Deck 4: Planning Your Tax Strategy

Question 1

A drawback of Flexible Spending Accounts is that any account funds must be used to pay for expenses incurred before year's end or the money is lost.

Answer 1

True

Question 2

An exclusion is earnings not included in gross income.

Answer 2

True

Question 3

A general sales tax is also referred to as an excise tax.

Answer 3

False

Question 4

Tax evasion is the use of illegal actions to reduce one's taxes.

Question 5

A $2,000 deposit to a tax-deferred individual retirement account (IRA)for a person in a 25 percent tax bracket would result in a reduced tax bill of:

A)$2,000
B)$1,500
C)$1,200
D)$500
E)$300

Question 6

An estate tax is imposed on the value of an individual's property at the time of his or her death.

Question 7

Real-estate property taxes are a major source of revenue for local governments.

Question 8

The main purpose of taxes is to:

A)generate revenue for funding government activities.
B)reduce the chances of inflation.
C)create jobs.
D)discourage use of certain goods and services.
E)decrease competition from foreign companies.

Question 9

Interest earnings of $1,600 from a taxable investment for a person in a 28 percent tax bracket would result in after-tax earnings of:

A)$1,600
B)$1,152
C)$1,100
D)$448
E)$152

Question 10

When a taxpayer's income increases $1,000 and the taxes owed increases from $7,867 to $8,177,the marginal tax rate is ______ percent.

A)15
B)20
C)25
D)28
E)31

Question 11

Which type of tax is imposed on specific goods and services,such as gasoline,at the time of purchase?

A)Estate
B)Inheritance
C)Excise
D)General sales
E)Value-added

Question 12

A person's filing status is affected by marital status and dependents.

Question 13

Taxable income is used to compute a person's:

A)exemptions.
B)income tax.
C)deductions.
D)capital gains.
E)exclusions.

Question 14

What type of tax is imposed on the value of an individual's property at the time of his or her death?

A)Inheritance
B)Excise
C)Gift
D)Personal property
E)Estate

Question 15

Tax avoidance refers to illegal actions to reduce one's taxes.

Question 16

An office audit requires that a taxpayer visit an IRS office to clarify some aspect of his or her tax return.

Question 17

The principal purpose of taxes is to control economic conditions.

Question 18

Capital gains refer to profits from the sale of stocks,bonds,or real estate.

Question 19

The ______________ property tax is based on the value of land and buildings at some point in time.

A)personal
B)real estate
C)direct
D)proportional
E)regressive

Question 20

A state may impose a personal property tax.

Question 21

An exemption affects a person's tax situation by:

A)increasing the standard deduction.
B)increasing the taxpayer's marginal tax rate.
C)decreasing itemized deductions.
D)reducing the taxpayer's taxable income.
E)decreasing tax credits.

Question 22

Money received by an individual for personal effort is classified as ______________ income.

A)passive
B)earned
C)portfolio
D)excluded
E)capital gains

Question 23

Tax-deferred retirement plans are a type of:

A)exemption.
B)itemized deduction.
C)passive income.
D)tax shelter.
E)tax credit.

Question 24

Which one of the following would be deducted from gross income to obtain adjusted gross income?

A)Alimony payments
B)Mortgage interest
C)Medical expenses
D)Moving expenses
E)Charitable contributions

Question 25

An expense that would be included in the itemized deductions of a taxpayer is:

A)personal postage expenses.
B)life insurance premiums.
C)real estate property taxes.
D)retirement plan contributions.
E)annual interest paid on credit cards.

Question 26

Money received in the form of dividends or interest is classified as ____________ income.

A)passive
B)earned
C)excluded
D)capital gain
E)investment

Question 27

Which of the following would be excluded from gross income?

