Chapter 21 Taxes

Tax liability

The total amount of taxes owed

The Four Categories of Taxes

Taxes on Purchases, property, wealth, and earnings

The major source of revenue for local governments

Property tax

Excise Tax

A sales tax on specific goods and services collected by the federal and state governments. Example, Gasoline and cigarette tax

Estate tax

Tax collected by the federal government on the value of the person's assets at the time of death

Inheritance tax

A state tax collected on the property left by person in his or her will

Gift Tax

A tax collected on money or gifts valued at over $14,000, given by one person to another, in one year

Income Tax

Taxes on wages, salaries, interest, dividends

IRS

Internal Revenue Service, a federal agency, that collects taxes for the federal government

W2 form

A form used to file your income tax that shows the wages earned in a given year from a company, and taxes withheld from earnings in a given year

Income tax return

A form, 1040, 1040a, or 1040ez, that is used to report how much money a person earned in a given year from work and other sources

Gross Income

Total income earned from wages, salary, commission, tips, bonuses, etc; Interest that you receive from banks; dividends from stock investments

Exculsion

A tax exempt income or income that is not subject to taxes

Municipal bonds

A federal tax exempt investment

Adjusted Gross Income

Your income after calculating certain reductions or adjustments to income.

Taxable Income

Your adjusted gross income less any allowable deduction.

Tax deduction

An expense you can subtract from your adjusted gross income to figure your taxable income

Standard Deduction

an amount of money set by the IRS that is not taxed

Itemized deduction

a specific expense that you deduct from your adjusted gross income.

Exemption

a deduction from adjusted gross income for the taxpayer, the spouse and qualified dependents.

Dependent

someone you support financially, such as a child

Tax Credit

an amount of money that can be subtracted DIRECTLY FROM TAXES you owe.

Tax deduction

an expense that you can subtract from your adjusted gross income

Tax Credite

Results in a dollar-for-dollar reduction in the amount of taxes you owe

Allowance

An adjustment to the tax withheld from your paycheck based on your marital status and W-4 form

W4 form

Lets employers know how much tax to withhold from an employee's paycheck

Extension

An extended deadline for filing an income tax return

Audit

A detailed examination of your tax return by the IRS

Four types of Tax assistance

IRS Website, Books (Tax Planning), Software (Turbotax), Tax Professionals

401 K and IRA's

Retirement plans