Unit 3 Test Personal Finance

Ability to Pay Principle

Taxes should be paid according to levels of income, regardless of benefits received.

Wealthier individuals can afford to pay more without significantly impacting their standard of living.

Benefit Principle

Taxes should be paid based on the benefits received from government services.

• Tax on Gas goes to build roads, people who buy gas use roads

Progressive Tax:

Percentage of income paid in taxes rise as level of income rise

Proportional Tax (Flat Tax)

Percentage of Income paid in takes is the same regardless of level of income

Corporate Income Tax:

Tax on corporate profits

Individual Income Tax:

Tax levied on the wages, salaries, and other income of individuals

• Paid to the IRS and State Tax Board

IRS

Branch of Treasury department

• April 15 is the deadline for tax returns.

FTB

The Franchise Tax Board administers California's personal income and corporate taxes.

Tax returns

detail income and taxes owed; individuals with no income may not need to file.

Tax Loophole

Exceptions in tax law allowing avoidance of taxes, prompting annual IRS adjustments.

Property Tax

Tax on real estate and tangible assets; significant revenue source for local governments.

Estate Tax

Tax on property transfer upon death; currently applicable in only five states.

Sales Tax

Levied on products sold; varies by state and city.

Excise Tax

Imposed on specific goods like tobacco and alcohol to discourage consumption.

Sin Tax

High taxes on socially undesirable products; e.g., increased cigarette taxes in Canada reduced consumption.

User Fee

Charges for specific services, e.g., national park entry fees.

Customs Duty Tax

Tax on imported goods; tariffs are imposed on imports, not exports

Surcharge

: Additional tax on existing charges, e.g., processing fees.

FICA

Tax supporting Social Security and Medicare, levied on employers and employees.

FDIC

Protects public deposits in banks against failures, preventing bank runs.

Credit Unions

Non-profit financial institutions owned by members, offering savings and lo

Savings Account

Interest-bearing account for short-term needs.

Checking Account

Transactional account for daily spending

CD (Certificate of Deposit):

Low-risk time deposit with fixed interest for a specified period.

Wire Transfer

Secure electronic transfer of funds between bank accounts.

Cashier's Check

Bank-guaranteed payment drawn from the bank's funds.

Collateral

: Asset pledged as security for a loan.

Principal

: Original amount borrowed.

Interest

Cost of borrowing money, expressed as a percentage.

Interest Rate

Percentage charged for borrowing or paid for savings.

APR

Annual Percentage Rate, total yearly cost of borrowing including fees.

APY

Annual Percentage Yield, actual yearly return on investments including compound interest.

Currency

Standardized money system for transactions.

Legal Tender.

Official money recognized for settling debts

Balanced Budget

Revenues equal or exceed expenditures.

Budget Deficit

Spending exceeds revenue, requiring borrowing.

Deficit Spending

Intentional overspending to cover shortfalls.

Central banking

system of the U.S., ensuring a stable financial system.

Regulates monetary policy and oversees banking institutions.

APR

APY

Balance

Balance Budget

Barter Economy

Budget Deficit

Cashiers Check

Collateral

Certificate oif Deposit

Currency

Checking Account

Corporate Income Tax

Credit Card

Credit Union

Customs Duty

Debit Card

Deficit Spending

Deposit

Entitlement

Federal Reserve System

FDIC

FICA

FTB

Fiscal Year

Gift Tax

Individual Income Tax

Interest

Interest Rate

IRS

Legal Tender

Medium of Exchange

Minimum Balance

Monetary Unit

Overdraft

Principal

Property Tax

Proportional Tax

Progressive Tax

Savings Account

Sin Tax

Sales Tax

Surcharge

Tariff

Tax Loopholes

Tax Return

User fee

Withdrawal

Wire Transfer