Question 1

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

Accepted Answer

The Earned income credit is a tax credit for low-income working individuals and families. Tanya may be eligible for this credit as a single low-income working parent. Fred, being a single high-income working parent, may not be eligible for this credit.

Question 2

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

Accepted Answer

Form 1099 is used to report various types of income, including interest income from savings accounts, which Yvonne likely received. Forms 1040, W-2, W-4, and Schedule A are used for different purposes such as filing taxes, reporting employment income, and deducting itemized expenses.

Question 3

Recent tax credits include all of the following except the

Accepted Answer

The AMT tax credit has been repealed and is no longer available.

Question 4

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

Accepted Answer

All of the options listed (Filing status and exemptions, Adjustments to income, Tax credits, Signature) are indeed major sections of Form 1040, making E the correct choice as it states that all of these are major sections.

Question 5

Tax assistance sources include all of the following except

Accepted Answer

All of the options listed (IRS publications, IRS phone hotline, The Ernst & Young Tax Guide, and The Internet) are legitimate sources of tax assistance.

Question 6

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

Accepted Answer

A W-2 form is issued by an employer to an employee, reporting the employee's annual earnings and the amount of taxes withheld. The form is used by the employee to file their personal income tax return. A 1099 form is used to report income other than wages, salaries, or tips, such as self-employment income or investment income. The 1040 form is the individual income tax return form that taxpayers use to file their federal tax returns. The W-4 form is filled out by an employee when they start a new job to indicate how much federal income tax should be withheld from their paychecks. Schedule A is a form used to itemize deductions on a tax return.

Question 7

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

Accepted Answer

The AMT or Alternative Minimum Tax is designed to ensure that those who receive tax breaks also pay their fair share of taxes. It calculates a separate tax liability by adding certain tax preferences and adjustments to the taxpayer's income and then applies a different tax rate. The purpose of the AMT is to prevent high-income taxpayers from using deductions and credits to avoid paying a significant amount of taxes. Therefore, option A is the correct choice.

Question 8

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

Accepted Answer

The correct forms for filing federal income taxes are 1040EZ, 1040A, and 1040. The 1040X form is used for amending a previous tax return. The 1040Z does not exist.

Question 9

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

Accepted Answer

While individuals can use tax preparation software to file online or print and mail, or electronically file using Free File Alliance, they cannot deliver their federal taxes in person. Therefore, option D is the correct answer.

Question 10

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?

Accepted Answer

Since Nancy and Jerry are married, the best filing status for them would be to file a joint return. This would likely result in a lower tax liability for them compared to filing separately or under any other filing status.

Question 11

Which of the following is NOT a tax credit?

Accepted Answer

"Domestic tax credit" is not a commonly recognized type of tax credit. The other options are all well-known tax credits.

Question 12

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

Accepted Answer

A 1099 form is used to report income received as an independent contractor or self-employed individual. A 1040 is the individual tax return form, a W-2 is used to report income and taxes withheld from an employee's wages, and a W-4 is used to adjust the amount of taxes withheld from an employee's paycheck. A Schedule A is used for itemizing deductions on an individual's tax return.

Question 13

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

Accepted Answer

The 1040X form is used to amend a previously filed 1040, 1040A, or 1040EZ. Therefore, this is the best option for Peter to make the correction to his income on his federal income taxes.

Question 14

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?

Accepted Answer

Penny needs to complete Form 4868 to obtain an automatic six-month extension for filing her federal income taxes. The other forms mentioned are not applicable for requesting an extension.

Question 15

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?

Accepted Answer

Bob can use the filing status of Qualifying widow or widower for 2 years after the death of his spouse if he meets certain conditions. These conditions include that he has not remarried, he has a dependent child, and he paid more than half the cost of keeping up a home for himself and his dependent child. This filing status allows Bob to use the same tax rates and standard deduction as if he filed a joint return with his deceased spouse.

Question 16

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?

Accepted Answer

Amanda and Jack have multiple sources of income (wages, interest, dividends) and are thinking of itemizing their deductions for their new house. The 1040 form is the most comprehensive and flexible form that accommodates various types of income and deductions. The 1040EZ and 1040A forms have limitations on income and deductions, and the 1040X form is used for amending previous tax returns. The 1040Z form does not exist. Therefore, the best choice for Amanda and Jack is the 1040 form.

Question 17

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

Accepted Answer

The rate used to calculate the tax due on the next dollar of income is referred to as the marginal tax rate. This rate applies only to the portion of a taxpayer's income that falls within a certain tax bracket, and it increases as income rises. Knowing your marginal tax rate is important for tax planning and calculating the impact of any additional income or deductions.

Question 18

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

Accepted Answer

The taxpayer is ultimately responsible for supplying accurate and complete information for completing a tax return. While a professional tax preparer, IRS enrolled agent, and/or taxpayer's attorney may provide assistance, it is the taxpayer's obligation to ensure that all information is accurate and complete. Dependents are not responsible for supplying information for their own tax return, but rather the taxpayer claiming them as a dependent.

Question 19

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

Accepted Answer

A W-2 form is used by employers to report the annual wages, tips, and other compensation paid to an employee, as well as the amount of taxes withheld from their paychecks. It is used by employees to prepare their personal income tax returns. The 1040 form is the standard individual income tax form, while the 1099 form is used to report income received from sources other than an employer, such as freelance or contract work. The W-4 form is used by employees to indicate how much federal income tax should be withheld from their paychecks, and Schedule A is used for itemizing deductions.

Question 20

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

Accepted Answer

The average tax rate is calculated by dividing the total tax due by taxable income. It represents the percentage of your income that you are paying in taxes. It is different from the marginal tax rate, which is the rate that applies to the last dollar of income earned, and the total tax rate, which represents the total percentage of all income paid in taxes. The Alternative Minimum Tax (AMT) is a separate tax system that requires certain taxpayers to calculate their taxes twice and pay the higher amount.

Quiz 3: Taxes in Your Financial Plan