Chapter 7 Review Personal Finance

1 _____________ taxes are taxes that take a larger share of income as the amount of income grows. Progressive

2 ___________ taxes are taxes that take a smaller share of income as the amount of income grows. Regressive

3 What does IRS stand for? Internal Revenue Service

4 Child support is _________ for the person paying it. Not deductible

5 List an example of a progressive tax. Federal income tax

6 Alimony is _________ for the person receiving it. Taxable

7 _________ is the largest source of government revenue. Income tax

8 Some types of spending may be subtracted from gross income. The amount after these deductions is your _________________. adjusted gross income

9 The income on which you will pay tax. Taxable income

10 _________ are taxes imposed on specific goods and services. Excise taxes

11 The Constitution provides that “all bills for raising revenue shall originate in the ________________ .” House of Representatives

12 Interest income is reported on a ______. Your bank mails you this form if you have taxable interest from a savings account. 1099

13 Child support is _______ for the person receiving it. Not taxable

14 An agency of the Department of Treasury headquartered in Washington, D.C. IRS

15 An example of an excise tax. Cigarettes or gasoline

16 A __________ is a person who lives with you and who receives more than half his or her living expenses from you. Dependent

17 Alimony is ________ for the person receiving it. Taxable

18 All taxable income you receive, including wages, tips, salaries, interest, dividends, unemployment compensation, alimony, workers’ compensation benefits, and so forth. Gross income

19 The U.S. income tax system is based on ___________, which means that all citizens are expected to prepare (or have prepared) and file income tax returns. voluntary compliance

20 Failure to pay taxes is called ________. Tax evasion

21 Form _____ lists all income you receive through employment. W-2

22 An examination of a tax return by the IRS. Audit

23 ____________ are taxes for which the rate stays the same regardless of the amount on which the tax is imposed. Proportional taxes (flat taxes)

24 You must file a tax return by _______ of the year after you earned income. April 15th

25 Where the taxpayer sits down with the auditor to answer questions and produce records. Office audit

26 The IRS asks the taxpayer to respond to specific questions or produce evidence of deductions or other entries on the tax return. Correspondence audit

27 Explain why the federal income tax is considered a progressive tax. The tax rate increases as income increases. (tax brackets)

28 Last year Jill worked at Menards, McDonald’s, and babysat 5 times for her aunt. How many W-2 forms will she receive? 2

29 What is the lowest tax bracket? 10%

30 Who must file a tax return? Anybody who worked & had money deducted.

31 Money collected by the government through taxes. Revenue

32 List an example of a flat tax. Property tax

33 An IRS agent or local representative visits the taxpayer to verify information or ask specific questions. Field audit

34 Another name for a proportional tax. Flat tax

35 An amount you may subtract from your income for each person who depends on your income to live. Exemption

36 Taxes that take a larger share of income as the amount of income grows. Progressive taxes

37 Taxes for which the rate stays the same regardless of the amount on which the tax is imposed. Proportional or flat taxes

38 An examination of a tax return by the IRS. Audit

39 Income on which you will pay tax. Taxable income

40 Expenses the law allows taxpayers to subtract from their adjusted gross income to determine their taxable income. Deductions

41 Taxes that take a smaller share of income as the amount of income grows. Regressive taxes

42 Money paid to support a former spouse. Alimony

43 Money paid to a former spouse to support dependent children. Child support

44 All the taxable income received during the year, including wages, tips, salaries, interest, dividends, alimony, and unemployment compensation. Gross income

45 Stated amount taxpayers may subtract from adjusted gross income instead of itemizing their deductions. Standard deduction

46 Income ranges to which different tax rates apply. Tax brackets

47 Willful failure to pay taxes. Tax evasion

48 The process of listing allowable deductions on a tax return. Itemize

49 The amount taxpayers may subtract from their income for each person who depends on their income to live. Exemption

Final Question Why do some taxpayers itemize rather than taking the standard deduction? Because their allowable deductions are greater than the standard deduction. This means they will pay less in taxes than if they took the standard deduction.