Deck 3: Preparing Your Taxes

Question 1

All taxpayers have an equal probability of having their tax returns audited.

Answer 1

False

Question 2

Tax credits are dollar-for-dollar reductions in taxable income.

Answer 2

False

Question 3

Russ and Lois were married on December 30. Even though they were single for most of the year, they can legally file as married filing jointly taxpayers in the year of the wedding.

Answer 3

True

Question 4

If you are legally separated from your spouse by a separation decree, you can legally file as a single taxpayer.

Question 5

Dwayne and Gayle were divorced on September 29. They have not remarried since and have no dependents. Their filing status for the year will be married filing separately since they were married for more than half of the year.

Question 6

A married couple filing a joint return has Ms. Cindy Cook, a CPA, complete their return. The IRS will hold only Ms. Cook responsible for any errors in the filed return.

Question 7

Tax preparers must be licensed by either the state or the federal government.

Question 8

Qualified dividends are taxed at the highest capital gain rates.

Question 9

The federal government receives a majority of its revenue from _____ tax.

A)sales
B)property
C)excise
D)income
E)estate

Question 10

Molly and Jason were married. Their only dependent was Spot, their black standard poodle. Jason died in 2018. Assuming Molly does not remarry, the only legal filing status for Molly in 2019 will be:

A)single.
B)married filing separately.
C)head of household.
D)qualifying widow.
E)married filing jointly.

Question 11

The alternative minimum tax (AMT)is applicable to taxpayers with moderate levels of income only.

Question 12

Adjustments to gross income will decrease your taxable income.

Question 13

A tax audit is an examination by local government officials to identify people who do not pay enough taxes.

Question 14

Tax avoidance is legal, whereas tax evasion is illegal.

Question 15

A progressive tax structure is one in which:

A)tax rates are directly proportional to inflation rates.
B)the larger the amount of taxable income, the higher the rate at which it is taxed.
C)tax rates are inversely related to inflation rates.
D)everyone pays the same income tax rate.
E)no exemptions or deductions are available.

Question 16

Gross income minus tax-exempt income equals adjusted gross income.

Question 17

Income shifting refers to the process of transferring income from the taxpayer to the IRS.

Question 18

Pete and Pam are married with four dependent children. Which of the following filing statuses can Pete and Pam use if they want to legally file one tax return?

A)Married filing separately
B)Married filing jointly
C)Head of household
D)Single
E)Qualifying widow or widower with dependent child

Question 19

Mandi and Thomas were married and had a child aged 7 in 2018. Mandi died in 2018, leaving Thomas a single parent. The most favorable filing status for Thomas in 2019 will be:

A)single.
B)married filing separately.
C)head of household.
D)qualifying widower.
E)married filing jointly.

Question 20

Henry is married to Lillian, and they have two dependent children. Both of them want to file their own tax returns, reporting only his or her own income, deductions, and exemptions. The filing status of Henry and Lillian is:

A)single taxpayer.
B)married filing jointly.
C)head of household.
D)qualifying widow.
E)married filing separately.

Question 21

Murray (age 68, single)sold his home owned for 35 years so that he could relocate to a place that is closer to where his grandchildren live. He realized a $400,000 capital gain on the home. Murray's tax liability on the capital gain is computed on:

A)$400,000.
B)$300,000.
C)$250,000.
D)$150,000.
E)$0.

Question 22

Your income tax withholding is dependent on:

A)your age and educational qualification.
B)the number of deductions claimed by your spouse.
C)your income level and the number of withholding allowances you have claimed.
D)the number of standard deductions you have claimed.
E)the number of withholding allowances allowed by your employer.

Question 23

Which of the following is subject to federal income tax?

A)The tax credit earnings on a Roth IRA
B)Municipal bond interest
C)Child-support payments
D)Tips received
E)Personal exemptions

Question 24

Melinda sold mutual fund shares, which she had owned for 5 years, so that she could use the proceeds to travel with her sister. Melinda is in the 32% ordinary tax bracket, and her capital gains from the sale were $40,000. Melinda's tax liability on the gain is:

A)$10,500.
B)$8,400.
C)$6,000.
D)$4,500.
E)$1,500.

Question 25

For those under the age of 65, medical and dental expenses may be included as itemized deductions:

A)when they exceed 4% of the adjusted gross income.
B)up to a maximum of $7,500 per individual per tax year.
C)only if they are less than 20% of the gross income.
D)only for amounts in excess of 10% of the adjusted gross income.
E)when they exceed 2% of the taxable income.

Question 26

_____ would be considered a part of your taxable income.

A)Your (individual retirement account)IRA contributions
B)A gift from your aunt
C)Your child-support payments
D)A gain from the sale of your assets
E)Your tuition scholarship

Question 27

Molly and Justin are considering contributing to a qualified tax-exempt organization. Their adjusted gross income is $100,000. What is the maximum amount they can claim as an itemized deduction under the Tax Cuts and Jobs Act of 2017?

