Deck 4: Planning Your Tax Strategy

Question 1

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

Answer 1

True

Question 2

Which type of tax is imposed on specific goods and services,such as gasoline and cigarettes,at the time of purchase?

A)Estate
B)Inheritance
C)Excise
D)Gift
E)Value-added

Answer 2

Excise

Question 3

What type of tax is imposed on the value of an individual's property at the time of his or her death?

A)Inheritance
B)Excise
C)Gift
D)Personal property
E)Estate

Answer 3

Estate

Question 4

The principal purpose of taxes is to:

A)finance government activities.
B)reduce the chances of inflation.
C)create jobs.
D)discourage use of certain goods and services.
E)decrease competition from foreign companies.

Question 5

Taxpayers should beware of tax preparers who offer your refund in advance (refund anticipation loans)and charge interest rates exceeding 300 percent.

Question 6

The principal purpose of taxes is to control economic conditions.

Question 7

Taxable income is used to compute the amount of:

A)exemptions.
B)income tax owed.
C)deductions.
D)capital gains.
E)exclusions.

Question 8

Capital gains refer to profits from the sale of stocks,bonds,or real estate.

Question 9

Tax avoidance refers to the use of illegal actions to reduce one's taxes.

Question 10

Tax evasion is the use of illegal actions to reduce one's taxes.

Question 11

An exclusion is earnings not included in gross income.

Question 12

The Tax Cuts and Jobs Act simplified the basic form used when filing your taxes,so that there is now only one form,Form 1040,to report your income.

Question 13

A drawback of Flexible Spending Accounts is that any account funds must be used to pay for expenses incurred before year's end or the money is lost.

Question 14

State and local governments may impose a personal property tax on the value of automobiles.

Question 15

A general sales tax is also referred to as an excise tax.

Question 16

Real estate property taxes are the major source of revenue for local government.

Question 17

Taxable income is a result of subtracting adjustments to income and standard (or itemized)deductions from gross income.

Question 18

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

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

Question 19

An office audit requires that a person visit an IRS office to clarify some aspect of his or her tax return.

Question 20

A person's filing status is affected by marital status and dependents.

Question 21

The tax on $2,000 of profit on a capital asset is deferred. A person in a 24 percent tax bracket will have to pay what amount of taxes when the asset is sold?

A)$2,000
B)$1,500
C)$760
D)$480
E)$24

Question 22

Money received in the form of dividends or interest is classified as ________ income.

A)passive
B)earned
C)excluded
D)capital gain
E)investment

Question 23

For tax years prior to 2018,a deduction from adjusted gross income for yourself,your spouse,and qualified dependents was termed:

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

Question 24

Michele Walsh is considering an additional charitable contribution of $1,500 to a tax-deductible charity,bringing her total itemized deductions to $16,000.If Michele is in a 24 percent tax bracket,how much will this $1,500 contribution reduce her taxes?

A)$0
B)$360
C)$1,500
D)$1,600
E)$3,840

Question 25

Which one of the following is included in gross income?

A)Tax credit
B)Exemption
C)Exclusion
D)Earned income
E)Tax deduction

Question 26

An exclusion affects a person's taxes by:

A)not including tax-exempt income in gross income.
B)increasing itemized deductions.
C)decreasing itemized deductions.
D)decreasing the number of exemptions a person can claim.
E)increasing the number of exemptions a person can claim.

Question 27

George Washburn had earnings from his salary of $32,000,interest on savings of $200,a contribution to a traditional individual retirement account of $1,200,and dividends from mutual funds of $125.George's adjusted gross income would be:

A)$31,125.
B)$32,000.
C)$33,200.
D)$33,400.
E)$33,525.

Question 28

Money received by an individual for personal effort is classified as ________ income.

A)passive
B)earned
C)portfolio
D)excluded
E)investment

Question 29

A taxable investment produced interest earnings of $1,200.A person in a 22 percent tax bracket would have after-tax earnings of:

A)$1,200
B)$936
C)$780
D)$264
E)$22

Question 30

A person has $5,000 in medical expenses and an adjusted gross income of $33,000.If taxpayers are allowed to deduct the amount of medical expenses that exceed 7.5 percent of adjusted gross income,what would be the amount of the deduction in this situation?

A)$375
B)$2,525
C)$2,475
D)$5,000
E)$3,000

Question 31

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

A)personal postage expenses.
B)life insurance premiums.
C)real estate property taxes.
D)retirement plan contributions.
E)annual interest paid on credit cards.

Question 32

Tax-deferred retirement plans are a type of:

A)exemption.
B)itemized deduction.
C)passive income.
D)tax shelter.
E)tax credit.

Question 33

Reductions from gross income for such items as individual retirement account contributions and alimony payments will result in:

A)adjusted gross income.
B)taxable income.
C)earned income.
D)passive income.
E)total exclusions.

Question 34

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

A)passive
B)capital gain
C)portfolio
D)earned
E)excluded

Question 35

A taxpayer with a taxable income of $45,328 and a total tax bill of $5,911 would have an average tax rate of ________ percent.

