Personal Finance Chapter 4

Progressive Tax System Tax rates increase for higher incomes. Based on the idea that those who earn more can afford to pay a higher percentage.
Tax Brackets Income ranges in which the same marginal tax rate applies.
Personal Exemptions Reduce income before you compute taxes. You get one exemption for yourself, your spouse, and each dependent.
Taxable Income Formula Adjusted Gross Income – Exemptions – Deductions
Average Tax Rate The average amount of your total income taken away in taxes.
Marginal Tax Rate Aka Marginal Tax Bracket. The percentage of the last dollar earned that goes to pay taxes.
Effective Marginal Rate The rate you pay when all income taxes are combined (federal, state, city, SS, etc). It is larger than the marginal tax rate on federal income taxes.
Capital Loss What you lose when you sell a capital asset for a loss.
Capital Gain What you make if you sell a capital asset for a profit.
Capital Gains Tax Tax you pay on your capital gains.
Filing as a Single If you file this way, it means you must be single at the end of the year and have NO dependents.
Filing Married Jointly If you file this way, filing a joint return with a spouse means you will combine your income and deductions. *If your spouse dies during the year and you have a dependent living with you, and you pay more than HALF of the costs of keeping your home–>you can still file married.
Filing as a Head of Household Someone who is unmarried on the last day of the tax year, has at least one child or relative living with him or her for at least half of the year, and you pay more than half of the costs of keeping your home.
Paying Income Taxes Occurs on a pay-as-you-go basis by withholding the taxes from your wages. Quarterly estimated taxes are sent to the IRS. Withholdings from your income are determined by income level and information on the W-4 form. You have some control over how much is deducted for taxes from your wages.
Income-Based Taxes 1. Social Security2. FICA3. State and Local Income Taxes
Non-Income Based Taxes 1. Excise Taxes2. Property Taxes3. Gift and Estate Taxes

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