Question

TYPE ANSWERS

1.

• Be able to identify and calculate different types of taxes, the tax system in the United States, and important

  tax terminology

• Be able to prepare a comprehensive budget, and know how to classify different sources of income and

  expenses

• Understand contract terminology and terminology associated with checking and banking

• Know what a bank reconciliation is, its purpose, and the basic idea of how it is done

Answer 1

The Different types of taxes are mentioned below :

Income Tax : This is the tax collected on the annual income earned by an individual, corporation, Trust etc.

Sales Tax : Sales Tax is charged on the purchase of products. The sellers or the merchants are responsible for collecting the sales tax from the buyer and deposit it with the authority or the sales tax department. The rates of sales tax vary from product to product also from states to states.

Property Tax : Property tax is charged on the basis of the assessed value of the property of an assessee and the rates may vary from state to state.

Gift Tax : If a gift of more than Rs.15000$ per year is given to anyone than the assessee needs to file a gift tax return .

Luxury Tax : Luxury tax is charged mostly on the spendings on leisure.For example: Luxury goods or hotel booking.

Sin Tax : Sin Tax or penalty is basically charged as mode of discouraging people from consuming alcohol or smoking,the tax rates on these products are comparatively higher to promote awareness.

Capital Gain Tax : A capital Gain Tax is charged on the sale of a property. When the selling proice of the property is higher the indexed cost of the purchasing year then the assessee is liable to pay capital gain tax in the current year.

The important tax Terminology is mentioned below :

Adjusted Gross Income : This is the term used for the income that is received by the assessee during a particular financial year including all the bonuses, interest, dividends, gains and deducting all the business expenses and deductions & exemptions. The final income on which the Income tax of the year is to be paid.

Tax Credits : Tax credits are basically the credits that reduce the amount of tax liability of an assessee. For example: if R owes $100 to S and the the total tax liability is $1000 then the net liability will be decreased by $100 i.e. 1000-100=$900

Tax deductions : Tax deductions also help in minimizing the net tax liability for example: payment of students loan interest would give the assessee tax deduction.

Standard deduction : It is the fixed deduction which all assessee can claim during the year. The standard deduction is different for all the filers based on the taxpayer's filing status.

Exemption: This is the amount that can be subtracted from the total income for all the dependents on u in the family.

Progressive taxation : This term is used to reflect that the rate of tax increases with the increase in the income level of the assessee.

Withholding : This means that the tax amount for the year is already being deducted in the small portions from the paycheck of the assessee every month so that their is no last minute burden to pay heavy tax amount in once.

A comprehensive budget is prepared after the consideration of all income form all the sources and expenses that can be occurred during the year. A comprehensive budget comprises of two major aspects :

Operating Budget : for short term goals including the recurring expenses and incomes.

Capital Budget : for long term goals including the expenses and incomes of non recurring nature.