Question 1

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

Accepted Answer

Peter's total tax liability is the computed tax minus the tax credits. Therefore, $2,000 - $500 = $1,500.

Question 2

A tax audit is a(n):

Accepted Answer

A tax audit is an Internal Revenue Service (IRS) attempt to verify the accuracy of a return. The IRS may request additional information or documentation to support the items reported on the return. It is not a charge of illegal action or a U.S. Tax Court action or decision. A U.S. Tax Court action or decision may result if the taxpayer disputes the audit findings and appeals to the court.

Question 3

Connie is a 20-year-old college student who earned $8,000 and spent it all supporting herself during the year.Her parents may claim her as a tax dependent as long as:

Accepted Answer

According to IRS rules, a parent can claim a child as a dependent if they provide more than half of the amount needed for the child's support during the year. As Connie earned $8,000 and her parents may claim her as a dependent, it can be assumed that her parents provided more than half of the amount needed for Connie's support during the year.

Question 4

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

Accepted Answer

The best choice to correct an error on a tax return is to file an amended tax return using Form 1040X. This form allows you to make changes to your tax return from the previous year, including correcting errors and adding any missing information.

Question 5

A declaration of estimated taxes is made in:

Accepted Answer

Form 1040-ES is used to make a declaration of estimated taxes.

Question 6

Mr.and Mrs.Davenport,aged 40 and 38,respectively,have three children aged 3,6,and 13.Their financial details for 2015 are as follows: Adjusted gross income (AGI)- $65,000
Unreimbursed medical expenses - $6,750
The Davenports' claim for itemized deductions for medical expenses is _____.

Accepted Answer

The answer of Mr.and Mrs.Davenport,aged 40 and 38,respectively,have three children...

Question 7

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

Accepted Answer

The standard deduction is the best choice if you do not wish to itemize deductions. It is a fixed amount that reduces your taxable income, and it is adjusted annually for inflation. Choosing the standard deduction is convenient and straightforward, as it eliminates the need to keep track of and document various expenses in order to claim itemized deductions.

Question 8

Itemized deductions are listed on:

Accepted Answer

Itemized deductions are reported on Schedule A of Form 1040.

Question 9

Mr.and Mrs.McMurray have three children,aged 6,12,and 18,for whom they paid childcare expenses of $6,000 in 2015.The McMurrays' tax liability calculated as per the tax schedule is $10,000.The McMurrays' tax liability is _____.

Accepted Answer

The McMurrays are eligible for a child and dependent care credit of up to $3,000 for their childcare expenses. This credit reduces their tax liability by $800 (3,000 x 27%). Therefore, their tax liability is $10,000 - $800 = $9,200.

Question 10

Which of the following statements is true about tax credits?

Accepted Answer

Tax credits are deductions from a taxpayer's tax liability, meaning they directly reduce the amount of taxes owed. This is different from deductions or adjustments to income, which only reduce the amount of income subject to taxation. Tax credits are generally more valuable than deductions because they provide a dollar-for-dollar reduction of taxes owed.

Question 11

Jamil and Vicki have one child,aged 3,for whom they paid childcare expenses of $2,500 this year.If they are eligible for a 20% dependent care credit plus child tax credit,by how much will these credits reduce their tax liability?

Accepted Answer

The maximum amount of allowable expenses for the dependent care credit is $3,000 for one child. Since Jamil and Vicki paid $2,500 in childcare expenses, they will be able to claim the full $2,500 as expenses for the dependent care credit.
The maximum credit they can receive for the dependent care credit is 20% of the eligible expenses, which is $500 (20% x $2,500).
In addition to the dependent care credit, they can also claim the child tax credit, which is $2,000 per child under the age of 17. This brings their total tax credit to $2,500 ($500 dependent care credit + $2,000 child tax credit).
Therefore, their tax liability will be reduced by $2,500. The correct answer is B.

Question 12

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

Accepted Answer

If you are a professional who is likely to receive income that is not subject to withholding, such as self-employment income or income from investments, you are required to pay an estimated tax. This means you have to calculate and pay the estimated tax owed on a quarterly basis throughout the year. Failing to do so could result in penalties and interest charges when you file your tax return.

Question 13

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

Accepted Answer

Tax liability refers to the total amount of income tax that an individual or organization owes in a particular year. This includes any taxes that were not already paid through withholding or estimated tax payments. Therefore, option E is the correct choice. None of the other options accurately describe the amount of income tax owed.

Question 14

A simplified version of Form 1040 for individual income tax if you have a taxable income of less than $100,000 from wages only and you do not claim any itemized deductions or any tax credit is:

Accepted Answer

Form 1040EZ is designed for individuals with simple tax situations, such as those with only wages and no itemized deductions or tax credits. It is the simplest and shortest tax form available for individual income tax returns.

Question 15

Tax credits reduce your:

Accepted Answer

Tax credits directly reduce the amount of tax liability owed, so choosing A is correct. B and E are incorrect because tax credits do not affect adjusted gross income or taxable income. C is incorrect because tax credits actually increase the likelihood of receiving a tax refund, as they reduce the amount of tax owed. D is incorrect because tax credits do not affect tax withholding, which is the amount of tax taken out of each paycheck.

Question 16

What is the maximum amount of adoption tax credit available for an individual?

Accepted Answer

The maximum amount of adoption tax credit available for an individual is $13,400, as of 2021. This credit can be used to offset the costs of adoption, such as adoption fees, court costs, and travel expenses. Option A, C, D, and E are not correct because they do not reflect the current maximum amount of adoption tax credit available.

Question 17

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

Accepted Answer

Medical and dental expenses can be deducted as itemized deductions only for amounts that exceed 10% of the adjusted gross income for those under 65.

Question 18

_____ are the deductions from adjusted gross income (AGI)that are based on the number of persons supported by the taxpayer's income.

Accepted Answer

Exemptions are the deductions from AGI that are based on the number of persons supported by the taxpayer's income. Each exemption reduces the taxable income by a specific amount for each person claimed on the tax return.

Question 19

A _____ would most likely have to pay estimated taxes.

Accepted Answer

Self-employed individuals such as a plumber are not subject to tax withholding by an employer and are required to pay estimated taxes on their own income throughout the year.

Question 20

Based on the given information,Max's portfolio income is: $$\begin{array} { | l | l | } 
\hline \text { Interest from savings account } & \$ 1,000 \
\hline \text { Capital gains realized } & \$ 5,000 \
\hline \text { Salary } & \$ 8,000 \
\hline
\end{array}$$

Accepted Answer

Portfolio income typically includes interest and capital gains, totaling $6,000 in this case. Salary is not considered portfolio income.

Quiz 3: Preparing Your Taxes