Question 1

Murray (age 68, single)sold his home owned for 35 years so that he could relocate to a place that is closer to where his grandchildren live. He realized a $400,000 capital gain on the home. Murray's tax liability on the capital gain is computed on:

Accepted Answer

The answer of Murray (age 68, single)sold his home owned...

Question 2

Your income tax withholding is dependent on:

Accepted Answer

Your income tax withholding is primarily determined by your income level and the number of withholding allowances you claim. These factors influence the amount of tax that is withheld from your paycheck by your employer.

Question 3

Which of the following is subject to federal income tax?

Accepted Answer

Tips received are considered taxable income by the IRS and must be reported on tax returns.

Question 4

Melinda sold mutual fund shares, which she had owned for 5 years, so that she could use the proceeds to travel with her sister. Melinda is in the 32% ordinary tax bracket, and her capital gains from the sale were $40,000. Melinda's tax liability on the gain is:

Accepted Answer

Since Melinda held the mutual fund shares for more than a year, the gain is considered a long-term capital gain. For someone in the 32% tax bracket, the long-term capital gains tax rate is typically 15%. Therefore, her tax liability on the $40,000 gain would be 15% of $40,000, which is $6,000.

Question 5

For those under the age of 65, medical and dental expenses may be included as itemized deductions:

Accepted Answer

For those under the age of 65, medical and dental expenses can be included as itemized deductions only for the amounts that exceed 10% of the adjusted gross income. This threshold is set by the IRS and is a standard rule for determining the deductibility of these expenses.

Question 6

_____ would be considered a part of your taxable income.

Accepted Answer

A gain from the sale of your assets would be considered a part of your taxable income. The other options (IRA contributions, a gift, child-support payments, and a tuition scholarship) would not be included in taxable income or may have special tax treatment.

Question 7

Molly and Justin are considering contributing to a qualified tax-exempt organization. Their adjusted gross income is $100,000. What is the maximum amount they can claim as an itemized deduction under the Tax Cuts and Jobs Act of 2017?

Accepted Answer

Under the Tax Cuts and Jobs Act of 2017, taxpayers can deduct charitable contributions of up to 60% of their adjusted gross income when they itemize deductions. For Molly and Justin, with an adjusted gross income of $100,000, the maximum amount they can claim as an itemized deduction is 60% of $100,000, which is $60,000.

Question 8

Which of the following statements regarding the tax levied under the Federal Insurance Contributions Act (FICA)is true?

Accepted Answer

FICA taxes, which fund Social Security and Medicare, are split equally between employers and employees, making statement B correct.

Question 9

In 2018, the total FICA tax rate was:

Accepted Answer

In 2018, the total FICA tax rate was 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare.

Question 10

Sarah is a homeowner and a single taxpayer. She has owned and occupied the house as a principal residence for the last 8 years. In the current taxable year, she receives a promotion. She sells her home and moves to another area. The capital gain on the sale of the principal residence will:

Accepted Answer

Because Sarah owned and occupied the house as her principal residence for at least 2 out of the previous 5 years before the sale, she is eligible for the home sale exclusion. This means that she can exclude up to $250,000 of the gain from the sale of her home from her taxable income if she is a single taxpayer. Therefore, the capital gain on the sale of the principal residence will be taxable excluding the first $250,000 of the gain.

Question 11

Based on the given information, what is Max's portfolio income?

Accepted Answer

The answer of Based on the given information, what is...

Question 12

Mr. and Mrs. Davenport, aged 40 and 38, respectively, have three children aged 3, 6, and 13. For 2019, they have  adjusted gross income (AGI)of $65,000 and unreimbursed medical expenses of $6,750. The Davenports' claim for itemized deductions for medical expenses is:

Accepted Answer

For 2019, taxpayers can deduct the portion of their medical expenses that exceeds 10% of their adjusted gross income (AGI). The Davenports' AGI is $65,000, so 10% of that is $6,500. Their unreimbursed medical expenses are $6,750. Therefore, they can claim the amount that exceeds $6,500, which is $6,750 - $6,500 = $250.

Question 13

You would typically include _____ in your gross income.

Accepted Answer

Income from pensions is typically included in your gross income, as it is considered taxable income by the IRS. Child-support payments, life insurance death benefit payments, municipal bond interest, and personal exemptions are not considered taxable income and thus are not included in gross income.

Question 14

Mark is not married and has dependent parents. He pays more than half of the cost of keeping a home for himself and his parents. His tax filing status is:

Accepted Answer

Mark qualifies for the "head of household" filing status because he is not married, pays more than half the cost of keeping up a home, and supports dependent parents. This status offers more favorable tax rates and higher standard deductions than the single filing status.

Question 15

If you do not wish to itemize deductions, the other deduction you can take is the:

Accepted Answer

The standard deduction is a fixed dollar amount that reduces your taxable income. It is the easiest deduction to take for most people as it requires no additional record keeping or calculations. The amount of the standard deduction varies depending on your filing status and other factors.

Question 16

Tom sold mutual fund shares, which he had owned for 3 years, so that he could use the proceeds to return to college. Tom is in the 12% marginal tax bracket, and his capital gain from the sale was $12,000. How much tax does Tom owe on the gain?

Accepted Answer

Since Tom is in the 12% marginal tax bracket and the gain is a long-term capital gain (assets held for more than a year), the tax rate on long-term capital gains for individuals in the 10% or 12% income tax brackets is 0%. Therefore, Tom owes $0 in taxes on the gain.

Question 17

Ben and Jack both earned $60,000 this year. Ben (age 30)is married with two children, and Jack (age 68)is single with no dependents. Which of the following is true regarding the amount of Social Security taxes they will have to pay?

Accepted Answer

Social Security taxes are determined by income, not marital status, number of dependents, or age. Both Ben and Jack, having the same income, will pay the same amount of Social Security taxes.

Question 18

Your take-home pay is what you are left with after subtracting withholdings from your:

Accepted Answer

Your take-home pay is the amount you receive after all applicable withholdings, such as taxes and Social Security, are taken out of your gross earnings. Net earnings refer to the amount you receive after deducting all expenses from your gross earnings. Taxable income and adjusted gross income are used to determine the amount of taxes owed, but they are not the same as take-home pay. Tax-exempt income is not subject to taxes and is not directly related to determining take-home pay.

Question 19

Peter's tax computed per the tax rate schedule amounts to $2,000, and his tax credits amount to $500. His total tax liability is:

Accepted Answer

Tax liability is calculated by subtracting tax credits from the computed tax. Therefore, Peter's total tax liability is $2,000 - $500 = $1,500.

Question 20

A capital gain is the result of:

Accepted Answer

Capital gain occurs when an asset is sold for more than its purchase price, resulting in a profit from the sale.

Quiz 3: Preparing Your Taxes

Murray (age 68, single) sold his home owned for 35 years so that he could relocate to a place that is closer to where his grandchildren live. He realized a $400,000 capital gain on the home. Murray's tax liability on the capital gain is computed on: