Deck 4: Taxes: the Governments Share of Your Rewards

Question 1

Which of the following items are not included in gross income for the calculation of your federal income taxes?

A)Wages and salaries
B)Life insurance benefits
C)Awards
D)Bonuses
E)All of the above items are included in gross income.

Answer 1

Life insurance benefits

Question 2

For individuals with income below specified limits,a contribution to a traditional IRA is taken as

A)a gross income addition.
B)an adjustment (deduction)to gross income.
C)an itemized expense.
D)a credit.

Answer 2

an adjustment (deduction)to gross income.

Question 3

An increase in which of the following would not decrease your taxable income?

A)Federal taxes withheld from wages
B)State and local taxes withheld from wages
C)Personal dependency exemptions and personal deductions
D)Adjustments to gross income

Answer 3

Federal taxes withheld from wages

Question 4

Taxable income equals adjusted gross income minus

A)tax credits.
B)nontaxable exclusions.
C)personal dependency exemptions and personal deductions.
D)taxes withheld from wages.

Question 5

If parents claim a child as an exemption on their tax return,the child on his or her tax return

A)may take an additional exemption,regardless of how much the child has earned.
B)may take an additional exemption,only if the child has earned less than a specified amount.
C)may not claim an additional exemption.
D)may only claim an additional exemption if he or she is under age 16.

Question 6

Which item below is a nontaxable exclusion from gross income?

A)Municipal bond interest
B)Interest on U.S.Series EE bonds
C)Alimony received
D)Bingo winnings

Question 7

Which of the following is definitely not an adjustment to gross income?

A)Contributions to a health savings account
B)Non-taxable municipal bond interest
C)Non-taxable contributions to IRAs
D)Alimony payments

Question 8

Which of the following items are not included in gross income for the calculation of your federal income taxes?

A)Wages and salaries
B)Dividends
C)Awards
D)Municipal bond interest
E)All of the above items are included in gross income.

Question 9

Under the current tax law

A)only wage-earners may take both a standard deduction and also itemize personal deductions.
B)only married couples may take both a standard deduction and also itemize personal deductions.
C)only self-employed individuals may take both a standard deduction and also itemize personal deductions.
D)all individuals must choose between a standard deduction or itemizing personal deductions.

Question 10

Personal exemptions are deducted from

A)gross income.
B)adjusted gross income.
C)taxable income.
D)personal income.

Question 11

Using the federal income tax formula,which statement below is true?

A)Taxable income equals adjusted gross income minus credits.
B)Gross income items equal adjusted gross income minus personal exemptions.
C)Adjusted gross income equals gross income items plus or minus adjustments to gross income.
D)Adjusted gross income equals gross income items minus personal exemption deductions.

Question 12

Global income consist of

A)income from all sources.
B)only earned income.
C)all income less tax credits.
D)all income subject to the federal income tax.

Question 13

With respect to inflation indexing,which statement is true?

A)The exemption allowance and the standard deduction are indexed.
B)Allowable IRA contributions are indexed.
C)The tax brackets are indexed.
D)All items above are indexed.

Question 14

Which of the following is an adjustment to gross income?

A)Property taxes
B)Qualified Educational Expenses
C)Gambling losses
D)Job related moving expenses

Question 15

The standard deduction for married couples filing jointly is

A)equal to that of single filers.
B)twice that of single filers.
C)more than twice that of single filers.
D)more than single filers,but less than twice that of single filers.

Question 16

The standard deduction is the largest for

A)married couples filing jointly.
B)a head of household
C)a single filer.
D)married individuals filing separately.

Question 17

The dollar value of the personal exemptions

A)is positively related to taxable income.
B)depends only on the number of adults in the household.
C)is positively related to the number of dependents.
D)will depend upon your tax credits.

Question 18

Gross income consists of

A)income from all sources.
B)only earned income.
C)all income less tax credits.
D)all income subject to the federal income tax.

