Deck 3: Taxes in Your Financial Plan

Question 1

Individuals who have high income reported on Form 1099 may be required to pay estimated tax payments.

Answer 1

True

Question 2

All citizens of the United States are required to file a federal income tax return if their income falls below a certain level.

Answer 2

False

Question 3

All individuals with taxable income are subject to the AMT calculation.

Answer 3

False

Question 4

Determining adjusted gross income is the final step in calculating federal income tax.

Question 5

Cash and prizes won on television game shows are subject to both federal and state taxes.

Question 6

When Marissa completes her taxes, she can include her qualified dependent children, her husband, and herself as exemptions.

Question 7

If your tax payments are less than the amount of income tax you owe, you are entitled to a refund.

Question 8

Amounts given for tuition payments or medical expenses are not subject to gift taxes.

Question 9

The itemized deduction allowed for an individual 65 and older is higher than the itemized deduction for a younger taxpayer.

Question 10

"Tax Freedom Day" represents how long the average person works to pay her or his taxes each year.

Question 11

Adjusted gross income is increased by the itemized or standard deduction.

Question 12

A tax credit has a full dollar effect in lowering taxes.

Question 13

Form 4868 allows a taxpayer to obtain a six-month extension on filing and paying federal taxes without penalty.

Question 14

When Tom calculates his taxable income, he should subtract his tax credits from adjusted gross income.

Question 15

Federal income tax returns must be filed by April 1 of each year.

Question 16

Individuals are allowed to give money or items of any value to a person without being subject to estate taxes.

Question 17

Tax rate schedules list average tax rates.

Question 18

The average tax rate is the tax paid on the next dollar of taxable income.

Question 19

A tax credit reduces the taxable income on which the tax liability is computed.

Question 20

An example of an excise tax is Social Security.

Question 21

Taxes on earnings that fund old age, survivor, and disability insurance benefits are called

A) Estate taxes.
B) Excise taxes.
C) Social Security taxes.
D) Real estate property taxes.
E) Sales taxes.

Question 22

Using tax software will not save a taxpayer any time when preparing Form 1040.

Question 23

One of the best tax shelters is owning a car.

Question 24

For 2014, the seven-rate system for federal income tax ranges from 10% to 39.6%.

Question 25

Every taxpayer receives at least the standard deduction, a set amount on which no taxes are paid.

Question 26

Most states do not require state income taxes.

Question 27

The tax that is a major source of revenue for local governments is called a(n)

A) Estate tax.
B) Excise tax.
C) Income tax.
D) Real estate property tax.
E) Sales tax.

Question 28

A person with taxable income of $40,000 and a total tax bill of $4,200 would have an average tax rate of 15%.

Question 29

A taxpayer less than 65 years old can only deduct medical and dental expenses greater than 10% of AGI for 2014.

Question 30

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels.

A) Estate tax
B) Excise tax
C) Income tax
D) Real estate property tax
E) Sales tax

Question 31

Contributions to a Keogh or 401(k) are tax-exempt.

Question 32

Tom needs to complete his taxes. He should be able to find a tax preparation service to complete his simple tax return for as little as $15.

Question 33

Some tax disputes have gone to the U.S. Supreme Court.

Question 34

The IRS has made online filing free for millions of taxpayers through the Free File Alliance.

Question 35

A tax due on the purchase of gasoline is called a(n)

A) Estate tax.
B) Excise tax.
C) Income tax.
D) Real estate property tax.
E) Inheritance tax.

Question 36

Interest paid on a home equity loan is not deductible.

Question 37

One of the most frequent filing errors is signing the return.

Question 38

A tax imposed on the value of a person's property at the time of death is called a(n)

A) Estate tax.
B) Excise tax.
C) Income tax.
D) Real estate property tax.
E) Sales tax.

Question 39

Which of the following is NOT a tax that most people pay?

A) Federal taxes on earnings
B) Federal taxes on possessions
C) Local taxes on property
D) State taxes on purchases

Question 40

A worker's primary goal should be to

A) Pay his or her taxes using estimates for income and deductions.
B) Pay no income taxes.
C) Pay the average tax rate for people working in his or her industry.
D) Pay his or her fair share of taxes while taking advantage of appropriate tax benefits.
E) Pay no taxes of any type.

Question 41

When calculating federal income taxes, "gross income" includes all of the following except

A) Earned income.
B) Alimony.
C) Investment income.
D) Earned income credit.
E) Passive income.

