Deck 3: Taxes in Your Financial Plan

Question 1

Tax assistance from an attorney is less common than using a tax service.

Answer 1

True

Question 2

A province may impose a personal property tax.

Answer 2

True

Question 3

There is no significant difference between a federal tax credit and a federal tax deduction.

Answer 3

False

Question 4

Taxes are not only considered in financial planning in April.

Question 5

Tax-exempt income has a greater financial benefit than tax-deferred income.

Question 6

Tax evasion refers to illegal actions to reduce one's taxes.

Question 7

Most taxpayers have to file quarterly payments of estimated amounts owed for taxes.

Question 8

A field audit requires that a taxpayer visit an auditing agent to clarify some aspect of his or her tax return.

Question 9

Several courses of appeal are available to taxpayers who disagree with a revenue service ruling on their tax return audit.

Question 10

A tax on the value of automobiles,boats,or furniture can also be referred to as an investment tax.

Question 11

Income from a partnership is included under net business income.

Question 12

A tax credit is an amount subtracted directly from the amount of taxes owed.

Question 13

Taxable income is the total earnings of a person.

Question 14

Deductions are amounts that a taxpayer is allowed to deduct from taxable income.

Question 15

If you are a self-employed individual,you do have to make both employee and employer contributions to the CPP or QPP.

Question 16

Real-estate property taxes are significant but not a major source of revenue for local governments.

Question 17

There is a withholding on tax paid to Canadian residents on interest,dividends,rent and royalties.

Question 18

The principal purpose of taxes is to control economic conditions.

Question 19

An estate tax is imposed on the value of an individual's property at the time of his or her death.

Question 20

A tax credit is an amount subtracted directly from the amount of taxes owed.

Question 21

Taxable income is used to compute a person's

A)exemptions.
B)income tax.
C)deductions.
D)tax credit.
E)exclusions.

Question 22

Winning the lottery affects a person's tax situation by

A)increasing the standard deduction.
B)increasing the taxpayer's marginal tax rate.
C)decreasing itemized deductions.
D)increasing tax-exempt income.
E)having no influence at all on taxable income.

Question 23

A tax ____________ is an amount subtracted directly from the amount of taxes owed.

A)credit
B)exemption
C)deduction
D)exclusion
E)shelter

Question 24

The ______________ property tax is based on the value of land and buildings.

A)personal
B)real estate
C)direct
D)proportional
E)regressive

Question 25

Reductions from gross income for such items as registered retirement account contributions and RESP payments will result in

A)business income
B)taxable income.
C)earned income.
D)net income.
E)total exclusions.

Question 26

Income that is not subject to income tax includes:

A)the GST/HST rebate.
B)the Canada child tax benefit
C)gifts.
D)lottery winnings.
E)GST/HST rebates,Canada Child Tax benefits,gifts,and lottery winnings are not subject to income tax.

Question 27

Jack sold $20,000 worth of stocks that were purchased one year ago for $15,000.He is in a 22% tax bracket.Jack's capital gains taxes are:

A)$500.
B)$550.
C)$1,100.
D)$2,500.
E)$4,400.

Question 28

Money received in the form of dividends or interest is ____________ income.

A)business income
B)earned or employment
C)excluded
D)capital gain
E)investment

Question 29

Which of the following is a standard tax credit?

A)itemized deductions
B)withholding
C)an earned tax credit
D)the basic personal amount
E)capital gains

Question 30

An exemption affects a person's tax situation by:

A)increasing the standard deduction.
B)increasing the taxpayer's marginal tax rate.
C)decreasing itemized deductions.
D)reducing the taxpayer's taxable income.
E)increasing tax-exempt income.

Question 31

The use of legitimate methods to reduce one's taxes is tax ___________.

A)evasion
B)avoidance
C)exemptions
D)deferred techniques
E)reductions

Question 32

An expense that would be included in the deductions of a taxpayer is

A)travel to work.
B)life insurance premiums.
C)union and professional dues.
D)a driver's license fee.
E)tuition fees.

Question 33

Phillip Marnier had earnings from his salary of $40,000,interest on savings of $700,and a contribution to a registered retirement saving plan of $1,500.Phillip's net income would be

A)$39,200.
B)$40,000.
C)$39,300.
D)$38,500.
E)$41,500.

Question 34

Money received by an individual for personal effort is ____________ income.

A)earned or employment investment
B)investment
C)portfolio
D)excluded
E)capital gains

Question 35

Which of the following would result in a reduction of taxable income?

A)portfolio income
B)tax credits
C)union dues
D)business income
E)earned income

Question 36

Earnings from a limited partnership would be an example of ____________ income.

A)earned
B)investment
C)portfolio
D)net business income
E)excluded

Question 37

____________ are expenses that a taxpayer is allowed to deduct from total income.

A)Exemptions
B)Exclusions
C)Deductions
D)Tax credits
E)Passive income

Question 38

The basic personal amount is

A)the standard deduction.
B)a tax credit.
C)an itemized deduction.
D)an exclusion.
E)an exemption.

Question 39

Which of the following would be excluded from total income to obtain net income?

A)contributions to RPPs
B)mortgage interest
C)child support payments
D)foreign income exclusion
E)charitable contributions

Question 40

The main purpose of taxes is to

A)create jobs
B)reduce the chances of inflation.
C)generate revenue for funding government programs.
D)discourage use of certain goods and services.
E)decrease competition from foreign companies.