Question 19

With a traditional IRA and earned income below federally determined limits,the annual contributions

A)are taxed,but the interest on the fund accumulates tax free.
B)reduce your taxes,but the interest income on the IRA is taxed in the year it is earned.
C)reduce your taxable income.The funds in the IRA and the return on the IRA are not taxed until the funds are disbursed in your retirement years.
D)are taxed once when they are placed in the IRA and again when they are disbursed from the IRA.

Question 20

Which of the following items are not included in gross income for the calculation of your federal income taxes?

A)Wages and salaries
B)Dividends
C)Awards
D)Bonuses
E)All of the above items are included in gross income.

Question 21

Which item below is not taken as an itemized deduction?

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

Question 22

Individuals with above average amounts of mortgage interest,medical expenses and property taxes are likely to

A)take both itemized deductions and the standard deduction.
B)take only the standard deduction.
C)take only itemized deductions.
D)take the alternative minimum tax.

Question 23

Ben Fasby has taxable income of $7,000,and the following tax rate schedule is applicable:
Taxable Income Tax Rate
$0 to $3,400 0 %
$3,400 to $5,500 12 %
$5,500 to $7,600 14 %
Ben's marginal tax rate is

A)6.6%.
B)8.3%.
C)12.0%.
D)14.0%.

Question 24

Which of the following does not represent a "Filing Status" on your personal income tax return?

A)Single
B)Married,filing joint return
C)Dependant
D)Head of Household

Question 25

The standard deduction is smallest for

A)married couples filing jointly.
B)those filing as a head of household.
C)single filers.
D)those over age 65.

Question 26

Which of the following would not be a good reason for itemizing deductions rather than take the standard deduction?

A)Extraordinary hospital bills
B)Considerable IRA contributions
C)Substantial mortgage interest
D)Huge property taxes

Question 27

When taxable income exceeds certain levels,exemption and deduction allowances

A)increase in proportion to increases in taxable income.
B)are limited but may be carried over to future years.
C)are eliminated.
D)reach a maximum allowable amount.

Question 28

Under the current tax structure,income brackets

A)are positively related to both the marginal tax rate and the average tax rate.
B)are negatively related to both the marginal tax rate and the average tax rate.
C)are positively related to the marginal tax rate,but negatively related to the average tax rate.
D)are negatively related to the marginal tax rate,but positively related to the average tax rate.

Question 29

Which one of the following housing related expenditures is not an itemized deduction?

A)Property taxes
B)Mortgage interest payments
C)Rental payments
D)All of the above can be taken as itemized deductions.

Question 30

Suppose your taxable income is over $66,000 but less than $137,000 and your taxes are equal to $15,000 plus 30% of any amount over $66,000.If your income is $80,000,what is your tax payment?

A)$4,200
B)$19,200
C)$19,800
D)$56,100

Question 31

For higher-income individuals the marginal tax rate will be

A)greater than the average tax rate.
B)equal to the average tax rate.
C)less than the average tax rate.
D)above,equal to,or less than the average tax rate.It is impossible to know given the present information.

Question 32

Under the current tax structure,an increase in wages that raises your taxable income and moves you into a higher tax bracket can

A)will definitely decrease your after-tax income.
B)will leave your average tax rate unchanged.
C)will lower your marginal tax rate on your last dollar of earnings.
D)will increase your marginal tax rate on your last dollar of earnings.

Question 33

The medical expense deduction may only be taken if they were

A)incurred during a hospital stay that lasted at least two days.
B)more than 2 percent of adjusted gross income.
C)more than 7.5 percent of adjusted gross income.
D)more than 20 percent of adjusted gross income.

Question 34

Which of the following could not be taken as an itemized deduction?

A)Commuting expenses
B)Mortgage interest expenses
C)Medical expenses
D)Property taxes

Question 35

Erin pays $1,000 in taxes on $20,000 of gross income.If her income were to rise by $5,000,her taxes would increase from $1,000 to $1,500.Given this information,her marginal tax rate is

A)20%.
B)10%.
C)8%.
D)5%.

