Chapter 4: Using Tax Concepts for Planning

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Earned income

answer

Income from employment, such as salary, wages, and tips.

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Standard deduction

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A fixed amount that can be deducted from adjusted gross income to determine taxable income.

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Withholding tax

answer

Portion of your paycheck that is withheld by the employer and sent to the IRS.

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Marginal tax rate

answer

The tax rate imposed on any additional (marginal) income earned.

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Personal income taxes

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Taxes imposed on personal income.

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FICA (Federal Insurance Contributions Act)

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Taxes paid to fund the Social Security System and Medicare.

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Real estate tax

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A tax imposed on a home or other real estate in the county where the property is located.

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Medicare

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A government health insurance program that covers people 65 years of age or older by making payments to health care providers.

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Child tax credit

answer

A tax credit allowed for each child in a household.

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Dividend income

answer

Income received in the form of dividends paid on shares of stock or mutual funds.

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Gross income

answer

All reportable income from any source, including salary, net business income, interest income, dividend income, and capital gains received during the tax year.

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Marginal tax bracket

answer

...

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Itemized deductions

answer

Specific expenses that can be deducted to reduce taxable income.

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Coverdell Savings Accounts

answer

Accounts that can be used for a variety of school expenses; income earned from investments within the accounts are exempt from federal taxes.

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Capital gain

answer

Income earned when an asset is sold at a higher price than was paid for the asset.

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Adjusted gross income

answer

Adjusts gross income for contributions to IRAs, interest paid on student loans, and other special circumstances.

question

Earned income credit

answer

A credit used to reduce tax liability for low-income taxpayers.

question

Short-term capital gain

answer

A gain on assets that were held less than twelve months.

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Tax credits

answer

Specific amounts used to directly reduce tax liability.

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College expense credits

answer

A tax credit allowed to those who contribute toward their own or their dependents' college expenses

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Interest income

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Interest earned from investments in various types of savings accounts at financial institutions, from investments in debt securities such as Treasury bonds, or from providing loans to other individuals.

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Long-term capital gain

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A gain on assets that were held for twelve months or longer.

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State income tax

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An income tax imposed by some states on people who receive income from employers in that state.

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question

Earned income

answer

Income from employment, such as salary, wages, and tips.

question

Standard deduction

answer

A fixed amount that can be deducted from adjusted gross income to determine taxable income.

question

Withholding tax

answer

Portion of your paycheck that is withheld by the employer and sent to the IRS.

question

Marginal tax rate

answer

The tax rate imposed on any additional (marginal) income earned.

question

Personal income taxes

answer

Taxes imposed on personal income.

question

FICA (Federal Insurance Contributions Act)

answer

Taxes paid to fund the Social Security System and Medicare.

question

Real estate tax

answer

A tax imposed on a home or other real estate in the county where the property is located.

question

Medicare

answer

A government health insurance program that covers people 65 years of age or older by making payments to health care providers.

question

Child tax credit

answer

A tax credit allowed for each child in a household.

question

Dividend income

answer

Income received in the form of dividends paid on shares of stock or mutual funds.

question

Gross income

answer

All reportable income from any source, including salary, net business income, interest income, dividend income, and capital gains received during the tax year.

question

Marginal tax bracket

answer

...

question

Itemized deductions

answer

Specific expenses that can be deducted to reduce taxable income.

question

Coverdell Savings Accounts

answer

Accounts that can be used for a variety of school expenses; income earned from investments within the accounts are exempt from federal taxes.

question

Capital gain

answer

Income earned when an asset is sold at a higher price than was paid for the asset.

question

Adjusted gross income

answer

Adjusts gross income for contributions to IRAs, interest paid on student loans, and other special circumstances.

question

Earned income credit

answer

A credit used to reduce tax liability for low-income taxpayers.

question

Short-term capital gain

answer

A gain on assets that were held less than twelve months.

question

Tax credits

answer

Specific amounts used to directly reduce tax liability.

question

College expense credits

answer

A tax credit allowed to those who contribute toward their own or their dependents' college expenses

question

Interest income

answer

question

Long-term capital gain

answer

A gain on assets that were held for twelve months or longer.

question

State income tax

answer

An income tax imposed by some states on people who receive income from employers in that state.

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