Money Management Federal Income Tax Chapter Seven Notes

1
Money ManagementFederal Income TaxChapter Seven
Notes

• ____________________________ are collected from
  the citizens and businesses.
• The money collected is called ____________________
  ________ and is redistributed according to the
  needs and priorities set by Congress.
• The largest source of government revenue is
  ____________________________, followed by Social
  Security and Medicare taxes.
• A commonly accepted criterion of tax fairness is
  that individuals with different amounts of wealth
  or income should pay different amounts of taxes.
• This theory is called the ________________________
  ____________________.
• _____________________________ are those that
  increase in proportion to income.
• Under this system, the people with higher incomes
  not only pay more taxes but they pay them at a
  higher rate.
• ___________________________________ are those
  that decrease in proportion to income. With a
  regressive tax, the person with the higher income
  pays a lower of their income than those with a
  lower income.
• _____________________ is an example of a
  regressive tax. Those who can least afford to pay
  the tax (the poor) are assessed the greatest
  amount in proportion to their income.
• Sales taxes are often called pay as you go
  taxes because they are levied against your
  purchases.
• Another example of a regressive tax is an
  ______________________. These are taxes on
  specific goods like cigarettes or alcoholic
  beverages.
• Usually, lawmakers are criticized for these types
  of taxes saying they unfairly target the people
  who can afford it the least.
• ________________________________ are those that
  stay constant even though the amount being taxed
  increases.
• For example, _________________________ are
  proportional. All people owning property in a the
  same community pay the same tax rate for every
  100 of assessed value.
• Each year the property is assessed and the owner
  must pay the local tax assessor whatever is owed.
• On a local level, these taxes often help pay for
  community services such as education, police and
  fire departments, and parks.
• Our tax system is complex. Both businesses and
  individuals pay income taxes and must file income
  tax returns each year.
• The basic components that allow the tax system to
  operate efficiently are
• __________________________________________________
  ___________

2
Money ManagementFederal Income TaxChapter Seven
Notes

• The ______________________________________________
  _ is an administrative agency of the Department
  of the Treasury.
• The main function of the IRS is to
  _________________________________________.
• In local IRS offices, employees assist taxpayers
  in finding information and forms. They also print
  brochures and pamphlets to help taxpayers in
  preparing their returns.
• The power to levy tax rests with the
  ________________________________________.
• Must originate in the House of Representatives.
• Must make it through votes in both the House and
  the Senate.
• Must then be signed into law by the president
• Our income tax is at a graduated rate, the more
  income you receive the more you pay.
• Congress tries to balance its budget.
• If more money is spent than what is received
  there is a _________________.
• If more comes in than is spent there is a
  ______________________.
• Currently the government is operating at large
  deficits. Tax cuts were put in place, decreasing
  revenue. However, spending has not decreased at
  the same rate. We dont need to debate the
  politics behind this but obviously, this is not a
  great example of money management! ?
• Filing your Tax Return Definition of Terms
• ________________________ are you single,
  married filing as an individual, married couple
  filing jointly etc...?
• _________________________________ do you have
  dependents to claim on your return?
• You are entitled to claim yourself unless your
  parents still claim you.
• In order to be claimed as a dependent a person
  needs to meet FIVE requirements
• Must be a relative (list of what qualifies is at
  the IRS website).
• Must be a citizen or resident of the U.S., Canada
  or Mexico, or an adopted child who has lived with
  you all year.

3
Money ManagementFederal Income TaxChapter Seven
Notes

• __________________________ Will be shown on
  your W2 form that is mailed to you by your
  employer.
• Some adjustments are allowed to be subtracted
  from your gross income, like contributions to an
  IRA or a 401(k) retirement plan.
  __________________________________________________
  ______ is what is left after these adjustments
  are subtracted from gross income.
• ____________________________________ are expenses
  that the law allows the taxpayer to subtract from
  adjusted gross income.
• All taxpayers are allowed to list certain
  expenses, which are called _______________________
  __________. Things that might be deducted
• __________________________________________________
  ________
• __________________________________________________
  ________
• __________________________________________________
  ________
• __________________________________________________
  ________
• __________________________________________________
  ________
• If you dont have enough of these types of
  deductions you can just chose the
  __________________________________________________
  ___. These change but currently they are Single
  -- 4,850, Married filing jointly or a qualifying
  widow(er) -- 9,700, Married filing separately
  -4,850, Head of household -- 7,150, Claimed as
  a dependent on someone else's return - 250
  earned income of at least 800 but not more than
  the standard deduction of 4850.
• That might sound confusing but its actually not
  that bad ...
• ________________________________________
• - ________________________________________
• ________________________________________
• - ________________________________________
• - __________________________________
• ________________________________________
• Once you do this calculation, youve got your
  taxable income! Now you can see if you get a
  refund or not!