Question 36

Taxpayers should claim itemized deductions only if

A)itemized deductions exceed the standard deduction.
B)they are also claiming a standard deduction.
C)itemized deductions exceed tax credits.
D)they use the tax rate tables to calculate their taxes.

Question 37

Which one of the following housing related expenditures is not an itemized deduction?

A)Property taxes
B)Mortgage interest payments
C)The capital gain on the sale of a home
D)All of the above can be taken as itemized deductions.

Question 38

The standard deduction is largest for

A)married couples filing jointly.
B)those filing as a head of household.
C)single filers.
D)married individuals filing separately.

Question 39

Ben Fasby has taxable income of $7,000,and the following tax rate schedule is applicable:
Taxable Income Tax Rate
$0 to $3,400 0 %
$3,400 to $5,500 12 %
$5,500 to $7,600 14 %
Ben's average tax rate is

A)6.6%.
B)8.3%.
C)12.0%.
D)14.0%.

Question 40

The tax law allows additional standard deduction amounts

A)only for impaired vision.
B)for alimony payments.
C)for both impaired vision and age 65 or older.
D)for second homes.

Question 41

Michael had a $4,000 loss on the sale of his car.He

A)cannot deduct the capital loss on this personal use asset.
B)can only deduct up to $3,000 of the loss in the initial year of the sale.
C)can deduct the entire $4,000 loss in the year of the sale.
D)can deduct $3,000 in the year of the sale and the remaining loss in a subsequent tax year.

Question 42

Given the choice between a $1 tax deduction and a $1 tax credit,you should

A)always prefer the tax credit.
B)always prefer the tax deduction.
C)be indifferent between the two.
D)prefer the deduction only if your are in a high marginal tax bracket.

Question 43

The alternative minimum tax (ATM)is most likely to have a negative impact on

A)low income earners.
B)retired individuals.
C)high income earners with substantial deductions.
D)death estates.

Question 44

Anita sold for $60,000 her home that she purchased ten years ago for $20,000.She then purchased another home a month later for $70,000.Her capital gain on the sale of the first home was

A)$60,000
B)$40,000.
C)$30,000.
D)$0.

Question 45

Alicia has a tax credit of $100 and a marginal tax rate of 28%.Alicia's income tax will be reduced by how much as a result of the credit?

A)$28
B)$128
C)$100
D)None of the above;her taxes will increase by $100.

Question 46

Which one of the following statements is false?

A)The IRS must pay interest on excess withholding of federal income taxes.
B)If your income is not subject to withholding you must pay estimated taxes.
C)Employers are required to provide each employee an annual report of his or her wages.
D)Employers are required to provide each employee an annual report of his or her federal tax withholdings.

Question 47

A $1 tax deduction reduces your tax liability

A)by $1.
B)by the same amount as a $1 tax credit.
C)by more than a $1 tax credit.
D)by less than a $1 tax credit.

Question 48

Maria had capital losses last year of $10,000.She will be able to deduct how much from her other taxable income in that year?

A)$10,000
B)$ 5,000
C)$ 3,000
D)$ 2,000

Question 49

Carlos had $5,000 in capital losses last year and $8,000 in capital gains this year.He will include with (or exclude from)his other income this year

A)$6,000.
B)$3,000.
C)$8,000.
D)$0.

Question 50

Which of the following statements is false?

A)Self-employed individuals can delay paying taxes until the end of the tax year.
B)You can reduce withholding of federal income taxes by refilling a W-4 with your employer.
C)You can receive a tax refund if you have excess amounts withheld for federal taxes.
D)Having an excessive amount withheld for federal taxes represents poor financial planning.

Question 51

If your employer is withholding an excessive amount for federal taxes

A)there is nothing you can do about it.
B)you must petition the IRS for a reduction in your withholding rate.
C)you can refile a W-4 with your employer to have the withholding reduced.
D)your employer must reimburse you for any interest you lost on the excess withholdings.

