Question 1

Explain the difference between a short-term capital gain and a long-term capital gain.

Accepted Answer

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Question 2

What is the difference between tax-exempt income and tax-deferred income?

Accepted Answer

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Question 3

Most people pay the following taxes:

Accepted Answer

Most people pay a variety of taxes, including taxes on purchases (sales taxes), taxes on property (property taxes), taxes on wealth (in some jurisdictions), and taxes on earnings (income taxes). Therefore, all of these options are correct.

Question 4

The Affordable Care Act of 2010,or Obamacare,required taxpayers to pay a tax penalty if they were not able to confirm that they had health care coverage.This penalty has been eliminated by the Tax Cuts and Jobs Act for tax years starting in:

Accepted Answer

The Tax Cuts and Jobs Act, passed in December 2017, eliminated the individual mandate penalty starting in the tax year 2019.

Question 5

Which statement is true regarding a tax credit?

Accepted Answer

A tax credit directly reduces the amount of taxes owed, dollar for dollar, unlike a tax deduction which reduces the amount of taxable income.

Question 6

________ may involve an official-looking (but phony)letter or e-mail sent to a taxpayer to trick them into disclosing personal information and bank account numbers by stating that the taxpayer is entitled to a tax refund from the IRS.

Accepted Answer

Phishing is a fraudulent attempt to obtain sensitive information or data, such as usernames, passwords, and financial details, by disguising oneself as a trustworthy entity in an electronic communication. In this context, the scam involves sending fake letters or emails pretending to be from the IRS to trick individuals into disclosing personal and financial information with the false promise of a tax refund.

Question 7

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?

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Question 8

Personal property taxes may tax the value of:

Accepted Answer

Personal property taxes can apply to various types of tangible assets, including automobiles, boats, and farm equipment. These are all examples of personal property that can be taxed based on their value.

Question 9

The Tax Cuts and Jobs Act allows owners of a sole proprietor or partnership to deduct up to ________ percent of the income earned by the business from their individual return to arrive at taxable income beginning in 2018.

Accepted Answer

The Tax Cuts and Jobs Act, enacted in December 2017, allows owners of sole proprietorships, partnerships, S corporations, and some trusts and estates to deduct up to 20 percent of their qualified business income from their taxable income, starting in 2018. This provision is designed to reduce the tax burden on small business owners and is known as the Qualified Business Income Deduction (Section 199A).

Question 10

What are the advantages of a 401(K)?

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Question 11

The standard deduction is a set amount on which no taxes are paid. For 2018,single people receive a standard deduction of:

Accepted Answer

For the tax year 2018, the standard deduction for single filers was $12,000. This was an increase from previous years, part of the changes introduced by the Tax Cuts and Jobs Act of 2017.

Question 12

Although you should generally keep tax records for 3 years from the date you file your return,you may be held responsible for providing back documentation up to:

Accepted Answer

The IRS recommends keeping tax records for up to 6 years in case you have underreported your income by more than 25%, as they can audit your tax returns for up to 6 years back in such cases.

Question 13

Earned income is money received from:

Accepted Answer

Earned income refers to money received as a result of work performed, such as salaries, wages, tips, professional fees, and other amounts received as pay for work you actually perform, which is why option C (wages) is correct. Dividends, interest, rent from investments, and real estate investments typically fall under unearned income, which is money received from sources other than employment or personal effort.

Question 14

Effective personal tax strategies include:

Accepted Answer

All the options listed are effective personal tax strategies. Taking advantage of tax credits, considering tax-exempt investments, searching for all possible itemized deductions, and maximizing contributions to tax-deferred retirement programs can all help in reducing taxable income and maximizing financial resources.

Question 15

One of the most frequently overlooked tax deductions is:

Accepted Answer

Student loan interest paid by parents can be overlooked as a tax deduction. If parents are not claimed as dependents on anyone else's tax return, they may be able to claim the interest paid on their child's student loan as a deduction, even if the loan is in the child's name.

Question 16

What sources are available for professional tax assistance?

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Quiz 4: Planning Your Tax Strategy