A)10
B)12
C)13.04
D)14.67
E)22

Question 36

Which one of the following items is a set amount of income on which no taxes are paid?

A)Medical expenses
B)Standard deduction
C)Deferred income
D)Withholding
E)Capital gains

Question 37

________ are expenses that a taxpayer is allowed to deduct from adjusted gross income.

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

Question 38

When a taxpayer's income increases $1,000 and the taxes owed increases from $7,850 to $8,200,the marginal tax rate is ________ percent.

A)12
B)22
C)24
D)32
E)35

Question 39

Which of the following would not be included in gross income?

A)Portfolio income
B)Investment income
C)Exclusions
D)Passive income
E)Earned income

Question 40

Which one of the following would reduce gross income to obtain adjusted gross income?

A)IRA contributions
B)Mortgage interest
C)Medical expenses
D)Moving expenses
E)Charitable contributions

Question 41

Which one of these investments produces tax-exempt income?

A)Real estate
B)Corporate stock
C)Retirement plan
D)Municipal bond
E)Corporate bond

Question 42

For 2018,which form would a married individual with less than $100,000 in taxable income use to file his federal income tax return?

A)Form 1040X
B)IRS Publication
C)Form 1040
D)Schedule A
E)Schedule E

Question 43

A taxpayer whose spouse recently died and who has a dependent is most likely to use the ________ filing status.

A)single
B)married filing joint return
C)married filing separate return
D)head of household
E)qualifying widow or widower

Question 44

A person who owes total federal income taxes of $3,450 but had total withholdings of $3,125 would:

A)receive a refund of $3,125.
B)make a payment of $3,450.
C)make a payment of $325.
D)receive a refund of $3,450.
E)receive a refund of $325.

Question 45

A tax credit of $100 for a person in a 24 percent tax bracket would reduce a person's taxes owed by:

A)$10
B)$28
C)$76
D)$100
E)$24

Question 46

Capital gains refer to:

A)tax-exempt investments.
B)portfolio income
C)profits from the sale of a capital asset.
D)earnings from investments such as dividends or interest.
E)earnings from passive activities.

Question 47

A short-term capital gain is profit earned on an investment that is:

A)made involving small companies.
B)not taxed as ordinary income.
C)held for less than a year.
D)in foreign companies.
E)made only from real estate.

Question 48

The "head of household" filing status is for someone who is:

A)recently divorced.
B)recently widowed.
C)unmarried and has a dependent child.
D)married but only one spouse has income.
E)married and each spouse makes about the same income.

Question 49

Which one of these terms is defined as the use of legitimate methods to reduce one's taxes?

A)Tax evasion
B)Tax avoidance
C)Tax exemption
D)Tax deferral
E)Tax deduction

Question 50

Which type of audit is the simplest and most common for taxpayers?

A)A field audit
B)An office audit
C)A research audit
D)A correspondence audit
E)A documentation audit

Question 51

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

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

Question 52

The interest is deductible on your tax return for which of the following?

A)Home equity loan
B)Auto loan
C)Credit card
D)Life insurance policy cash value loan
E)Personal cash loan from a credit union

Question 53

Kelly Vernon wants her tax return prepared by a government-approved tax expert.Which of the following tax preparers should Kelly use?

A)CPA
B)Enrolled agent
C)Nationally-certified tax preparer
D)Tax attorney
E)Local tax preparer

Question 54

In 2018,the Form 1040 is not appropriate for someone who:

A)is single with no children.
B)makes less than $50,000 with no interest or dividends.
C)had no taxable income and no tax withheld.
D)has a complex tax situation.
E)has a simple tax situation.

Question 55

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

A)A U.S.citizen who is a resident of Puerto Rico.
B)A U.S.citizen earning $8,000 where taxes were withheld.
C)A single person earning less than $5,000.
D)A single person over age 65 earning $20,000.
E)A 28-year old single college student earning more than $16,000.

Question 56

The pay-as-you-go system requires:

A)paying the total amount of taxes owed on May 15.
B)filing quarterly tax returns.
C)having federal income tax deducted from your paychecks.
D)earning tax credits for various deductions.
E)filing the 1040 EZ form.

Question 57

Estimated quarterly tax payments must be made by people who:

A)are employed in a foreign country.
B)receive regular payroll checks.
C)work for the government.
D)do not have taxes withheld from their paychecks.
E)itemize deductions.

Question 58

Itemized deductions are recorded on:

A)W-2 form.
B)Schedule A.
C)Schedule B.
D)Form 2106.
E)Form 1040B.

Question 59

Union dues,tax preparation fees,and other miscellaneous expenses are:

A)partially deductible.
B)fully deductible.
C)deductible for self-employed individuals only.
D)deductible for people in certain income categories.
E)not deductible in 2018.

Question 60

Which one of the following is most likely to qualify as an itemized deduction?