Question 52

Which of the following statements concerning IRS audits is false?

A)In an administrative audit,your files are reviewed before an administrative law judge.
B)In a field audit,the IRS visits your premises to examine your return.
C)In an office audit,you visit the IRS office.
D)In a self audit,the IRS asks you to examine the appropriateness of an item on your return.

Question 53

At the end of the year,your employer will provide you with a statement listing your total wages for the year.This is known as a Form

A)W-4.
B)W-2.
C)1040.
D)1040a.

Question 54

Ben Fasby has taxable income of $7,000,and the following tax rate schedule is applicable:
Taxable Income Tax Rate
$0 to $3,400 0 %
$3,400 to $5,500 12 %
$5,500 to $7,600 14 %
Ben's tax liability is

A)$980.
B)$210.
C)$462.
D)$870.

Question 55

Matthew had a $4,000 gain from the sale of his car.He

A)need not report the gain since it arose from the sale of a personal asset.
B)must report the gain as a capital gain.
C)must report only half the gain since capital gains enjoy favorable tax treatment.
D)can defer paying taxes on the gain by buying another customized car of equal or greater value.

Question 56

The purpose of the alternative minimum tax (ATM)is to

A)eliminate the marriage penalty for married couples.
B)eliminate the tax penalty on investment income.
C)ensure that even minor estates are liable for death taxes.
D)ensure that households exceeding certain income limits pay at least some tax.

Question 57

The Alternative Minimum Tax has become an increasing burden for middle income taxpayers,because

A)it is not indexed for inflation.
B)an increasing percentage of taxpayers are self-employed.
C)Congress has repeatedly decreased income limits on who must pay the tax.
D)of an increase in the ratio of non-wage to wage income.

Question 58

The form on which an employer lists annual taxes withheld is a

A)1090 Form.
B)1040 Form.
C)W-4 Form.
D)W-2 Form.

Question 59

Alicia has an additional itemized deduction of $100 and a marginal tax rate of 28%.Alicia's income tax will be reduced by how much as a result of this itemized deduction?

A)$28
B)$128
C)$100
D)None of the above;her taxes will increase by $100.

Question 60

Anita sold for $60,000 her home that she purchased ten years ago for $20,000.She then purchased another home a month later for $70,000.The taxable amount of her capital gain is

A)$60,000.
B)$40,000.
C)$30,000.
D)$0.

Question 61

Which of the following statements is false?

A)If you are listed as a dependent on your parent's return,you need not file an individual return yourself.
B)If you are under 24 and a full-time student,you may be claimed as a dependent on your parent's return.
C)A qualified tuition reduction is tax-free.
D)Scholarships and fellowships may or may not be included in taxable income.

Question 62

A refund anticipation loan is associated with

A)electronic tax filing.
B)an automatic extension for late filing.
C)a tax refund in excess of $10,000.
D)an unsuccessful IRS audit.

Question 63

Tax deferral

A)is the same as tax avoidance.
B)differs from tax avoidance but may also lower your tax payments because of the compounding effect of untaxed income.
C)is a poor tax planning approach whenever you expect a future marginal tax rate lower than your current marginal rate.
D)is illegal,while tax avoidance is legal.

Question 64

Property taxes are

A)primarily imposed by local and city governments.
B)primarily imposed by state governments.
C)primarily imposed by the federal government.
D)are equally likely to be imposed at all levels of government.

Question 65

Which of the following would not be a characteristic of a qualifying educational expense deduction?

A)The education must be required by your employer and serve to maintain or improve your skills in your present work.
B)The education must enable you to meet the minimum skills for your present job.
C)It reduces your taxable income only if you itemized.
D)For it to reduce your taxable income,your job related deductions must exceed 2 percent of your adjusted gross income.

Question 66

The Hope Scholarship Credit

A)is available for the first two-years of postsecondary education.
B)may be taken along with the Lifetime Earning Credit in any given year.
C)is available to all,regardless of income.
D)may be claimed for only one student on a single family's return.

