Deck 4: Managing Income Taxes

Question 1

Personal income taxes are paid on all of your income.

Answer 1

False

Question 2

All of a taxpayer's income is subject to federal income taxes.

Answer 2

False

Question 3

A progressive tax is one that demands a higher percentage of a person's income as income increases.

Answer 3

True

Question 4

Taxes are defined as compulsory charges imposed by a government on its citizens and their property.

Question 5

A regressive tax is one that demands a higher percentage of a person's income as income increases.

Question 6

The objective in effective tax planning is to legally reduce gross income to the lowest possible taxable income.

Question 7

Tax planning includes eliminating,reducing or deferring income taxes to be paid.

Question 8

Personal income taxes are paid only on your taxable income.

Question 9

State sales tax is an example of a regressive tax.

Question 10

A person's average tax rate is always lower than his or her marginal tax rate.

Question 11

Each year the tax brackets are adjusted to reduce the effects of inflation.

Question 12

The tax rate paid on your last dollar of income is called the average tax rate.

Question 13

The marginal tax rate may be the single most important concept in personal finance.

Question 14

If your tax is $3,728 on a taxable income of $27,825 and your tax is $3,743 on a taxable income of $27,925 you are in the 15 percent tax bracket.

Question 15

The key to reducing one's tax liability is to reduce taxable income rather than gross income.

Question 16

If you earn enough extra income to be placed in a higher tax bracket and have a higher marginal tax rate,the new rate will be applied to all of your taxable income.

Question 17

The highest marginal tax rate is currently 50 percent.

Question 18

A taxpayer with a taxable income greater than $100,000 must use the tax-rate schedules rather than the tax tables to find his or her tax liability.

Question 19

The Internal Revenue Service is the agency that collects federal income taxes.

Question 20

An employed taxpayer's effective marginal tax rate on income is higher than his or her federal marginal tax rate.

Question 21

Numerous employee benefits are not included in gross income.

Question 22

Both alimony and child support received are considered part of gross income for income tax purposes.

Question 23

A taxpayer in the 35 percent marginal tax bracket would pay less tax by holding an investment with capital gains over one year.

Question 24

A short-term capital gain (or loss) occurs when the asset is held for one year or less.

Question 25

A long-term capital gain (or loss) occurs when the asset is held for over one year.

Question 26

Interest income under $10 in a given year is exempt from federal income taxation.

Question 27

Estimating taxes requires taxpayers to send quarterly installment payments to the IRS.

Question 28

A state income tax refund is reported as taxable income only if the taxpayer itemized deductions the previous year.

Question 29

Having your employer withhold more in estimated taxes than the likely tax liability ultimately due the government is a recommended technique for saving money.

Question 30

Gross income is defined as all income received in the form of money.

Question 31

Adjustments to gross income are permitted only if you itemize deductions.

Question 32

The money you receive back because you have overpaid your taxes is called a tax return.

Question 33

Taxpayers are required to pay taxes throughout the year via either payroll withholding or by paying estimated taxes.

Question 34

A taxpayer who reported lottery winnings of $500 on his or her taxes could deduct a maximum of $500 in any offsetting gambling losses.

Question 35

Bonuses given by employers must be reported to the IRS on your income tax return.

Question 36

All of the income received from Social Security benefits must be reported as gross income on your federal income tax return.

Question 37

Interest income is reported to the recipient on a W-2 form.

Question 38

All gambling winnings are subject to federal income taxation.

Question 39

Life insurance benefits received are taxable income.

Question 40

Short-term capital gains and long-term capital gains are taxed at the same rate.

Question 41

Interest paid on automobile loans is partially deductible as an itemized deduction (for those who can itemize).

Question 42

A taxpayer can claim a personal exemption for any person he or she provides over 50 percent of support during the tax year.

Question 43

The IRS requires that you have receipts for deducted cash contributions of $250 or more.

Question 44

IRS Publication 17 provides most of the federal income tax information needed by the typical taxpayer.

Question 45

The IRS says you must do what a "reasonable business person" would do to make a profit when running your own business.

Question 46

Cash contributions to qualified organizations,such as churches,schools,and other qualifying charities,require a receipt for a contribution of $250 or more.

Question 47

Student loan interest paid may be taken as an itemized deduction.

Question 48

The rule for tax-related records is,"When in doubt,throw it out."

Question 49

Adjustments are referred to as above-the-line deductions because they may be subtracted from gross income regardless of whether the taxpayer itemizes deductions or takes the standard deduction amount.

Question 50

A taxpayer whose itemized deductions were less than his or her standard deduction would benefit by itemizing deductions.

Question 51

Charitable contributions of goods and property to a qualifying organization should be valued at fair market value when used as an itemized deduction.

Question 52

The amount of the standard deduction depends on one's filing status.

Question 53

Union or professional dues do not qualify as a miscellaneous itemized deduction.

Question 54

Prior to age 65,if one can itemize deductions,all of his or her qualifying unreimbursed medical expenses will be deductible.

Question 55

A personal exemption is a legally permitted amount deducted from adjusted gross income based on the number of persons supported by the taxpayer's income.

Question 56

A taxpayer who is age 65 or older and/or blind may claim an extra amount for his or her standard deduction.

Question 57

Once you determine your gross income you may take several subtractions including adjustments,deductions,exemptions and credits to arrive at your actual taxable income.

Question 58

Many high-income taxpayers must pay a higher alternative minimum tax rather than the tax they owe after taking allowable adjustments and deductions.

Question 59

The IRS disallows deductions for expenses for business-related trips.

Question 60

The full market value of any lost property can be deducted as a casualty or theft loss when the loss results from a sudden,unexpected,or unusual event.

Question 61

Most tax shelters are methods permitting an investor to avoid taxes forever.

Question 62

If you have an income tax refund coming,the IRS will automatically send the refund to you.

Question 63

There are some cases when you should file a federal income tax return even if you are not legally required to do so.

Question 64

The lifetime learning credit may be claimed for tuition and related expenses only for the first two years of postsecondary school.

Question 65

Form 1040-X is used to obtain a refund when overpaid insurance because of a tax filing mistake from earlier years.

Question 66

The health insurance premium tax credit can help anyone defray the cost of health insurance.

Question 67

There are times when you would want to turn down additional income because the additional taxes owed will exceed the extra income received.

Question 68

To claim an earned income credit,one must have a child.

Question 69

You can file an amended tax return to obtain deserved refunds for the previous five years.

Question 70

Tax avoidance is illegal whereas tax evasion is legal.

Question 71

Individuals who are age 65 and older or are permanently and totally disabled may claim a nonrefundable federal tax credit.

Question 72

You may claim both the American Opportunity credit and the lifetime learning credit for the same year.

Question 73

If you are owed a refund on your income tax return you can either have the funds sent to you or apply them to next year's taxes.

Question 74

One must file a tax return to receive the earned income credit.

Question 75

The amount of income tax withheld can be found on one's W-2 form.

Question 76

For a mortgage interest tax credit,the home must not cost more than 90 to 110 percent of the average area purchase price.

Question 77

A flexible spending account allows an employee to set up a pre-tax account into which a part of their pay is deposited with their employer to be used to pay for child care and medical expenses.

Question 78

Taxpayers may claim both the child tax credit and the dependent care tax credit in the same year.

Question 79

To qualify for the earned income credit,taxpayers must have earned income.

Question 80

Tax credits can be taken both by taxpayers who itemize deductions and by those who don't itemize.