Deck 4: Using Tax Concepts for Planning

Question 1

Under the TCJA of 2017, there are only two filing statuses, single or married.

Answer 1

False

Question 2

The Tax Cuts and Jobs Act of 2017 changed the standard deduction for married taxpayers filing joint returns to $24,000.

Answer 2

True

Question 3

The knowledge of tax laws can help you

A) conserve your income.
B) enhance your investments.
C) protect the transfer of your wealth at your death.
D) All of the above.

Answer 3

All of the above.

Question 4

Lucky Louie's base salary is $90,000 per year and he earns an additional $75,000 in annual bonus. Luckily, Lucky only has to pay FICA tax on

A) his base salary.
B) his base salary plus bonus up to the annual legal withholding limit for FICA.
C) all of his earnings.
D) $130,000.

Question 5

Knowledge of tax laws can help you conserve your income.

Question 6

Medicare is a government health insurance program that covers people over age 55 and provides payments to health care providers in case of illness.

Question 7

A branch of the U.S. Treasury Department, called the ________, administers the federal tax system.

A) U.S. Department of Tax
B) Internal Revenue Service
C) U.S. Tax Authority
D) U.S. Department of Collection

Question 8

________ is withheld at a rate of 6.2% on the first $128,400 of your 2018 earnings.

Question 9

FICA taxes include two components, which consist of

A) accident and disability insurance.
B) unemployment compensation and disability insurance.
C) Social Security and Medicare contributions.
D) old age and unemployment compensation.

Question 10

The Tax Cuts and Jobs Act of 2017 changed the standard deduction for single taxpayers to $14,000.

Question 11

There is no Social Security tax on income beyond a certain level.

Question 12

Which of the following taxes is only paid on the first $128,400 of your salary?

A) Federal Income Tax
B) Social Security Tax
C) Medicare Tax
D) All of the above

Question 13

Your gross wages are subject to FICA (Federal Insurance Contributions Act) taxes that fund the Social Security system and Medicare.

Question 14

Which of the following statements is not true regarding FICA taxes paid?

A) These taxes fund both Social Security and Medicare.
B) Employers are required to match employee FICA contributions.
C) All FICA taxes apply to your total income.
D) There is a limit on how much of your income will be taxed for Social Security.

Question 15

Knowledge of individual income taxes is crucial to sound financial planning.

Question 16

Employers have an option of whether or not to match an employee's Social Security and Medicare taxes.

Question 17

If you have a salary of $30,000, an IRA deduction of $2,000, a standard deduction of $12,000, and a FICA rate of 7.65 percent, how much did you pay in FICA taxes this year?

A) $1,805
B) $1,958
C) $2,142
D) $2,295

Question 18

Medicare taxes are 1.45% of your salary, regardless of the salary amount.

Question 19

Different tax brackets are associated with each filing status such as single, married filing jointly, and head of household.

Question 20

Taxpayers can have more than the minimum amount of required income tax withheld from their pay.

Question 21

Jerry is divorced and has two children that live with him. What filing status should Jerry claim on his tax return?

A) Single
B) Head of household
C) Married filing separately
D) Married filing jointly

Question 22

Which of the following is not a tax filing status option?

A) Single
B) Divorced
C) Married filing jointly
D) Head of household

Question 23

Michael's brother, Thomas, lives with Michael in his own home. Thomas has a full-time job and pays his brother for rent and utilities. Michael's filing status is

A) single.
B) head of household.
C) married, filing separately.
D) a qualifying widow(er).

Question 24

Gross income consists of all reportable income from any source.

Question 25

Stephanie, who was divorced in 2015, had filed a joint tax return with her husband in 2014. During 2015, she did not remarry and continued to maintain her home in which her three dependent children lived. In preparation of her 2015 tax return, Stephanie should file as

A) single.
B) head of household.
C) married filing separately.
D) qualifying widow(er).

Question 26

Employee contributions to qualified Individual Retirement Accounts (IRAs) and interest paid on student loans are deducted from gross income to calculate a taxpayer's adjusted gross income.

Question 27

Capital gains occur when

A) you sell your home for more than you paid.
B) you sell your family car for more than you paid.
C) you sell investment assets for more than you paid.
D) Both A and C are correct.

Question 28

Adjusted gross income is calculated by subtracting

A) your IRA contribution.
B) interest paid on student loans up to $2500.
C) unlimited interest paid on student loans.
D) Both A and B are correct.

Question 29

To qualify for "head of household" you must

A) be single.
B) have at least one dependent in your household.
C) be a homeowner.
D) Both A and B are correct.

Question 30

If you are a married taxpayer, you may use the ________ filing status.

A) single
B) married filing jointly or married filing separately
C) head of household
D) Any of the above may be used.

Question 31

If you are a surviving spouse, you may continue to use the head of household tax rates unless

A) you are divorced and your ex-spouse died in the last five years.
B) your spouse died in the last two years.
C) you have children you can claim as dependents.
D) you pay more than half the cost of maintaining your residence.

Question 32

Gross income is comprised of only salary or wages.

Question 33

Gross income includes which of the following?

A) Salaries
B) Dividends
C) Capital gains
D) All of these

Question 34

All taxpayers have a large degree of freedom in choosing their filing status.

Question 35

Gross income includes all of the following, except

A) salary or wages.
B) interest or dividends received.
C) employer's current contribution to 401(k).
D) capital gains realized.

Question 36

Determining taxes requires you to address all of the following topics, except

A) gross income.
B) daily living expenses.
C) deductions.
D) exemptions.

Question 37

All reportable income from any source is called

A) wages and salaries.
B) gross income.
C) interest income.
D) dividend income.

Question 38

Interest and dividends received by an individual taxpayer are generally taxable.

Question 39

A long-term capital gain results from profit on the sale of capital assets that were held 12 months or more.

Question 40

The timing on the sale of an investment asset generating a capital gain makes little or no difference in the amount of taxes that are owed.

Question 41

Which of the following gross income is not taxable income?

A) Health insurance reimbursements
B) Interest income
C) Dividends
D) Tips received

Question 42

If you are married and claiming the standard deduction, and gross income is $100,000 and the standard deduction is $24,000, what is your taxable income?

A) $124,000
B) $80,000
C) $76,000
D) $74,500

Question 43

A young couple buying a home would always be better off taking the standard deduction rather than itemizing deductions.

Question 44

There are 10 tax brackets for individual taxpayers.

Question 45

Taxpayers will choose to take the standard deduction because

A) too much work to itemize
B) standard deduction is large than total itemized deductions
C) taxpayer has insufficient records to identify deductions
D) All of these

Question 46

The standard deduction for married taxpayers in 2018 is $25,000.

Question 47

Which of the following is not includable in gross income for Federal income tax purposes?

A) Sales commissions
B) Cash you receive for painting your neighbor's house
C) Qualifying dividends
D) Municipal bond interest

Question 48

Tax brackets are exactly the same for joint filers as for single filers.

Question 49

When calculating taxable income, you are allowed to reduce income by a standard deduction or itemized list of deductions.

Question 50

Lucky Louie earned a salary of $100,000 this year and interest income of $3,000. Louie, was not so lucky in the stock market however and had capital losses of $3,000. What was Lucky Louie's taxable income, assuming Louie takes the standard $12,000 deduction?

A) $88,000
B) $81,000
C) $89,000
D) $90,000

Question 51

All taxpayers have a choice of whether to take the standard deduction or itemize deductions.

Question 52

Maximum personal income tax rates are

A) 25%
B) 31%
C) 35%
D) 37%

Question 53

All medical expenses may be deducted from income as long as you have the receipts or can show proof of payment.

Question 54

The standard deduction for single taxpayers in 2018 is $12,500.

Question 55

Taxable income equals

A) gross income less standard deduction.
B) gross income plus interest less standard deduction.
C) gross income less capital gains less itemized deductions.
D) None of these are correct.

Question 56

If your taxable income is $190,000 and the marginal tax bracket for amounts $157,500 - $200,000 is 32%, what will be the amount of tax due on your earnings over $157,500?

A) Not enough information provided
B) $60,800
C) $10,400
D) $64,000

Question 57

Marginal tax rate is the

A) average rate for your total income.
B) lowest rate applied to your taxable income.
C) rate applied to your last dollar of taxable income.
D) None of these is correct.

