Debt, Credit Cards, & Taxes Test

Taxes

Required payment to a local, state, and/or national government, primary way the government collects money.

Income (State & Federal), Sales Tax (State & Local), Property Tax (State & Local)

Taxes are Progressive

Percentage of income paid in taxes increases as income increases. Higher-income = higher %, Lower-income = lower % Income Tax (Federal) (Iowa)

Types of Taxes: Regressive

Percentage of income paid in taxes decreases as income increases... Sales Tax

Types of Taxes: Proportional

Percentage of income paid in taxes remains the same for all income levels... Flat Tax

Characteristics of Good Tax

Simplicity, Efficiency, Certainty, Equity

Types of Taxes

Excise (sin tax), Estate (only on property) (progressive tax), Gift (No tax on gifts), Import (tariffs), Corporate Income Taxes, FICA (Federal Insurance Contributions Act): Social Security, Medicare, Unemployment Insurance

Individual Income Taxes

Pay-As-You-Earn-System: Easier for taxpayers, Allows government to pay bills on time. Tax Withholding (W-4s): Employers withhold estimated tax responsibility, Employer forwards it to government as an Installment Payment

Filing a Tax Return 2022

a form used to file income tax, new & revised 1040 tax form. Determines if the amount you have already paid in taxes in higher or lower than the actual amount you owe: Amount paid > amount owed = tax refund (good), Amount paid < amount owed = pay government (bad)

Filing a Tax Return Deadlines

tax returns must be filed to the IRS by midnight on April 15th, W-2's by the end of January

Tax Cuts & Jobs Act: 2018-2026

Itemized Deductions > Standard deduction. ex. Job expenses, state & local taxes, interest on mortgage, & limit on charitable contributions. Child Tax Credit = $2,000 / child under 17, $500 on all dependent children. Must have a Social Security number, Ends Obamacare penalty.

Figuring Taxable Income

Gross inc. - Exemptions & Deductions = Taxable Inc.

Deductions

variable amounts that you can subtract from you gross income (Standard or Itemized)

Credits

variable amount that lowers the amount of taxes you must pay

Sales Tax

Taxes on purchases, state and local tax. Many states exempt food

Real Estate Tax

Major source of revenue for local governments. Is based on the value of the land and buildings.

Estate Tax

value of a person's property at the time of his or her death. This federal tax is based on the fair market value of the deceased individual's investments, property, and bank accounts less allowable deductions and other taxes.

Inheritance Tax

Is levied on the value of property bequeathed by a deceased person. The tax is paid for the right to acquire the inherited property

FICA

Federal Insurance Contributions Act, created the Social Security tax to fund old-age, survivors, and disability insurance portion of the Social Security system.

Medicare Tax

FICA, another tax taken out for old-age, survivors, and disabled, hospital insurance.

Income Tax

major financial planning factor for most people. Some workers are subject to federal, state, and local income taxes.

Taxable Income

Is the net amount of income, after allowable deductions, on which income tax is computed.

Adjusted Gross Income

gross income after certain additions and reductions have been made. Additions may be rental income or business profits. Reductions, called adjustments to income, include contributions to an IRA.

Tax Deduction

Is an amount subtracted from adjusted gross income to arrive at taxable income.

Standard Deduction

Every tax payer receives at least the standard deduction, a set amount on which no taxes are paid. Single people receive a standard deduction of $12,000 and married is $24,000.

Itemized Deduction

Are expenses a taxpayer us allowed to deduct from adjusted gross income.

Tax Credit

An amount subtracted directly from the amount of taxes owed.

W-4 form

Employee's Withholding Allowance Certificate that shows the employer how much tax to withhold from an employee's, tells check filing status, multiple jobs adjustments, amount of credits, amount of other income, amount of deduction.

W-2 Form

Given to employees by the end of January; summarizes an employee's earnings and tax withholdings for the year, use to file for federal and state taxes to get money back

Credit Cards

Revolving Line of Credit, borrow up to the Credit Limit. Pay off balance= no interest charges. Pay

Credit Card Interest

Rates vary between 3-27%, have to pay at least minimum payment every month- 2% of the balance

Credit Care Companies Must Share With You

Interest rate change, Time to pay off, total interest paid

Credit Card Benefits

Time-shifting - buy now-pay later, Barrier between merchants and you're : Fraud protection, Extended warranties and protections, Rewards: 0% interest, cash back, airline miles, etc.

Pitfalls of Credit Cards

Makes it easier to spend money: removes psychological barriers to spending, People spend MORE money using them, Can accumulate debt very quickly, Mismanagement is the #1 problem that derails financial security