time.
Who sells EE bonds?
U.S. Treasury.
How long to double?
About 20 years.
What is a Series I Bond?
Bond with inflation-based interest.
What is compound interest?
Earning interest on interest.
What is Rule of 72?
72 ÷ interest rate = years to double.
What is a stock?
Ownership in a company.
What is an IPO?
First time a company sells stock publicly.
What is the stock market?
Where stocks are bought and sold.
What is NYSE?
Large, physical stock exchange.
What is NASDAQ?
Electronic stock exchange.
What is diversification?
Spreading investments.
What is asset allocation?
How you divide investments.
What is dollar-cost averaging?
Investing fixed amounts regularly.
Why use dollar-cost averaging?
Reduces risk of timing market.
Ways to make money from stocks?
Dividends and selling for profit.
Why do companies sell stock?
To raise money.
Risk of one stock?
High risk if company fails.
What drives stock prices?
Supply, demand, company performance.
What is large cap?
Big company with high market value.
How to check stock performance?
Financial websites/apps.
What is the Dow Jones?
Index of 30 major companies.
What is the S&P 500?
Index of 500 large companies.
Bull vs bear market?
Bull = rising, Bear = falling.
Who owns most U.S. stocks?
Wealthy households.
What is a mutual fund?
Pooled investments managed by professionals.
Advantage of mutual fund?
Diversification.
What is an index fund?
Fund tracking a market index.
Advantage of index fund?
Lower fees.
Passive investing example?
Index funds.
Who manages active funds?
Fund managers.
ETF?
Tradable fund like a stock.
ETF vs mutual fund?
ETFs trade all day, mutual funds don’t.
What is a pension?
Employer-provided retirement income.
What is a 401(k)?
Employer-sponsored retirement plan.
What is an IRA?
Individual retirement account.
What is a Roth IRA?
Tax-free withdrawals in retirement.
401k vs pension?
401k depends on contributions, pension is guaranteed.
IRA vs employer plans?
IRAs are independent.
What is Social Security?
Government retirement program.
When created?
1935.
How does Social Security work?
Workers pay taxes to fund retirees.
Why concern?
Future funding issues.
Why invest early?
More compound growth.
When start investing?
As early as possible.
What is micro-investing?
Investing small amounts regularly.
What is credit?
Borrowing money to pay later.
Lenders to avoid?
Predatory/payday lenders.
Closed-ended credit?
Fixed payments (loan).
Revolving credit?
Reusable credit (credit cards).
What is APR?
Yearly interest rate.
Loan term?
Length of loan.