Deck 3: Taxes in Your Financial Plan

Question 1

Tax Freedom Day represents the day until which the average person works to pay her or his taxes each year.

Answer 1

True

Question 2

When Tom calculates his taxable income,he should subtract his tax credits from adjusted gross income.

Answer 2

False

Question 3

The itemized deduction allowed for an individual 65 and older is higher than the itemized deduction for a younger taxpayer.

Answer 3

False

Question 4

Individuals who have high income reported on Form 1099 may be required to pay estimated tax payments.

Question 5

Form 4868 allows a taxpayer to obtain a six-month extension on filing and paying federal taxes without penalty.

Question 6

An example of an excise tax is Social Security.

Question 7

The average tax rate is the taxes paid on the next dollar of income.

Question 8

Federal income tax returns must be filed by April 1 of each year.

Question 9

All citizens of the United States are required to file a federal income tax return if their income falls below a certain level.

Question 10

Amounts given for tuition payments or medical expenses are not subject to gift taxes.

Question 11

All individuals with taxable income need to complete the AMT calculation.

Question 12

When Marissa completes her taxes,she can include her children,her husband,and herself as exemptions.

Question 13

Individuals are allowed to give money or items of any value to a person without being subject to taxes.

Question 14

The adjusted gross income is increased by the itemized or standard deduction.

Question 15

A tax credit reduces the taxable income on which the tax liability is computed.

Question 16

Determining adjusted gross income is the final step in calculating federal income tax.

Question 17

If your taxes due are greater than the amount you had withheld for the year,you should expect a refund after you complete your federal income taxes.

Question 18

Cash and prizes won on television game shows are usually subject to both federal and state taxes.

Question 19

A tax credit has a full dollar effect in lowering taxes.

Question 20

Tax tables list average tax rates.

Question 21

Tom needs to complete his taxes.He should be able to find a tax preparation service to complete his tax forms for as little as $15.

Question 22

Tax software can save taxpayers 25 hours or more when preparing Form 1040.

Question 23

Most states do not require state income taxes.

Question 24

The tax that is a major source of revenue for local governments is called a(n)

A) Estate tax.
B) Excise tax.
C) Income tax.
D) Real estate tax.
E) Sales tax.

Question 25

The maximum amount (in 2010)that an individual can give another in a year without being subject to federal taxes is

A) All gifts are taxable.
B) $10,000.
C) $13,000.
D) $15,000.
E) No gifts are taxable.

Question 26

A tax due on the purchase of gasoline is called a(n)

A) Estate tax.
B) Excise tax.
C) Income tax.
D) Real estate tax.
E) Inheritance tax.

Question 27

The IRS has made online filing free for millions of taxpayers through the Free File Alliance.

Question 28

Payroll deductions for federal government retirement benefits (such as old age,survivor,and disability insurance)are called

A) Estate taxes.
B) Excise taxes.
C) Social Security taxes.
D) Real estate taxes.
E) Sales taxes.

Question 29

The amount levied on the value of property bequeathed by a deceased person is

A) Inheritance tax.
B) Excise tax.
C) Social Security tax.
D) Real estate tax.
E) Sales tax.

Question 30

When calculating federal income taxes,"income" includes all of the following categories except

A) Earned income.
B) Alimony.
C) Investment income.
D) Active income.
E) Passive income.

Question 31

A worker's primary goal should be to

A) Pay his or her taxes using estimates for income and deductions.
B) Pay no income taxes.
C) Pay the average tax rate for people working in his or her industry.
D) Pay his or her fair share of taxes while taking advantage of appropriate tax benefits.
E) Pay no taxes of any type.

Question 32

You may be required to make estimated tax payments if

A) You receive a paycheck with taxes withheld.
B) You do not have interest income.
C) You are married.
D) You own a business.
E) All of these are correct.

Question 33

Contributions to a Keogh or 401(k)are tax-exempt.

Question 34

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal,state,and local levels.

A) Estate tax
B) Excise tax
C) Income tax
D) Real estate tax
E) Sales tax

Question 35

Interest paid on a home equity loan is not deductible.