A)$0
B)$600
C)$1,200
D)$6,000
E)$60,000

Question 28

Which of the following statements regarding the tax levied under the Federal Insurance Contributions Act (FICA)is true?

A)It is also known as property tax.
B)It is paid equally by employer and employee.
C)It is not applicable to self-employed persons.
D)It is applicable to all federal employees.
E)It is used to provide insurance against theft.

Question 29

In 2018, the total FICA tax rate was:

A)6.0%.
B)6.75 %.
C)7.25 %.
D)13.4 %.
E)15.3 %.

Question 30

Sarah is a homeowner and a single taxpayer. She has owned and occupied the house as a principal residence for the last 8 years. In the current taxable year, she receives a promotion. She sells her home and moves to another area. The capital gain on the sale of the principal residence will:

A)be taxable as ordinary income.
B)be taxable at a rate of 25%.
C)be taxable at the appropriate short-term capital gains rate.
D)be taxable excluding the first $250,000 of the gain.
E)not be taxable because the relocation is a job-related move.

Question 31

Based on the given information, what is Max's portfolio income?

A)$13,000
B)$6,000
C)$8,000
D)$16,000
E)$18,000

Question 32

Mr. and Mrs. Davenport, aged 40 and 38, respectively, have three children aged 3, 6, and 13. For 2019, they have  adjusted gross income (AGI)of $65,000 and unreimbursed medical expenses of $6,750. The Davenports' claim for itemized deductions for medical expenses is:

A)$0.
B)$250.
C)$3,500.
D)$2,750.
E)$4,500.

Question 33

You would typically include _____ in your gross income.

A)child-support payments
B)life insurance death benefit payments
C)municipal bond interest
D)income from pensions
E)personal exemptions

Question 34

Mark is not married and has dependent parents. He pays more than half of the cost of keeping a home for himself and his parents. His tax filing status is:

A)single taxpayer.
B)married filing jointly.
C)married filing separately.
D)head of household.
E)qualifying widow.

Question 35

If you do not wish to itemize deductions, the other deduction you can take is the:

A)pay-as-you-go deduction.
B)bracket deduction.
C)standard deduction.
D)exemption deduction.
E)withholding allowance deduction.

Question 36

Tom sold mutual fund shares, which he had owned for 3 years, so that he could use the proceeds to return to college. Tom is in the 12% marginal tax bracket, and his capital gain from the sale was $12,000. How much tax does Tom owe on the gain?

A)$12,000
B)$3,080
C)$1,440
D)$1,200
E)$0

Question 37

Ben and Jack both earned $60,000 this year. Ben (age 30)is married with two children, and Jack (age 68)is single with no dependents. Which of the following is true regarding the amount of Social Security taxes they will have to pay?

A)They will pay the same amount of Social Security taxes.
B)Ben will pay less Social Security taxes because he is married.
C)Ben will pay less Social Security taxes because he has children.
D)Jack will pay less Social Security taxes because he is single.
E)Jack will pay less Social Security taxes because he is over the age of 65.

Question 38

Your take-home pay is what you are left with after subtracting withholdings from your:

A)gross earnings.
B)net earnings.
C)taxable income.
D)adjusted gross income.
E)tax-exempt income.

Question 39

Peter's tax computed per the tax rate schedule amounts to $2,000, and his tax credits amount to $500. His total tax liability is:

A)$2,500.
B)$1,500.
C)$3,000.
D)$2,200.
E)$4,000.

Question 40

A capital gain is the result of:

A)selling an asset for less than its purchase price.
B)holding an asset that has depreciated.
C)selling an asset at its purchase price.
D)selling an asset for more than its purchase price.
E)buying a new asset at a rate lower than the market rate of the asset.

Question 41

You are preparing your own tax return. The least costly source for getting your questions answered would be:

A)the IRS office toll-free number.
B)an enrolled agent.
C)a tax accountant.
D)a tax lawyer.
E)the local post office.

Question 42

The total amount of income tax you owe in 1 year is your tax:

A)withholding.
B)credit.
C)rate.
D)refund.
E)liability.

Question 43

Which of the following statements regarding enrolled agents is true?

A)They are tax professionals who advise only professionals in tax planning.
B)They are taxpayers with relatively common types of income and expenditure.
C)They are federally licensed individual tax practitioners.
D)They are lawyers who specialize in tax planning.
E)They are federal agents who collect taxes from taxpayers.

Question 44

Tax practitioners who are federally licensed are called:

A)certified public accountants.
B)certified financial planners.
C)tax attorneys.
D)enrolled agents.
E)chartered financial analysts.

Question 45

Mr. and Mrs. McMurray have three children, aged 6, 12, and 18 in 2018. The McMurrays' tax liability calculated per the tax schedule is $10,000. The McMurrays' tax liability is:

A)$8,000.
B)$7,000.
C)$4,000.
D)$6,000.
E)$0.

Question 46

The highest marginal tax rate is currently:

A)35.6%.
B)35 %.
C)37 %.
D)41 %.
E)45%.