Question 42

Athena wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is NOT a proper itemized deduction?

A) Contributions to charitable organizations
B) Mortgage interest
C) Medical and dental expenses that exceed 10% of AGI
D) Miscellaneous expenses less than 2% of AGI
E) State income taxes

Question 43

Shannon is working on her federal income tax form and wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is an acceptable deduction?

A) $10,000 gift to her cousin
B) Credit card interest
C) Medical and dental expenses less than 10% of AGI
D) Miscellaneous expenses that exceed 2% of AGI
E) Moving expenses for a new job that is 25 miles from her old home

Question 44

You may be required to make estimated tax payments if

A) You receive a paycheck with taxes withheld.
B) You do not have interest income from savings.
C) You have no pension payments.
D) You are an independent contractor.
E) You have no royalties.

Question 45

When calculating federal income taxes, what increases "gross income"?

A) Exclusions
B) Tax-exempt income
C) Tax-deferred income
D) Alimony received
E) Tax deductions

Question 46

Taxpayers over 65 can only deduct expenses that are greater than 7.5% of adjusted gross income for

A) Contributions to charitable organizations.
B) Mortgage interest.
C) Medical and dental expenses.
D) Miscellaneous expenses.
E) Taxes.

Question 47

Joseph needs to complete his income taxes for the year. He has already calculated his adjusted gross income. What does he need to do next?

A) Add his tax-exempt income.
B) Subtract his itemized deductions.
C) Add his tax credits.
D) Subtract his tax-exempt income.
E) Add his tax exemptions.

Question 48

How long should you keep tax documentation from the date you file your return?

A) Until you file your returns.
B) 3 years.
C) 5 years.
D) 10 years.
E) 15 years.

Question 49

Fees, tips, and bonuses are forms of

A) Passive income.
B) Earned income.
C) Exclusions from income.
D) Tax-deferred income.
E) Tax-exempt income.

Question 50

In 2014, the U.S. federal tax tables included tax rates of

A) 0%, 10%, 20%, 30%, 40%, and 50%.
B) 7%, 15%, 30%, 33%, 38%, and 52%.
C) 0%, 25%, 50%, and 75%.
D) 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
E) 0%, 5%, 20%, 30%, and 50%.

Question 51

In 2014, taxable income was reduced by ______ for each exemption claimed.

A) $1,000
B) $2,500
C) $3,950
D) $5,000
E) $10,000

Question 52

The amount levied on the value of property bequeathed by a deceased person is

A) Inheritance tax.
B) Excise tax.
C) Social Security tax.
D) Real estate property tax.
E) Sales tax.

Question 53

Gross income less Adjustments to Income equals

A) Adjusted gross income.
B) Earned income.
C) Exclusions from income.
D) Tax-deferred income.
E) Tax-exempt income.

Question 54

Gross (or total) income includes

A) Exclusions.
B) Tax deductions.
C) Tax-deferred income.
D) Passive income.
E) Tax-exempt income.

Question 55

The maximum amount that an individual can give another in a year without being subject to estate taxes is

A) All gifts are taxable.
B) $10,000.
C) $14,000.
D) $15,000.
E) No gifts are taxable.

Question 56

Income that is taxed at a later date is

A) Adjusted gross income.
B) Earned income.
C) Exclusions from income.
D) Tax-deferred income.
E) Tax-exempt income.

Question 57

Income that is not subject to tax is called

A) Adjusted gross income.
B) Earned income.
C) Passive income.
D) Tax-deferred income.
E) Tax-exempt income.

Question 58

Fred has been completing his own tax returns for years. The IRS has recently contacted him with questions about some of his prior returns. How many years back is he responsible for providing documentation?

A) Until he files his returns.
B) 3 years.
C) 6 years.
D) 10 years.
E) 15 years.

Question 59

When Paul completes his taxes, he can include all of the following as exemptions except

A) His 12-year-old son.
B) Himself.
C) His 22-year-old daughter who is a full-time student.
D) His wife.
E) His 20-year-old son who is working full-time and living in an apartment.

Question 60

Adjustments to income include all of the following except

A) Alimony payments.
B) Contributions to a Keogh retirement plan.
C) Traditional IRA contributions.
D) Charity contributions.
E) Penalties for early withdrawal of savings.