Question 67

Which of the following is not used to defer income?

A)Traditional IRAs and Keoghs
B)Annuities
C)U.S.Treasury Series EE bonds
D)Municipal bonds

Question 68

Which statement is not true of Social Security taxes?

A)There is an annually determined limit on the income that is subject to social security taxes.
B)They must also be paid by self-employed individuals.
C)They cannot be deducted as an itemized expense on your individual income tax return.
D)They have a progressive rate structure similar to that of the personal income tax.

Question 69

Which of the following statements is false?

A)IRS publications provide helpful advice on filing the federal personal income tax return.
B)The statute of limitations gives the IRS three years from the time the return is filed to impose additional tax liabilities.
C)Most tax service companies can provide the expert advice that high-income individuals with complex tax situations need.
D)Many financial planners do not specialize in tax advice.However,they may refer you other professionals who do.

Question 70

FICA taxes include two components these consist of

A)old age-disability and health insurance.
B)unemployment compensation and disability insurance.
C)old age and unemployment compensation insurance.
D)accident and disability insurance.

Question 71

Which item below is not a type of IRS audit?

A)Administrative audit
B)Correspondence audit
C)Office audit
D)Field audit

Question 72

Which statement is not true of state and local taxes?

A)They do not vary much from one part of the country to another.
B)Most of the states have state income taxes.
C)Most of the states have state sales taxes.
D)Most local governments rely upon property taxes for most of their tax revenues.

Question 73

The statute of limitations as it generally applies to the income tax law means that

A)the IRS has three years from the time of your filing to impose additional tax liabilities.
B)that your total taxes,both federal and state,cannot exceed an annually determined limit.
C)both you and the IRS can change your tax return regardless of when it was filed if it contains mistakes.
D)you must pay your tax liability within three days of filing your return or face a stiff penalty.

Question 74

Which item below is an example of tax-advantaged income?

A)Interest on certificates of deposit
B)$200 of municipal bond interest
C)Interest on corporate bonds
D)$1,000 of short-term capital gains

Question 75

Which of the following is not a correct characteristic of a Coverdell Education Savings Account?

A)It may be used to fund an elementary or primary school education.
B)The child will not owe taxes on any withdrawal made to pay for qualified educational expenses.
C)There is a 10% penalty on early withdrawals before the child reaches age 17.
D)The amounts deposited in an Education IRA are not tax deductible.

Question 76

Refund anticipation loans

A)are generally high cost sources of credit.
B)are regularly provided by the Internal Revenue Service.
C)generate interest cost deductions in the subsequent tax year.
D)are prohibited in most states.

Question 77

If you cannot meet the deadline for filing your return,

A)the IRS will level a penalty,regardless of whether you file an application for a time extension.
B)the IRS will grant you an automatic extension if you file an application.You will be able to file a late return and late payment of taxes without penalty.However,you may owe interest on the late tax payments.
C)the IRS will grant you an automatic extension if you file for an extension.However,you will be penalized if you have not paid your taxes by the filing date.
D)you need only to file for an automatic extension and delay paying your taxes until you actually file your return.

Question 78

You can receive an automatic four month extension for filing your federal tax return

A)only if you are out of country.
B)only if you are in the armed services.
C)only if you are physically or mentally incapacitated.
D)under most circumstances.

Question 79

Spiro invested $800 in an IRA.If he has a 15% marginal tax rate,and the contribution is tax deductible,the tax impact in the year of the investment will be

A)that he will pay $120 more in taxes.
B)that he will pay $120 less in taxes.
C)that he will pay $800 less in taxes.
D)zero;an IRA has no impact until funds are withdrawn.

Question 80

Lena bought 100 shares of General Motors stock at $80 a share.Assuming a share value of $50 at tax-year end,Lena should consider which of the following tax strategies?

A)Selling her shares of GM and buying back other shares of GM.
B)Buying more GM shares.
C)Selling the GM shares and buying Ford shares.
D)Holding the shares.