Deck 4: Managing Income Taxes

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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 7

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 8

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

Question 9

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 10

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

Question 11

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

Question 12

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

Question 13

Personal income taxes are paid on all of your income.

Question 14

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

Question 15

Personal income taxes are paid only on your taxable income.

Question 16

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

Question 17

The highest marginal tax rate is currently 50 percent.

Question 18

State sales tax is an example of a regressive tax.

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

Numerous employee benefits are not included in gross income.

Question 24

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 25

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 26

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

Question 27

All gambling winnings are subject to federal income taxation.

Question 28

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

Question 29

Life insurance benefits received are taxable income.

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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 42

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

Question 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

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 54

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 55

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

Question 56

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

Question 57

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

Question 58

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 59

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

Question 60

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

Question 61

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

Question 62

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

Question 63

Tax avoidance is illegal whereas tax evasion is legal.

Question 64

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 65

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

Question 66

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

Question 67

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

Question 68

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

Question 69

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

Question 70

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

Question 71

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

Question 72

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

Question 73

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

Question 74

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

Question 75

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

Question 76

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

Question 77

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

Question 78

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

Question 79

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

Question 80

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.