Business - Chapter 18 &19 - Income and Taxes & Personal Banking

Personal finance management

a process used by individuals to manage limited income to meet personal unlimited needs and wants

Financially capable

means having the ability to understand basic topics related to finance

Financial decisions

affects by personal values, priorities, and goals

Use the decision making process…

…for financial decisions

Evaluate…

…trade-offs and opportunity

Earned income

the income received from employment or from self-employment

Wage

payment for work; calculated hourly, daily, or weekly

Minimum wage

the lowest hourly wage employers can pay most workers by law

Overtime wage

the amount paid for working time in a week that is beyond the standard 40-hour workweek

Salary

fixed payment for work expressed as annual figure

Commission

income paid as percentage of sales made

Tip

money paid for service beyond the payment that is required; *gratuity*

Bonus

money added to employee’s base pay

Self-employment income

Income earned by self-employed individuals

Payroll deduction

is a subtraction from gross pay

Allowance

 an amount of earnings not subject to income taxes

Net pay

gross pay minus payroll deductions

gross pay − payroll deductions = net pay

FICA taxes

paid by employee and employer to finance Social Security and Medicare programs

Federal, state, and local taxes are withheld from…

…gross pay

Other payroll deductions are…

…voluntary

Personal Budget

a financial plan to project earnings and show how they will be allocated

Steps in budgeting process

Set a Budget Period

List Estimated Income

List Estimated Expense

Track Spending

Compare

Set a Budget Period

Usually prepared monthly

List Estimated Income

Only include income available for current living expenses

List Estimated Expenses

Fixed expense and Variable expense

Fixed expense

equal in amount each budget period

Variable expense

can go up and down during the budget period.

Track Spending

Continuously monitor and record actual amounts

Compare

Compare budgeted and actual amounts at end of budget period.

variance

Difference between the amounts; can be *favorable* or *unfavorable*

Tax Return

a report containing information used to calculate taxes owed by the taxpayer

Must be filed no later than April 15

Form W-2 Wage and Tax Statement

shows earnings and tax deductions withheld during the year

Form 1040

Taxpayers with taxable income more than $100,000; *long form*

Form 1040A

Taxpayers with taxable income less than $100,000, no business income, no itemized deductions; *short form*

Form 1040EZ

Taxpayers with taxable income less than $100,000; simplest form to use

Gross income

includes earned and unearned income

Earned income

earnings from employment

Unearned income

earnings from sources other than work

Taxable income

the amount on which taxes are calculated

Tax deduction

an amount subtracted from adjusted gross income, which further reduces taxable income

Itemized deduction

an allowed expense that can be deducted from adjusted gross income

Standard deduction

a fixed amount that may be deducted from adjusted gross income

Exemption

an amount a taxpayer can claim for each person who is dependent on that person’s income

Personal exemptions

those claimed for the taxpayer or the taxpayer and spouse

Dependent exemptions

those claimed for children or other individuals supported by the taxpayer

Tax Credit

an amount that is subtracted from the taxes an individual owes, if eligible

Accuracy is…

…important

Personal information

Name, address, and Social Security number

Income

All taxable income and exemptions

Payments, Credits, and Tax

Tax withheld as reported on Forms W-2 and 1099, credits, and total tax

Tax Refund or Amount Owed

Resulting amount and payment information

Signature

Tax return must be signed to be processed

Sources of tax information and assistance

Internal Revenue Service (IRS)

Volunteer Income Tax Assistance (VITA) Program

Tax Counseling for the Elderly (TCE) Program

Tax attorneys and certified public accountants

Tax guides

Internal Revenue Service (IRS)

Annual booklets, recorded phone messages, website, and toll-free hotline

Volunteer Income Tax Assistance (VITA) Program

Tax help for lower income taxpayers

Tax Counseling for the Elderly (TCE) Program

Free tax assistance for those 60 years and older

Tax attorneys and certified public accountants

Specialize in tax matters and preparation

Tax guides

Published each year by various sources

banking products and services

the variety of products and services offered to customers by a financial institution

List of Banking products

1. checking account
2. Bank cards
3. savings plan

checking account

Allows owner to make deposits, write checks, and withdraw money

Bank cards

Debit and credit cards

savings plan

a strategy for using money to reach important goals and to advance financial security; *savings account*

Safe-Deposit Boxes

Vault storage for valuables

Loans

 Individuals borrow money to finance purchases

overdraft

a check written for an amount greater than the balance of the account. 

stop-payment order

a request to a financial institution to refuse to honor a check

Account payments

Overdraft Protection service

stop-payment order

Special payment services and list

Alternate ways of making payments; cashier’s checks, certified checks, money orders, and traveler’s checks

Banking services list

Safe-Deposit Boxes

Loans

Account payments

Special payment services

cashier’s check

special type of check that the bank guarantees to pay.

certified check

a personal check certified to be genuine with sufficient funds available

money order

payment order for a specific amount of money payable to a specific payee

traveler’s check

a special form of check that functions as cash

Online banking

Offers access to account and account information

Bill payments and money transfer between accounts

security and data integrity are a concern

mobile banking allows…

…banking transactions through an app

Electronic Funds transfer (EFT)

the movement of money electronically from one financial institution to another; direct deposit and automatic bill payments

Peer-to-Peer (P2P) payments

immediately transfer of money from one person to another

Automated teller machines (ATM)

can be used for certain account activities; requires bank-issued debit or ATM card

Three common types of checking accounts

basic checking account

interest-bearing checking account

lifeline checking account

basic checking account

User can deposit and withdraw money and write checks; minimum balance required

interest-bearing checking account

Money in account earns interest and user can write checks

lifeline checking account

Low minimum deposit and balance requirements; limited number of checks per month

To open a checking account, customer must…

…verify identity, fill out forms, and sign a signature card

deposit put money…

…into an account

endorsement

a signature on the back of a check; required to deposit a check

Checks must be written correctly to be…

…processed

Date check…

…is written

postdated check

written with a future date

payee

the person, business, or organization to whom the check is written

Other characteristics of a check

Amount of check in numbers

Amount of check in words

Reason for check payment

signature

Bank statement

a record of checks, ATM transactions, deposits, and charges on an account

Reconcile

means to compare the check register to balance the checking account

Actions of Reconcile

Compare canceled checks recorded

Compare deposits recorded

Verify transactions and fees

Check ATM transactions and deposits that have not year appeared on the statement

confirm debit card transactions

Subtract service charges

interest- bearing savings account

a type of demand deposit account that pays interest and allows for regular deposits and withdrawals

regular savings accounts pay…

…interest and allow deposits and withdrawals; *basic savings accounts*

high-yield savings account

an account that pays a higher interest rate than basic savings accounts

money market account (MMA)

a type of  savings account that requires a higher minimum balance than a regular savings account, but offers a higher interest rate

certificate of deposit (CD)

a savings account that requires a fixed deposit amount for a fixed period of time; not liquid

liquidity

refers to how easy it is to convert an asset into cash without losing value