Question 1

Contributing $2,000 into a tax-deferred retirement plan in a 28% tax bracket will save

Accepted Answer

Contributing $2,000 into a tax-deferred retirement plan in a 28% tax bracket will save $560 in taxes. This is because the $2,000 contribution is deducted from the taxable income, reducing the tax liability. The actual tax savings may vary depending on individual circumstances, but assuming no other deductions or exemptions, the answer is D.

Question 2

Name the categories of filing status.

Accepted Answer

The answer of Name the categories of filing status....

Question 3

A personal exemption is an approved deduction that you can make on your tax return for each person supported by the income shown on your tax return.

Accepted Answer

A personal exemption is indeed an approved deduction that you can make on your tax return for each person supported by the income shown on your tax return.

Question 4

The amount of income taxes that you actually pay is based upon your

Accepted Answer

The answer of The amount of income taxes that you...

Question 5

The Federal Insurance Contributions Act (FICA) tax deducted from your salary goes to pay for unemployment insurance.

Accepted Answer

The FICA tax deducted from your salary goes towards funding Social Security and Medicare, not unemployment insurance. Unemployment insurance is typically funded by a separate tax that is paid by employers.

Question 6

Why might someone choose to use itemized deductions instead of taking the standard deduction offered by the IRS?

Accepted Answer

Choosing to itemize deductions instead of taking the standard deduction can potentially lower your tax liability if your itemized deductions exceed the standard deduction amount. This could include deductions for things like mortgage interest, property taxes, charitable contributions, and medical expenses. Option A is incorrect because itemizing deductions can be more time-consuming and complicated than simply taking the standard deduction. Option C is incorrect because married taxpayers can choose to either take the standard deduction or itemize deductions. Option D is incorrect because not all tax software automatically itemizes deductions. Option E is incorrect because only option B is correct.

Question 7

Tax credits reduce your adjusted gross income dollar-for-dollar. To compute the tax savings multiply the tax credit by the marginal tax rate.

Accepted Answer

Tax credits directly reduce the amount of tax owed, not the adjusted gross income. Tax deductions reduce the adjusted gross income.

Question 8

Why is tax planning so important?

Accepted Answer

The answer of Why is tax planning so important?...

Question 9

Butch Baird sold his stock in Brenner Corporation for a price less than what he paid for it. Butch will experience

Accepted Answer

When Butch Baird sells his stocks for a price less than what he paid for, he will experience a capital loss.

Question 10

You purchased 100 shares of I-Tech stock for $40 per share 3 years ago. If you sold those shares today at the current market price of $150 per share, what would be your capital gain on the sale, ignoring all commissions?

Accepted Answer

The capital gain is calculated as the difference between the selling price and the purchase price, multiplied by the number of shares. So, (150 - 40) * 100 = $11,000.

Question 11

Assume that you have a marginal tax rate of 28 percent, a state income tax rate of 4 percent, and have a city income tax rate of 1 percent. The tax for Social Security and Medicare is 7.65 percent. What would be the effective marginal tax rate on your last dollar of earnings?

Accepted Answer

The effective marginal tax rate on the last dollar earned would be the total percentage of taxes paid on that dollar. So, the effective marginal tax rate would be the sum of the federal tax rate (28%), state tax rate (4%), city tax rate (1%) and the Social Security/Medicare tax rate (7.65%) = 40.65%. Therefore, the correct answer is D.

Question 12

FICA deductions from your paycheck are for which mandatory federal insurance programs?

Accepted Answer

FICA deductions from your paycheck are for both Social Security and Medicare, as these are mandatory federal insurance programs. Unemployment benefits are typically funded by a separate tax or insurance program. Medicaid is a joint federal-state program that provides health care coverage for low-income individuals and families, but it is not funded through FICA deductions.

Question 13

Which of the following is not an income tax filing status?

Accepted Answer

All of the given choices (A, B, C, and D) are income tax filing statuses. Therefore, option E, which suggests otherwise, is the incorrect choice.

Question 14

The Lifetime Learning tax credit is designed to help all taxpayers get at least a two-year degree.

Accepted Answer

The Lifetime Learning tax credit is designed to help taxpayers who are pursuing higher education courses or job training, but it does not require them to obtain a degree. It can be claimed for any number of years, not just for two-year programs.

Question 15

Explain the ways income taxes are paid or collected.

Accepted Answer

The answer of Explain the ways income taxes are paid...

Question 16

Wilma Rudolph was given a cost of living raise and a merit raise at work this year. Her federal income taxes will be paid at 25% instead of 15%. Wilma has experienced

Accepted Answer

Wilma is experiencing bracket creep, which is when a person's income increases due to a raise or cost of living adjustment and pushes them into a higher tax bracket, causing them to pay a higher percentage of their income in taxes. This is evident from the fact that her federal income taxes are now paid at 25% instead of 15%. The other options (inflation trap, capital gain, higher personal exemption rate, and change in filing status) are not relevant to the situation.

Question 17

Excise taxes

Accepted Answer

Excise taxes are typically imposed on specific purchases such as alcohol, cigarettes, and gasoline. The primary aim is to reduce the consumption of such items, as they are considered harmful to health or the environment. In some instances, these types of taxes are referred to as "sin taxes." Therefore, all of the given choices are correct.

Question 18

Which of the methods listed below is not used by the IRS as a tax collection mechanism?

Accepted Answer

The IRS does not conduct audits in a taxpayer's home or office. Audits are typically conducted in IRS offices or through mail correspondence. The other methods listed (paycheck withholdings, quarterly estimated tax payments, and payments sent with tax returns) are all commonly used by the IRS to collect income taxes.

Question 19

Understanding how tax planning affects your personal finances is actually important for most taxpayers, not just the wealthy, because

Accepted Answer

All of the above choices are reasons why understanding tax planning is important for most taxpayers. By taking advantage of deductions and credits, taxpayers can reduce the amount of taxes they owe or increase their refunds. Additionally, by understanding how tax planning works, taxpayers can strategize to minimize the amount of time they spend working to pay their taxes.

Question 20

Which of the following is not allowed as a personal or dependency exemption?

Accepted Answer

A personal or dependency exemption can only be claimed for a qualifying child or a qualifying relative who meets certain criteria, such as age, relationship, residency, and income. In the case of option B, the child is over the age limit for a qualifying child and earns too much income to be a qualifying relative, so they cannot be claimed as a dependent. The other options meet the requirements for a personal or dependency exemption.

Quiz 4: Tax Planning and Strategies