F260 Chapter 3

  1. Four types of taxes
    Purchases, Property, wealth, and earnings
  2. taxable income
    which is the net amount of income, after allowable deductions, on which income tax is computed.
  3. Earned income
    is usually in the form of wages, salary, commission, fees, tips, or bonuses
  4. Investment income
    (sometimes referred to as portfolio income) is money received in the form of dividends, interest, or rent from investments.
  5. Passive income
    results from business activities in which you do not actively participate, such as a limited partnership.
  6. An exclusion
    is an amount not included in gross income
  7. tax-exempt income
    , or income that is not subject to tax
  8. Tax-deferred income
    is income that will be taxed at a later date
  9. Adjusted gross income (AGI)
    is gross income after certain reductions have been made
  10. Tax shelters
    are investments that provide immediate tax benefits and a reasonable expectation of a future financial retur
  11. A tax deduction
    is an amount subtracted from adjusted gross income to arrive at taxable income
  12. standard deduction
    a set amount on which no taxes are paid.
  13. Itemized deductions
    are expenses a taxpayer is allowed to deduct from adjusted gross incom
  14. An exemption
    is a deduction from adjusted gross income for yourself, your spouse, and qualified dependents
  15. marginal tax rates
    These rates are used to calculate tax on the last (and next) dollar of taxable income
  16. the average tax rate
    is based on the total tax due divided by taxable income
  17. a tax credit
    , an amount subtracted directly from the amount of taxes owed.
  18. A tax audit
    is a detailed examination of your tax return by the IRS
  19. tax avoidance
    the use of legitimate methods to reduce one's taxe
  20. tax evasion
    is the use of illegal actions to reduce one's taxes
Card Set
F260 Chapter 3