Question 47

If you are a professional who is likely to receive income that is not subject to withholding, then you are required to:

A)pay an estimated tax.
B)file an amended return.
C)file an extension.
D)deduct a tax credit.
E)calculate itemized deductions.

Question 48

Which of the following is an illegal method of reducing your current tax liability?

A)Not reporting the taxable income you receive
B)Investing in a tax-deferred annuity
C)Shifting income to your children
D)Investing money in municipal bonds
E)Putting money in a Roth IRA

Question 49

A _____ would most likely have to pay estimated taxes.

A)school teacher
B)manager for an industrial firm
C)self-employed plumber
D)union worker
E)corporate attorney

Question 50

A tax audit is a(n):

A)Internal Revenue Service (IRS)revision of a previously filed return.
B)Internal Revenue Service (IRS)attempt to verify the accuracy of a return.
C)Internal Revenue Service (IRS)charge of illegal action.
D)U.S. Tax Court action.
E)U.S. Tax Court decision.

Question 51

Tax credits reduce your:

A)tax liability.
B)adjusted gross income.
C)tax refund.
D)tax withholding.
E)taxable income.

Question 52

Payments under the provisions of the Federal Insurance Contributions Act (FICA)are also known as:

A)income tax.
B)Social Security tax.
C)property tax.
D)capital gains tax.
E)marginal tax.

Question 53

Which of the following private tax preparers are required to pass an exam administered by the Internal Revenue Service (IRS)?

A)National and local tax services
B)Certified public accountants (CPAs)
C)Enrolled agents (EAs)
D)Tax attorneys
E)Corporate managers

Question 54

A taxpayer can file for an automatic extension of _____ months.

A)2
B)4
C)6
D)9
E)12

Question 55

Itemized deductions are listed on:

A)Schedule A of Form 1040.
B)Schedule B of Form 1040.
C)Schedule C of Form 1040.
D)Schedule D of Form 1040.
E)Schedule F of Form 1040.

Question 56

A declaration of estimated taxes is made on:

A)Schedule B.
B)Form 1040EZ.
C)Schedule Z.
D)Form 1040-ES.
E)Form 1040A.

Question 57

Jamil and Vicki have one child, aged 3. How much will a tax credit reduce their tax liability?

A)$500
B)$1,000
C)$2,000
D)$2,500
E)$3,000

Question 58

The Robertsons, a couple with an adjusted gross income of $28,500, decides to contribute the maximum amount possible toward their individual retirement accounts (IRAs)even though Mr. Robertson is covered by a pension plan where he works. He names his wife the beneficiary of the IRA. What is such a tax strategy called?

A)Tax deferral strategy
B)Tax avoidance strategy
C)Tax evasion strategy
D)Tax ignorance strategy
E)Income-shifting strategy

Question 59

You made an error when you filed your tax return last year. You can correct this error by filing:

A)Form 1040-ES.
B)Form 1040X.
C)Form 1040EZ.
D)Schedule A.
E)Schedule D.

Question 60

Which of the following statements regarding tax credits is true?

A)They are deductions that depend on the taxpayer's filing status, age, and vision and that can be claimed by a taxpayer whose total itemized deductions are small.
B)They are deductions from the adjusted gross income based on the number of persons supported by the taxpayer's income.
C)They represent the income remaining after subtracting all allowable adjustments to income from the gross income.
D)They are personal expenditures that can be deducted from adjusted gross income when determining taxable income.
E)They are deductions from a taxpayer's tax liability that directly reduce the person's taxes due.

Question 61

Shawn earns $65,000. If the total Social Security tax rate is 15.3%, how much is his Social Security tax? How much does his employer pay toward Social Security taxes for Shawn? (Show all work and round to the nearest dollar.)

Question 62

From the following information, determine Steve's gross income for tax purposes.

Question 63

From the following information, determine Marcie's gross income for tax purposes.


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Question 64

Sue and Tim are married taxpayers in the 32% marginal tax bracket. In 2018, they sold common stock shares, which they held for more than 3 months, for a capital gain of $3,800. They also sold some technology stock for a short-term capital loss of $9,000. In addition, they sold the home they had lived in for the past 10 years and experienced a $75,000 gain on the house. How much will their net capital gains (or losses)be for 2018? How much will they pay (or save)in taxes as a result of these transactions?

Question 65

When an individual gives his or her child an income-producing asset, he or she is:

A)shifting his or her income.
B)maximizing his or her deductions.
C)deferring his or her tax.
D)executing his or her will.
E)reducing his or her taxes by using technology.

Question 66

Jamie has taxable income of $45,000. She is single, and her tax rate is 10% on the first $9,525 of the taxable income, 12% on the amount over $9,525 up to $38,700 of the taxable income, and 22% on the remainder. What are Jamie's tax liability, marginal tax rate, and average tax rate? (Show all work. Round dollar amounts to the nearest cent and percentages to two decimal places.)

Question 67

A tax credit could result from:

A)owning a home.
B)adopting a child.
C)charitable contributions.
D)investing in municipal bonds.
E)dental expenses.