CA 2351 Personal Finance Exam 2

What four types of taxes are listed in Chapter 4?

Sales, property, payroll, and income taxes.

What do taxes help pay for?

Infrastructure, social welfare programs, and national defense.

What percentage of wages is withheld for employee FICA taxes?

7.65%; the employer also contributes 7.65%.

What two programs are funded by payroll taxes?

Social Security and Medicare.

How do you calculate sales tax?

Tax base (item price) × tax rate as a decimal.

What determines the base for property taxes?

The assessed value of the property.

What is a flat tax?

The same tax rate applies regardless of income.

What is a regressive tax?

Lower-income earners pay a larger share of income; sales tax is an example.

What is a progressive tax?

Higher-income households are taxed at higher rates.

What are the five tax filing statuses?

Single; married filing jointly; married filing separately; head of household; qualifying surviving spouse.

What are the qualifying-child age requirements?

Under 19, or a full-time student under 24; younger than the filer.

What are the qualifying-child support and abode requirements?

Child provides no more than half their support and lives with filer over half the year.

What types of income count toward gross income?

Wages, self-employment, interest, dividends, capital gains, rent, and unemployment benefits.

Name two income sources excluded from gross income in the slides.

Loan proceeds and gifts or inheritances.

What is the formula for adjusted gross income (AGI)?

Gross income − deductions for AGI.

Name three examples of deductions for AGI.

Student loan interest, traditional IRA contributions, self-employed health insurance premiums.

How is taxable income calculated?

AGI − deductions from AGI.

When should you itemize deductions?

When qualifying itemized expenses exceed the standard deduction.

Name three examples of itemized deductions.

Property/income taxes, qualifying mortgage interest, and charitable donations.

What is a tax credit?

A dollar-for-dollar reduction in assessed tax liability.

Why can a tax credit save more than a deduction?

Credits reduce tax owed; deductions reduce taxable income.

What is a refundable tax credit?

A credit that can reduce assessed tax below zero.

What is a nonrefundable tax credit?

A credit that reduces assessed tax to zero, but not below.

Which education credit is partially refundable?

American Opportunity Tax Credit.

Which education credit is nonrefundable?

Lifetime Learning Credit.

Which tax credit helps low-income workers with dependent children?

Earned Income Tax Credit (EITC); refundable.

What does the Child Tax Credit cover in the slides?

Up to $2,000 per qualifying child under age 17; nonrefundable.

What is the Dependent Credit in the slides?

$500 per qualifying dependent not eligible for the Child Tax Credit; nonrefundable.

What is the Premium Tax Credit?

A refundable credit for eligible health insurance exchange coverage.

What is the Retirement Savings Contribution Credit?

A nonrefundable credit for qualifying retirement contributions.

What is tax avoidance?

Legal structuring of transactions to lower taxes.

What is tax evasion?

Knowingly and purposefully misreporting information to reduce taxes.

How long do the slides say to keep tax records?

At least six years from filing.

What four benefits of checking accounts are listed?

Liquidity, direct deposit, deposit insurance, and debit cards.

How do you calculate the ending check-register balance?

Starting balance + deposits − withdrawals.

What FDIC insurance amount does the exam review specify?

Up to $250,000.

What is a debit card?

A card tied to a checking account; purchases are withdrawn from it.

What is a prepaid card?

A card loaded with money before use; no checking account required.

What prepaid-card drawback do the slides emphasize?

Possible fees and little to no fraud protection.

What is peer-to-peer (P2P) payment?

Money transferred through platforms such as Venmo, Cash App, or Zelle.

What is ACH?

Automated Clearing House; direct deposits or withdrawals using bank account information.

What account information does ACH use?

Routing number and checking account number.

What does the Chapter 5 slide say about debit-card loss liability before unauthorized use?

Report before unauthorized transactions: $0 liability.

What should a victim of P2P fraud do according to the slides?

Notify the platform and bank; file a complaint with the FBI IC3.

What is loan principal?

The amount borrowed.

What is loan interest?

The amount paid to the lender for borrowing principal.

What are loan fees?

Additional costs, such as payment processing or late fees.

What is a finance charge?

Total interest plus total fees, in dollars.

If interest is $240 and fees are $60, what is the finance charge?

$300.

What is collateral?

Something valuable that can be sold if repayment is not made.

What is a secured loan?

A loan tied to an asset used as collateral.

What is an unsecured loan?

A loan not tied to a specific asset.

What is a fixed installment loan?

Fixed interest rate, repayment period, and monthly payments.

What is a variable installment loan?

Fixed repayment period but variable rate and monthly payment.

What does FDCPA stand for?

Fair Debt Collection Practices Act; it regulates debt collectors.

What written notice must a debt collector provide?

Debt amount, original lender, and dispute rights within five days of initial contact.

During what hours can collectors call according to the slides?

8 a.m. to 9 p.m.

What do credit bureaus do?

Compile lender-reported credit history into credit reports.

What three credit bureaus are listed?

Equifax, Experian, and TransUnion.

What appears on a credit report?

Loans, payment history, public financial information, inquiries, personal information.

Who uses credit reports according to the slides?

Lenders, insurance agents, landlords, and employers.

Where do the slides direct students to request a credit report?

AnnualCreditReport.com.