Question 41

"Grossed-up" Canadian dividends are multiplied by what amount in order to determine the level of taxable dividends?

A)15%
B)18.97%
C)45%
D)50%
E)60%

Question 42

Which of the following is an example of a tax credit?

A)mortgage interest
B)amounts withheld for social insurance
C)individual retirement account contributions
D)caregiver and medical expenses
E)net business income

Question 43

Sheira Harvey worked in Poland for part of the year and earned $50,000 while she was there.This income will not be included in her income for the year.This represents:

A)A deduction
B)An exclusion
C)An exemption
D)A tax credit
E)An increase of income

Question 44

A person with a total tax liability of $4,350 and withholding of federal taxes of $3,975 would:

A)receive a refund of $4550.
B)owe $8325.
C)owe $375.
D)receive a refund of $8325.
E)receive a refund of $375.

Question 45

Capital gains refer to

A)tax-exempt investments.
B)profits from the sale of an investment asset.
C)gains from the sale of capital assets
D)earnings from investments such as dividends or interest.
E)tax-deferred investments.

Question 46

An example of a tax-exempt investment is

A)interest on Canada savings bonds.
B)dividends from corporate stock.
C)a gain on the sale of your home.
D)earnings from a mutual fund.
E)interest on corporate bonds.

Question 47

Making use of legitimate methods to reduce one's taxes is called tax ___________.

A)evasion
B)planning
C)exemptions
D)deferred techniques
E)reductions

Question 48

A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person's taxes be

A)$10.
B)$28.
C)$14.
D)$50.
E)$35.

Question 49

Which of the following is a non-refundable tax credit?

A)Tuition and education amount
B)GST and PST paid on purchases
C)Moving expenses
D)Life insurance premiums
E)Basic personal amount

Question 50

Which type of tax expert would be of most value when you have a difference of opinion with the tax department?

A)an enrolled agent
B)a nationally-chartered tax preparer
C)a CA
D)a tax accountant
E)a tax attorney

Question 51

Most people pay federal income tax by

A)paying the total amount owed by April 15.
B)filing quarterly tax payments.
C)having amounts withheld from source.
D)earning tax credits for various deductions.
E)cashing in their saving.

Question 52

Jeffrey is a self-employed carpenter.He bills his clients $60,000 a year.Total business expenses amount to $10,000 a year.His only eligible income tax deduction is $5,000 for an RRSP contribution.If the first $36,000 of taxable income is taxed by the Federal Government at a rate of 15% and levels up to approximately $70,000 are taxed at 22%,what is his federal tax liability before considering tax credits?

A)$5,760
B)$6,750
C)$7,380
D)$9,900
E)$12,500

Question 53

Identify the correct statements I Tax deductions are more valuable to a high income earner than tax credits.
II RESPs are excellent income splitting vehicles for families with young children.
III Students can deduct moving expenses when they move back home to take up a summer job.

A)I and II,only
B)II and III,only
C)I and III,only
D)I,II and III
E)I only

Question 54

The financial planning objective is to:

A)evade taxes.
B)minimize taxes.
C)maximize income.
D)maximize after-tax cash flows.
E)maximize tax credits.

Question 55

An RRSP,RPP,and IPP are examples of

A)tax-exempt retirement plans.
B)tax-deferred retirement plans.
C)capital gains.
D)self-employment insurance programs.
E)job-related expenses that are tax deductible.

Question 56

An example of a non-refundable tax credit is

A)interest on a credit card or charge account.
B)certain job-related travel expenses.
C)the cost of commuting to work.
D)life insurance premiums.
E)student loan interest fees.

Question 57

An RPP differs from an RRSP in that

A)earnings on the RPP are tax free after five years.
B)contributions may exceed $2,000 in the RRSP.
C)an RRSP is set up by an employer for an employee.
D)An RPP is set up by an employer for an employee.
E)funds are only to be used for education expenses

Question 58

Jennifer made $2000 worth of charitable donations.Her total income is $36,000 and she is in the 22% federal tax bracket.What is her charitable donations tax credit?

A)$320
B)$440
C)$552
D)$2,000
E)$5,760

Question 59

Which of the following people is least likely to have to file a federal income tax return?

A)a person earning $8,750
B)a person earning $10,750
C)a person earning less than $9600
D)a person over age 65
E)a college student

Question 60

Estimated quarterly tax installments must be made by those who

A)are employed in a foreign country.
B)receive dividends.
C)work for the government.
D)owe year-end taxes of over $2000 for both the current year and either of the two preceding years.
E)have been caught committing fraud.

Question 61

How is taxable income computed?

Question 62

Cameron Nelson wants to complete his own federal income tax return.He has several questions about the tax form to use and what items should be reported as income.What sources of assistance would you recommend for Cameron?
Both the CCRA and the Québec Ministère du Revenu offer comprehensive guides to tax returns.You may surf their sites at HYPERLINK "http://www.cra-arc.gc.ca/" ,and others.

Question 63

Why are capital losses important?

Question 64

What is the benefit of the Home Buyer's Plan?

Question 65

What is the difference between the marginal tax rate and the average tax rate? In most cases,which rate is less? If your taxable income in 2004 was $50,000,what would be your federal taxes,marginal tax rate and average tax rate?