Question

Ch 03: Assignment - Preparing Your Taxes These are not necessarily complete definitions, but there is only one possible answer for each term. Answer Term Gross income Active income Portfolio income Description A. This term includes income from self-employment. B. This is used to offset passive income. C. This term includes wages, salaries, bonuses/commissions, and interest/dividends/alimony. D. This item is taxed at different rates depending on the holding period, E. This term includes income gained from real estate and limited partnerships. 5. Inyestment income is offset with this related expense Passive income Investment expenses Real estate or limited partnership expenses Capital gains Sale of a home 6. This is used to determine tax liability, H. Income from savings accounts, stocks, bonds, mutual funds, options, and futures are included in this term. 1. Using taxable income, it is based on tax tables or tax rate schedules. 3. To qualify for exclusion during this transaction, you must have owned and occupied for two of the five prior years. Taxable income Tax liability

Achoices: Total tax liability owed, Adjusted gross income (AGI), Gross income (all income subject to income taxes]

Bchoices: Total personal exemptions, (AGI), Adjustments to (gross) income

Cchoices: Total tax liability owed, Itemized deductions, (AGI)

Dchoices: Taxable income Total personal exemptions Total tax liability owed

E: Taxable income (AGI) Other taxes

F: Other taxes Total personal exemptions Tax credits

G: Tax credits Other credits Tax liability owed

H: Taxable income Total tax liability owed Adjestments to (gross) income

Answer 1

Terminologies with Their Correct Definitions

Part A

1. Gross Income: -                                (c ) This term includes wages, salaries, bonuses/ Commission and interest /Dividend /Alimony
2. Active Income: -               (a ) Term Includes Income From Self Employment
3. Portfolio Income: -          (h ) Includes from saving accounts, Stocks, Bond , Mutual Fund, Options & Futures are included in this term
4. Passive Income: -             (e )Term includes income gained from real estate and limited partnership
5. Investment Expenses: -                (f ) Investment income is adjusted with this related expenses.
6. Real Estate or limited partnership expenses: - (b )Used to Setoff Passive Income            
7. Capital Gain: -                    (d) Income Taxed At different rate depending on the holding period
8. Sale of a Home : -             (j) To Qualify Exclusion during this transaction you must have owned and occupied for two of the five prior years
9. Taxable Income : -           (g) This is used to determine tax liability
10. Tax Liability : -                    (i) Using Taxable income it is based on tax table or tax schedules

Part B

1. Adjustments: -                                  C. Example of this term includes charitable deductions, state and local taxes, and moving expense
2. Adjusted Gross Income: -            E. This term equals gross Income less adjustment
3. Deductions: -                                     G. This can be Either Standard or Itemized
4. Standard Deduction: -                    I. This is blanket deduction that includes deductible expenses normally incurred by tax payers
5. Itemized Deduction: -                    H. Deduction such as employee, personal retirement, higher education and support expenses are included in this category
6. Exemptions: -                                    D. This can be claimed if tax payer provide more than half their support
7. Itemized Deduction Example: - A. These are charitable contributions
8. Capital Gain tax Categories: -     B. This is taxed as ordinary income if held less than 12 months
9. Step To AGI: -                                   J. This term refers to the result after deducting expense like alimony paid and self-employment taxes, to name a few
10. Step to Taxable Income: -            F. Reduce AGI by the slandered deductions and allowable exemptions