Question 61

Tanya is a single low-income working parent, and Fred is a single high-income working parent. Because of her status, Tanya, but not Fred, may be eligible for the

A) Alternative minimum tax.
B) Earned income credit.
C) Itemized deduction credit.
D) Student deduction.
E) Withholding credit.

Question 62

At the end of the year, Yvonne received a form from her bank that reported income from her savings. That form is called a

A) 1040.
B) 1099.
C) W-2.
D) W-4.
E) Schedule A.

Question 63

Recent tax credits include all of the following except the

A) Earned income credit.
B) Foreign tax credit.
C) Adoption tax credit.
D) AMT tax credit.
E) Savers credit.

Question 64

The major sections of Form 1040 include all of the following except

A) Filing status and exemptions.
B) Adjustments to income (AGI).
C) Tax credits.
D) Signature.
E) All of these are major sections of Form 1040.

Question 65

Tax assistance sources include all of the following except

A) IRS publications.
B) IRS phone hotline.
C) The Ernst & Young Tax Guide.
D) The Internet.
E) All of these are tax assistance sources.

Question 66

At the end of the year, Xavier received a form from his employer that reported annual earnings and the amounts deducted for taxes. That form is called a

A) 1040.
B) 1099.
C) W-2.
D) W-4.
E) Schedule A.

Question 67

The tax designed to ensure that those who receive tax breaks also pay their fair share of taxes is called the

A) AMT.
B) Average tax rate.
C) Income tax rate.
D) Marginal tax rate.
E) Total tax rate.

Question 68

Which of the following is NOT a valid form for filing federal income taxes?

A) 1040EZ
B) 1040A
C) 1040
D) 1040X
E) 1040Z

Question 69

Individuals can file their federal taxes using all of the following except

A) Use tax preparation software to file online.
B) Use tax preparation software to print and mail.
C) Electronic filing using Free File Alliance.
D) Deliver in person.
E) All of these can be used.

Question 70

Nancy is married to Jerry and needs to complete her tax form. They both earn about the same amount of money each year. What filing status would be best for them?

A) Single
B) Married, filing a joint return
C) Head of household
D) Qualifying widow or widower
E) Married, but filing individually

Question 71

Which of the following is NOT a tax credit?

A) Adoption tax credit
B) Domestic tax credit
C) Earned income credit
D) Foreign tax credit
E) Savers credit

Question 72

At the end of the year, Walter received a form that showed his payments from independent contracting. That form is called a

A) 1040.
B) 1099.
C) W-2.
D) W-4.
E) Schedule A.

Question 73

Peter filed his federal income taxes, but he needs to make a correction to his income. Which form should he use?

A) 1040EZ
B) 1040A
C) 1040
D) 1040X
E) 1040Z

Question 74

Penny knows that she needs to file her federal income taxes, but she is unable to do so by April 15. What form does she need to complete to obtain an automatic six-month extension?

A) 1040
B) 1099
C) 4868
D) W-2
E) W-4

Question 75

Bob was married to Sandy, and they have a 12-year-old son. Sandy passed away last year. Bob needs to complete his federal income taxes for the year. What filing status could he use for 2 years after the death of his spouse?

A) Single
B) Married, filing a joint return
C) Head of household
D) Qualifying widow or widower
E) Married, but filing individually

Question 76

Amanda and Jack are working on their taxes and need to determine which form to file. They had wages, interest, and dividends. In addition, they bought a house this past year and are thinking of itemizing their deductions. Which form should they use?

A) 1040EZ
B) 1040A
C) 1040
D) 1040X
E) 1040Z

Question 77

The rate used to calculate the tax due on the next dollar of income is referred to as the

A) AMT.
B) Average tax rate.
C) Income tax rate.
D) Marginal tax rate.
E) Total tax rate.

Question 78

According to Tax Service Warnings, who is responsible for supplying accurate and complete information for completing a tax return?

A) Professional tax preparer
B) IRS enrolled agent
C) Taxpayer
D) Taxpayer's dependents
E) Taxpayer's attorney

Question 79

At the end of the year, employees receive a ____ form that reports annual earnings and the amounts deducted for taxes from their employers.

A) 1040
B) 1099
C) W-2
D) W-4
E) Schedule A

Question 80

The tax based on the total tax due divided by taxable income is called the

A) AMT.
B) Average tax rate.
C) Income tax rate.
D) Marginal tax rate.
E) Total tax rate.