Question 36

A tax imposed on the value of a person's property at the time of death is called a(n)

A) Estate tax.
B) Excise tax.
C) Income tax.
D) Real estate tax.
E) Sales tax.

Question 37

One of the best tax shelters is owning a car.

Question 38

Which of the following is NOT a tax that most people pay?

A) Federal taxes on earnings
B) Federal taxes on possessions
C) Federal taxes on wealth
D) Local taxes on property
E) State taxes on purchases

Question 39

A common filing error is signing the return.

Question 40

Some tax disputes have been escalated to the U.S.Supreme Court.

Question 41

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

A) Alternative minimum tax.
B) Earned income credit.
C) Itemized deduction credit.
D) Student deduction.
E) Withholding credit.

Question 42

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

A) AMT.
B) Average tax rate.
C) Income tax rate.
D) Marginal tax rate.
E) Total tax rate.

Question 43

When Paul completes his taxes,he can include all of the following as exemptions except

A) His 12-year-old son.
B) Himself.
C) His 22-year-old daughter who is a full-time student.
D) His wife.
E) His 20-year-old son who is working full-time and living in an apartment.

Question 44

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

A) AMT.
B) Average tax rate.
C) Income tax rate.
D) Marginal tax rate.
E) Total tax rate.

Question 45

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

A) AMT.
B) Average tax rate.
C) Income tax rate.
D) Marginal tax rate.
E) Total tax rate.

Question 46

Gross income after certain reductions have been made is

A) Adjusted gross income.
B) Earned income.
C) Exclusions from income.
D) Tax-deferred income.
E) Tax-exempt income.

Question 47

Fred has been completing his own tax returns for years.The IRS has recently contacted him with questions about some of his prior returns.How many years back is he responsible for providing documentation?

A) Until he files his returns.
B) 3 years.
C) 6 years.
D) 10 years.
E) 15 years.

Question 48

Adjustments to income include all of the following except

A) Alimony payments.
B) Contributions to a Keogh retirement plan.
C) Traditional IRA contributions.
D) Charity contributions.
E) Penalties for early withdrawal of savings.

Question 49

Athena wants to determine if she should itemize her deductions.She has identified several possible deductions.Which of the following is NOT a proper deduction?

A) Contributions to charitable organizations
B) Mortgage interest
C) Medical and dental expenses in excess of 7.5% of AGI
D) Miscellaneous expenses less than 2% of AGI
E) State income taxes

Question 50

In 2011,taxable income was reduced by ______ for each exemption claimed.

A) $1,000
B) $2,500
C) $3,700
D) $5,000
E) $10,000

Question 51

In 2011,the U.S.federal tax tables included tax rates of

A) 0%, 10%, 20%, 30%, 40%, and 50%.
B) 7%, 15%, 30%, 33%, 38%, and 52%.
C) 0%, 25%, 50%, and 75%.
D) 10%, 15%, 25%, 28%, 33%, and 35%.
E) 0%, 5%, 20%, 30%, and 50%.

Question 52

Fees,tips,and bonuses are forms of

A) Adjusted gross income.
B) Earned income.
C) Exclusions from income.
D) Tax-deferred income.
E) Tax-exempt income.

Question 53

Shannon is working on her federal income tax form and wants to determine if she should itemize her deductions.She has identified several possible deductions.Which of the following is an acceptable deduction?

A) $10,000 gift to her cousin
B) Credit card interest
C) Medical and dental expenses less than 7.5% of AGI
D) Miscellaneous expenses in excess of 2% of AGI
E) Moving expenses for a new job that is 25 miles from her old home

Question 54

Individuals can deduct expenses only in excess of 7.5% of adjusted gross income for

A) Contributions to charitable organizations.
B) Mortgage interest.
C) Medical and dental expenses.
D) Miscellaneous expenses.
E) Taxes.

Question 55

When calculating federal income taxes,what increases "income"?

A) Exclusions
B) Tax-exempt income
C) Tax-deferred income
D) Alimony received
Re
E) Tax deductions

Question 56

Joseph needs to complete his income taxes for the year.He has already calculated his adjusted gross income.What does he need to do next?

