Question 1

Five years ago,you purchased 200 shares of Go-Tech stock for $25 per share.If you sold those shares today at the current market price of $90 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, (90 - 25) * 200 = $13,000.

Question 2

Expenditures that are subtracted in an effort to calculate the lowest possible taxable income are called

Accepted Answer

Deductions are expenses that are subtracted from an individual's taxable income to reduce the amount of tax they owe. Deductions include things like contributions to retirement accounts, mortgage interest payments, and charitable donations. Exemptions refer to a set amount of income that can be excluded from taxation, which has been eliminated in recent years. Capital expenses refer to investments in long-term assets, and fixed expenses refer to regular, ongoing expenses that are typically similar from month to month.

Question 3

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

Accepted Answer

Audits held in your home or office are not a tax collection mechanism, but rather a method used by the IRS to verify the accuracy of tax returns and identify potential discrepancies. The other methods listed (paycheck withholdings, quarterly estimated tax payments, and payments sent with your tax return) are all used by the IRS to collect income taxes.

Question 4

Craig Ripley sold his stock in Gandy Corporation for a price less than what he paid for it.Craig will experience

Accepted Answer

Craig will experience a capital loss because he sold the stock for less than what he paid for it.

Question 5

Which of the following is an income tax filing status?

Accepted Answer

"Married filing jointly and surviving spouses" is a recognized income tax filing status. The other options listed are not standard tax filing statuses as defined by the IRS or other tax authorities.

Question 6

You and spouse are filing a joint return.Your current deductions have reduced your taxable income to $88,990,bringing you into the 25 percent tax bracket.The first dollars you earned will be taxed at the ________ tax bracket.

Accepted Answer

In a progressive tax system, the first portion of income is taxed at the lowest rate. For joint filers, the first dollars are taxed at the 10 percent bracket.

Question 7

Three years ago you purchased a share of CompUTech stock for $32,which you could sell today at the current market price of $252.What would be your capital gain on the sale,ignoring commissions?

Accepted Answer

To calculate the capital gain, we need to subtract the purchase price from the selling price.

Capital gain = Selling price - Purchase price
Capital gain = $252 - $32
Capital gain = $220

Therefore, the capital gain on the sale would be $220, making option B the correct answer.

Question 8

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 by subtracting the purchase price from the selling price, then multiplying by the number of shares. So, ($150 - $40) * 100 = $11,000.

Question 9

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

To calculate the effective marginal tax rate, we need to add up all the taxes that would be paid on the next dollar of earnings, which are:

- Federal income tax: 28%
- State income tax: 4%
- City income tax: 1%
- Social Security and Medicare tax: 7.65%

Therefore, the effective marginal tax rate would be:

28% + 4% + 1% + 7.65% = 40.65%

So, the correct answer is D, 40.65%.

Question 10

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

Accepted Answer

The personal or dependency exemption cannot be claimed for a child who is over 18 years old and earns more than a certain amount of income per year (in 2021, the threshold is $4,300). As the child in option B is 26 years old and earns $27,000 a year, they do not meet the eligibility criteria for the exemption.

Question 11

You and spouse are filing a joint return.Your current deductions have reduced your taxable income to $88,990,bringing you into the 25 percent tax bracket.The last dollars you earned will be taxed at the ________ tax bracket.

Accepted Answer

The last dollars earned will be taxed at the same rate as the overall tax bracket, which is 25 percent in this case.

Question 12

Deductions calculated using the federal tax form "Schedule A" which are totaled and then subtracted from taxable income are called

Accepted Answer

Deductions calculated using the federal tax form "Schedule A" are itemized deductions, and they are subtracted from taxable income. Therefore, the best choice is A.

Question 13

A tax system in which tax rates increase as income increases is called a(n)________ system.

Accepted Answer

A progressive tax system is designed such that tax rates increase as income increases. This means that individuals with higher income levels are taxed at a higher rate than those with lower income levels. The aim of a progressive tax system is to ensure that those who can afford to pay more in taxes contribute a larger share of their income towards government revenues, while those who are less able to do so pay a smaller portion. This is viewed as a fair way to distribute the tax burden across different income groups.

Question 14

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

Accepted Answer

In a tax-deferred retirement plan, the contribution is deducted from the taxpayer's taxable income, which means that the taxpayer's taxable income will be reduced by $2,000. In this case, since the taxpayer is in a 28% tax bracket, the tax savings will be $2,000 x 0.28 = $560. Therefore, the correct answer is D.

Question 15

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

Accepted Answer

The amount of income taxes you pay is based on your taxable income, which is your gross income minus exemptions and deductions.

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

Bracket creep occurs when a taxpayer moves into a higher tax bracket due to an increase in income, but without a corresponding increase in deductions or exemptions. In this scenario, Wilma received a raise that resulted in her being taxed at a higher rate, indicating bracket creep. The other options do not apply to this scenario.

Question 17

According the Keown book,most taxes-about ________ of individual income taxes-are collected through withholding from wages.

Accepted Answer

According to the Keown book, 70 percent of individual income taxes are collected through withholding from wages. This means that the taxes are taken directly out of an individual's paycheck by their employer and sent to the government on their behalf. The remaining 30 percent may be collected through other means, such as estimated tax payments or tax refunds.

Question 18

The percentage of the last dollar you earn that goes toward your taxes is your

Accepted Answer

The percentage of the last dollar you earn that goes toward your taxes is referred to as the marginal tax rate. This is because it represents the amount of tax you will pay on the last dollar of income earned, which is different from your base or average tax rate.

Question 19

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

Accepted Answer

Choosing to itemize deductions may result in a lower tax liability compared to taking the standard deduction if the total amount of itemized deductions exceeds the standard deduction. This is often the case for taxpayers who own a home, have significant medical expenses, or make charitable contributions. Option C is incorrect as married taxpayers may choose to either take the standard deduction or itemize deductions. Options A and D are also incorrect as the ease of calculation and availability of tax software do not determine the best choice for an individual taxpayer.

Question 20

An IRS-allowed reduction in your income for yourself,your spouse,and any dependents that is subtracted before you compute your taxes is called a(n)

Accepted Answer

Personal exemptions are allowed deductions from your income for yourself, your spouse, and any dependents. This reduces your taxable income and ultimately the amount of tax you have to pay. Option A is incorrect because itemized exemptions refer to specific deductions, such as charitable donations, that can be claimed instead of the standard deduction. Option B is incorrect because there is no such thing as marital exemptions. Option C is incorrect because there are no separate exemptions for married couples.

Quiz 4: Tax Planning and Strategies