AP Business Unit 5 Cheatsheet: Personal Goals, Budgeting, and Investing

Individual taxes paid to federal, state, local governments:

• Income tax: Percentage of income; employer withholds from paycheck; employee files annual return for refund or balance
• Capital gains tax: Paid on investment gains; submitted with income tax return but at typically lower rate
• Payroll taxes: FICA funds Social Security and Medicare and is withheld from employee pay with employer matching; self-employed workers pay both shares, while unemployment taxes are generally paid by employers.
• Property tax: Based on home, land, car value; paid annually, semi-annually, or monthly
• Sales tax: Based on purchase price; collected by retailer and submitted to government

Progressive tax system: Higher income = higher tax rate. Variation by state.

Insurable risk: Potential loss due to chance (accident, weather); quantifiable and statistically predictable so insurer can estimate cost and likelihood.

Three categories:

• Personal risk: Health/well-being (injury, illness)
• Property risk: Damage to home, car, belongings
• Liability risk: Damage to others' property or health (e.g., car accident injuring pedestrian)

Generally uninsurable or excluded: intentional losses caused by the insured, acts of war, and certain/expected losses such as normal wear and tear (note: risks must be statistically predictable in the aggregate to be insurable).