Question 1

Which of the following is an example of unearned income?

Accepted Answer

Unearned income refers to income received without performing any services, such as interest earned on investments. Wages and tips, on the other hand, are considered earned income as they require the performance of services to receive them. Therefore, the correct answer is B, which is interest.

Question 2

All income other than capital gains is referred to as

Accepted Answer

Capital gains refer specifically to the profit made from selling a capital asset (such as stocks or real estate). Therefore, all income that is not classified as capital gains would be considered ordinary income. Gross income includes capital gains, but it also includes other forms of income such as rental income, business income, and interest income. Earned income specifically refers to income that is earned through work (such as wages or salary), whereas personal income refers to all income received by an individual including gifts, inheritances, and government transfer payments.

Question 3

Practically everything you receive in return for your work or services and any profit from the sale of assets is considered income,whether the compensation is paid in cash,property,or services.Listing these earnings will reveal your

Accepted Answer

Total income includes all earnings received from work, services, and profits from asset sales, regardless of the form of compensation.

Question 4

Maxine Marshall received $24,000 in disability payments from an insurance policy she paid for.How much of the $24,000 is included in Maxine's gross income?

Accepted Answer

Disability payments received from insurance policies that were paid for with after-tax dollars are not included in gross income. Thus, Maxine's $24,000 in disability payments would not be included in her gross income.

Question 5

Earned income is reported to the recipient on a

Accepted Answer

Earned income is reported to the recipient on a W-2 form, which is provided by the employer to the employee at the end of the year. The W-2 form shows the amount of money earned, taxes withheld, and other important information needed for tax purposes. The W-4 form is used by the employee to indicate how much tax to withhold from their paycheck, while Form 1099 is used to report non-employee compensation. Form 1040 is the individual tax return form that taxpayers use to report their income and tax liability.

Question 6

Vicki Chadwell made a $1,000 capital gain on an investment she owned for 15 months.Assuming Vicki is in the 35 percent marginal tax bracket,how much federal income tax would she pay on this capital gain?

Accepted Answer

The answer of Vicki Chadwell made a $1,000 capital gain...

Question 7

Which of the following sources of income associated with divorce is (are)reported as part of gross taxable income?

Accepted Answer

Only alimony is reported as part of gross taxable income, while property settlement and child support payments received are not included.

Question 8

Qualifying contributions to personal retirement accounts are subtracted as

Accepted Answer

Qualifying contributions to personal retirement accounts are subtracted as adjustments to income on Form 1040. They are not considered itemized deductions, exemptions or tax credits.

Question 9

Which is not an example of unearned income?

Accepted Answer

Rents, dividends, and royalties are all forms of unearned income, while tips are considered earned income as they are directly related to the individual's job performance and effort.

Question 10

Which of the following is not defined as part of gross income?

Accepted Answer

Gifts and inheritances are not defined as part of gross income according to the IRS.

Question 11

Which of the following types of income is (are)excludable from federal income taxation?

Accepted Answer

All three types of income listed, income from a car pool, compensatory damages in physical injury cases, and life insurance benefits received, are excludable from federal income taxation.

Question 12

Interest penalties for early withdrawal of savings from certificates of deposit are

Accepted Answer

The answer of Interest penalties for early withdrawal of savings...

Question 13

____ cannot be deducted as an adjustment to income.

Accepted Answer

State income taxes paid cannot be deducted as an adjustment to income under the Tax Cuts and Jobs Act of 2017, which suspended the deduction for state and local taxes (including income, sales, and property taxes) exceeding $10,000 for tax years 2018 to 2025.

Question 14

Adjustments to gross income

Accepted Answer

Adjustments to gross income are subtracted from gross income, they help one qualify for other deductions and can be taken even if one takes the standard deduction. Therefore, all of these options are correct.

Question 15

Long-term capital gains are taxed at a maximum rate of ____ percent.

Accepted Answer

Long-term capital gains are taxed at a maximum rate of 20 percent, making option B the correct choice. Option A is incorrect as 15 percent is the tax rate for long-term capital gains for those in the 25 percent or higher tax bracket. Option C is incorrect as 28 percent is the highest tax rate for collectibles, not long-term capital gains. Option D is incorrect as 35 percent is the maximum tax rate for ordinary income, not long-term capital gains.

Question 16

Anne and Jose Romero are in the 28 percent marginal federal tax bracket.Two years ago they purchased 100 shares of ABC stock for $28 per share,paying commissions of $75.Last week they sold this stock for $35 per share and paid commissions of $50.How much is their taxable capital gain on this investment?

Accepted Answer

The cost basis of their investment is:
$28/share x 100 shares = $2,800
Add the commissions paid to purchase the stock:
$2,800 + $75 = $2,875
The proceeds from the sale are:
$35/share x 100 shares = $3,500
Subtract the commissions paid to sell the stock:
$3,500 - $50 = $3,450
Their capital gain is:
$3,450 - $2,875 = $575
Since they are in the 28% tax bracket, their taxable capital gain is:
$575 x 0.28 = $161
Therefore, the correct answer is C.

Question 17

Irma and Dave Cedeno have a potential $2,000 capital gain on stock they have owned 11 months.They are in the 28 percent marginal tax bracket.How much longer would they have to hold this stock to reduce the tax liability on this gain?

Accepted Answer

To reduce the tax liability on their capital gain, Irma and Dave Cedeno would need to hold the stock for a total of 12 months. Since they have owned the stock for 11 months, they need to hold it for 1 more month and 1 day to qualify for long-term capital gains tax rates, which are lower than short-term rates.

Question 18

The Fishers did very well on their investment choice.They earned $280 in dividend income from their stock investment this year.Later in the same year when they sold the stock,they realized a long-term capital gain of $2,984.How much of this dividend and capital gain income will they have to pay taxes on?

Accepted Answer

Both dividend income and capital gains are taxable, so the Fishers will have to pay taxes on both amounts. To calculate the total taxable income, we add the dividend income and capital gain: $280 + $2,984 = $3,264. Therefore, the answer is choice C.

Question 19

You just sold your comic book collection that you had worked on for the past ten years for a capital gain of $7,500 Assuming you are in the 15 percent marginal tax bracket,how much federal income tax will be due on this gain?

Accepted Answer

Long-term capital gains (assets held for more than a year) for individuals in the 15% tax bracket are taxed at 0%. Since the question implies the collection was built over ten years, the gain qualifies as long-term, resulting in no federal income tax due on the gain.

Question 20

You are legally required to include which of the following in gross income?

Accepted Answer

All of these are legally required to be included in gross income. Alimony received is considered taxable income, lottery winnings are subject to federal income tax withholding and can also be subject to state taxes, and illegal income is still taxable income even though it was earned illegally.

Quiz 4: Managing Income Taxes