A) Add his tax-exempt income.
B) Subtract his itemized deductions.
C) Add his tax credits.
D) Subtract his tax-exempt income.
E) Add his tax exemptions.

Question 57

Total income (gross)includes

A) Exclusions from income.
B) Tax deductions.
C) Tax-deferred income.
D) Passive income.
E) Tax-exempt income.

Question 58

Income that is taxed at a later date is

A) Adjusted gross income.
B) Earned income.
C) Exclusions from income.
D) Tax-deferred income.
E) Tax-exempt income.

Question 59

How long are you required to keep tax documentation?

A) Until you file your returns.
B) 3 years.
C) 5 years.
D) 10 years.
E) 15 years.

Question 60

Income that is never subject to tax is called

A) Adjusted gross income.
B) Earned income.
C) Foreign income.
D) Tax-deferred income.
E) Tax-exempt income.

Question 61

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

A) Tax software.
B) Mail.
C) Electronic filing.
D) Fax.
E) All of these can be used.

Question 62

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

A) Filing status and exemptions.
B) Adjustments to income (AGI).
C) Tax credits.
D) Signature.
E) All of these are major sections of Form 1040.

Question 63

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

A)1040.
B)1099.
C)W-2.
D)W-4.
E)Schedule A.

Question 64

An IRS agent visited Henry's home to verify some information on his tax return.This visit was called a(n)

A) Correspondence audit.
B) Office audit.
C) Home audit.
D) Field audit.
E) Detailed audit.

Question 65

If Brenda wants to pay her fair share of taxes,no more and no less,she should practice

A) Tax evasion.
B) Tax avoidance.
C) Tax elimination.
D) Tax maximization.
E) Tax acceleration.

Question 66

Which of the following is NOT a tax credit?

A) Adoption tax credit
B) Domestic tax credit
C) Earned income credit
D) Foreign tax credit
E) Retirement tax credit

Question 67

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?

A) 1040
B) 1099
C) 4868
D) W-2
E) W-4

Question 68

Connie thinks that her salary and tax rate for next year will be lower than for this year.What step should she take to minimize her taxes in the current year?

A) Accelerate receipt of income.
B) Delay deductions.
C) Practice tax evasion.
D) Accelerate deductions.
E) None of these will allow her to minimize her taxes.

Question 69

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

A) 1040EZ
B) 1040A
C) 1040
D) 1040X
E) 1040Z

Question 70

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?

A) 1040EZ
B) 1040A
C) 1040
D) 1040X
E) 1040Z

Question 71

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?

A) Single
B) Married, filing a joint return
C) Head of household
D) Qualifying widow or widower
E) Married, but filing individually

Question 72

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

A) 1040
B) 1099
C) W-2
D) W-4
E) Schedule A

Question 73

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

A)1040.
B)1099.
C)W-2.
D)W-4.
E)Schedule A.

Question 74

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 because of his marital status?

A) Single
B) Married, filing a joint return
C) Head of household
D) Qualifying widow or widower
E) Married, but filing individually

Question 75

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

A) 1040EZ
B) 1040A
C) 1040
D) 1040X
E) 1040Z

Question 76

Annie was required to clarify or document minor questions about her tax form by mail.She participated in a(n)

A) Correspondence audit.
B) Office audit.
C) Home audit.
D) Field audit.
E) Detailed audit.

Question 77

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

A)1040.
B)1099.
C)W-2.
D)W-4.
E)Schedule A.

Question 78

Recent tax credits include all of the following except the

A) Earned income credit.
B) Foreign tax credit.
C) Adoption tax credit.
D) Graduate learning tax credit.
E) Retirement tax credit.

Question 79

Tax resources include all of the following except

A) IRS publications.
B) IRS enrolled agents.
C) Accountants.
D) Attorneys.
E) All of these are tax resources.

Question 80

Who is ultimately responsible for supplying accurate and complete information for completing a tax return?

A) Professional tax preparer
B) IRS enrolled agent
C) Taxpayer
D) Taxpayer's dependents
E) Taxpayer's attorney