A)Interest on a credit card or charge account
B)Charitable contributions
C)Losses reimbursed by insurance
D)Life insurance premiums
E)Traffic violation fee

Question 61

Alex Bates goes on The Price Is Right and earns $525,000 in winnings.What type of income is this?

A)Earned income
B)Investment income
C)Passive income
D)Other income
E)Deferred income

Question 62

The state of Oklahoma imposes a tax of $.17 per gallon on gasoline.What type of tax is this most likely to be?

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

Question 63

Elizabeth Gleason just died.At the time of her death the total value of her assets was $150,000.The federal government collected $7,500 in taxes based on this value.What type of tax is this most likely to be?

A)General sales tax
B)Excise tax
C)Personal property tax
D)Income tax
E)Estate tax

Question 64

Which one of these statements correctly applies to a Roth IRA?

A)Earnings on the account are tax-free after five years.
B)Annual contributions may exceed $7,000.
C)Deposits must be in federally-insured accounts.
D)Funds are only to be used for educational expenses.
E)Only self-employed workers can contribute to a Roth IRA.

Question 65

An itemized deduction of $800 with a 33 percent tax rate would reduce a person's taxes by:

A)$800.
B)$33.
C)$200.
D)$536.
E)$264.

Question 66

Al Barkley is single and earns $40,000 in taxable income.He uses the following tax rate schedule to calculate the taxes he owes. What is Al's average tax rate?

A)11.85%
B)18.27%
C)21.35%
D)23.87%
E)25.00%

Question 67

Joan Sanchez is single and earns $40,000 in taxable income.She uses the following tax rate schedule to calculate the taxes she owes. What is Joan's marginal tax rate?

A)10%
B)12%
C)22%
D)24%
E)between 10% and 12%

Question 68

Haley Thomas has adjusted gross income of $40,000.She paid $4,700 in property taxes during the year.How much of the tax can she include as an itemized deduction?

A)$4,700
B)$4,000
C)$3,000
D)$700
E)$0

Question 69

Which one of the following is a tax-deferred retirement plan sponsored by an employer?

A)Roth IRA
B)Education savings account
C)Keogh plan
D)401(k)plan
E)529 plan

Question 70

Kim Lee is single and earns $32,000 in taxable income.He uses the following tax rate schedule to calculate the taxes he owes. Calculate the dollar amount of estimated taxes that Kim owes.

A)$3,200.00
B)$3,649.50
C)$3,840.00
D)$7,040.00
E)$7,680.00

Question 71

Elaine's Embroidery Emporium which is run out of Elaine's home is visited by an IRS agent who wants to verify the office expenses Elaine claims are valid.What type of IRS audit is this?

A)Correspondence audit
B)Office audit
C)Field audit
D)Detailed audit
E)Research audit

Question 72

Mike Hansen has adjusted gross income of $82,000.During the year,Mike decided he needed a larger home.He purchased a home on a golf course in the same town as his first home.Mike incurred $6,000 in moving expenses.How much of this can he include as an itemized deduction?

A)$8,200
B)$6,150
C)$6,000
D)$1,000
E)$0

Question 73

John Williams goes into a local department store and purchases a new suit.He pays $48 in taxes on this purchase.What type of tax is this most likely to be?

A)General sales tax
B)Excise tax
C)Personal property tax
D)Income tax
E)Estate tax

Question 74

Randal Snyder is 55 years old,and has adjusted gross income of $40,000.He has medical expenses for the year ending 2018 of $7,000.How much of these expenses can he include as an itemized deduction?

A)$0
B)$3,000
C)$4,000
D)$6,000
E)$7,000

Question 75

Drew Davis earns $4,500 per month from his job at Cisco Systems; $900 is withheld from this amount each month for taxes.What type of tax is this most likely to be?

A)General sales tax
B)Excise tax
C)Personal property tax
D)Income tax
E)Estate tax

Question 76

A ________ allows a taxpayer to put pre-tax dollars into an employer-sponsored program to cover medical expenses or child care costs.

A)tax credit
B)tax deduction
C)flexible spending account
D)tax deferred investment
E)tax-exempt investment

Question 77

Mr.and Mrs.Keating want to give their son Dudley a total of $30,000.They each write him a check for $15,000 so they won't have to pay any gift tax.This is an example of:

A)fraud.
B)tax evasion.
C)tax exclusion.
D)tax avoidance.
E)tax deferred income.

Question 78

Mary Garcia is a U.S.citizen that worked in Mexico for part of the year and earned $50,000 while she was there.This foreign earned income will not be included in her gross income for the year.This represents a tax:

A)deduction.
B)exclusion.
C)exemption.
D)credit.
E)refund.

Question 79

Tim Bridges owns a fishing boat.His state imposes an annual 3.25 percent tax on the current value of this boat.What type of tax is this most likely to be?

A)General sales tax
B)Excise tax
C)Personal property tax
D)Income tax
E)Estate tax

Question 80

An IRA,Keogh plan,and 401(k)plan 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.