Question 58

Assuming you are married and taking the standard deduction, is it better to file separately or jointly?

A) Separate
B) Joint
C) If you have children, file as Head of Household.
D) It depends on the amount of the standard deduction.

Question 59

Tax brackets are income levels that have different tax rates.

Question 60

Each year, taxpayers can choose whether to take the standard deduction or itemize their deductions.

Question 61

For 2018, only medical expenses above 7.5% of adjusted gross income are deductible when itemizing deduction.

Question 62

Melanie and Jim, homeowners, have mortgage interest of $13,000, real estate taxes of $10,000, and charitable contributions of $1500. According to their filing status, a standard deduction of $24,000 is allowed. How much should the couple deduct on their tax return?

A) $25,000
B) $24,000
C) $24,500
D) $7,700

Question 63

In order to claim a tax deduction for a charitable contribution, you must be

A) over 21 years of age.
B) earning more than $50,000 per year.
C) itemizing deductions on your income tax return.
D) in at least the 25% tax bracket.

Question 64

Sally's adjusted gross income is $38,000. She owns a home and has mortgage interest expense of $9500, charitable contributions of $1500, property tax of $7,000 and interest on her car loan of $2,100. This year she also had medical expenses of $2,000. She is allowed a standard deduction of $12,000. What is Sally's taxable income?

A) $38,000
B) $31,300
C) $20,000
D) $29,200

Question 65

If a stock was purchased in January 2014 for $1,000 and sold in December 2015 for $3,000, a ________ of $2,000 results.

A) long-term capital gain
B) short-term capital gain
C) long-term capital loss
D) short-term capital loss

Question 66

You should claim itemized deductions if

A) itemized deductions exceed the standard deduction.
B) the standard deduction exceeds itemized deductions.
C) itemized deductions exceed exemptions.
D) itemized deductions exceed tax credits.

Question 67

Which of the following is not a legitimate itemized deduction?

A) Mortgage interest expense
B) Real estate tax
C) Interest paid on credit cards
D) State income tax

Question 68

If a stock was purchased for $5,000 in January 2015 and is sold in December 2015 for $3,000, a ________ of $2,000 results.

A) long-term capital gain
B) short-term capital gain
C) long-term capital loss
D) short-term capital loss

Question 69

When you own a house as a primary residence,

A) it is always best to itemize deductions on your tax return.
B) your property taxes are not deductible.
C) you get a straight $5,000 deduction.
D) interest and taxes may increase your allowable deductions to the point where it is beneficial to itemize them.

Question 70

Purchasing which of the following items on credit may help reduce your tax bill?

A) Automobile
B) Home
C) Stereo
D) Boat

Question 71

Interest expense paid on both home loans and car loans is deductible from your income tax.

Question 72

Which item below cannot be taken as an itemized deduction?

A) Medical expenses
B) Charitable contributions
C) Child and dependent care expenses
D) Real estate taxes

Question 73

If you were to receive $100,000 from a corporation, the most tax-efficient way to receive it would be as

A) dividends.
B) interest.
C) capital gains.
D) salary.

Question 74

Legal methods of reducing your taxes include all of the following, except

A) organizing your records to track appropriate expenses and contributions.
B) preparing your return early in the tax preparation season so you are not rushed.
C) seeking the advice of an accountant.
D) overstating cash contributions to Salvation Army Christmas kettles.

Question 75

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

A) life insurance premiums.
B) real estate property taxes.
C) travel to work expenses.
D) driver license fees.

Question 76

Itemized deductions can include mortgage interest expense, state income tax expense, charitable contributions, and other employee expenses.

Question 77

State and local tax deductions are now limited to

A) $5000.
B) $10,000.
C) $12,500.
D) This deduction is unlimited.

Question 78

________ are specific expenses instead of a standard amount that reduce adjusted gross income.

A) Exemptions
B) Household expenses
C) Itemized deductions
D) Tax credits

Question 79

Which of the following can be deducted from your taxable income even if you do not itemize?

A) Mortgage interest expense
B) Real estate taxes
C) State income taxes
D) Student loan interest

Question 80

The government usually adjusts itemized deduction amounts annually to account for inflation.