A)Portfolio income
B)Investment income
C)Exclusions
D)Passive income
E)Earned income

Question 28

A person has $4,000 in medical expenses and an adjusted gross income of $32,000.If taxpayers are allowed to deduct the amount of medical expenses that exceed 7.5 percent of adjusted gross income,what would be the amount of the deduction in this situation?

A)$300
B)$1,600
C)$2,400
D)$4,000
E)$32,000

Question 29

A deduction from adjusted gross income for yourself,your spouse,and qualified dependents is:

A)the standard deduction.
B)a tax credit.
C)an itemized deduction.
D)an exclusion.
E)an exemption.

Question 30

George Washburn had earnings from his salary of $34,000,interest on savings of $800,a contribution to a traditional individual retirement account of $1,500,and dividends from mutual funds of $600.George's adjusted income would be:

A)$33,900.
B)$34,000.
C)$34,600.
D)$34,800.
E)$35,400.

Question 31

Which one of the following is included in gross income?
A.Tax credit
B.Exemption
C.Exclusion
D.Earned income
E.Tax deduction

Question 32

A taxpayer with a taxable income of $47,856 and a total tax bill of $5,889 would have an average tax rate of ____ percent.

A)8.6
B)10.3
C)12.3
D)14.2
E)16.7

Question 33

An exclusion affects a person's taxes by:

A)reducing the amount of gross income.
B)increasing itemized deductions.
C)decreasing itemized deductions.
D)decreasing the number of exemptions a person can claim.
E)increasing the number of exemptions a person can claim.

Question 34

Which one of the following items is a set amount of income on which no taxes are paid?

A)Itemized deductions
B)Standard deduction
C)Deferred income
D)Withholding
E)Capital gains

Question 35

Reductions from gross income for such items as individual retirement account contributions and alimony payments will result in:

A)adjusted gross income.
B)taxable income.
C)earned income.
D)passive income.
E)total exclusions.

Question 36

_____________ are expenses that a taxpayer is allowed to deduct from adjusted gross income.

A)Exemptions
B)Standard deductions
C)Itemized deductions
D)Tax credits
E)Passive income

Question 37

Earnings from a limited partnership would be an example of ____________ income.

A)passive
B)capital gain
C)portfolio
D)earned
E)excluded

Question 38

Which of the following would qualify a person for an exemption when computing taxable income?

A)Mortgage interest
B)A tax shelter
C)A dependent
D)Charitable contributions
E)Passive income

Question 39

Michele Walsh is considering an additional charitable contribution of $2,000 to a tax-deductible charity,bringing her total itemized deductions to $16,000.If Michele is in a 28 percent tax bracket,how much will this $2,000 contribution reduce her taxes?

A)$0
B)$560
C)$1,600
D)$2,000
E)$4,480

Question 40

For a dependent to qualify as an exemption,he or she must:

A)be married.
B)be under age 16.
C)be registered in school.
D)receive more than one half of his or her support from the taxpayer.
E)be an exchange student.

Question 41

Which one of the following people is least likely to have to file a federal income tax return?

A)A U.S.citizen who is a resident of Puerto Rico.
B)A U.S.citizen earning $8,000 where taxes were withheld.
C)A single person earning less than $10,000.
D)A single person over age 65 earning $15,000.
E)A 28-year old single college student earning more than $11,000.

Question 42

For which of the following types of credit plans is the interest tax deductible?

A)Home equity loan
B)Auto loan
C)Credit card
D)Life insurance policy cash value loan
E)Personal cash loan from a credit union

Question 43

The "head of household" filing status is for people who are:

A)recently divorced.
B)recently widowed.
C)unmarried and have dependent children.
D)married but only one spouse has income.
E)married and each spouse makes about the same income.

Question 44

Kelly Vernon wants her tax return prepared by a government approved tax expert.Which of the following tax preparers should Kelly use?

A)CPA
B)Enrolled agent
C)Nationally-certified tax preparer
D)Tax attorney
E)Local tax preparer

Question 45

A taxpayer whose spouse recently died and who has a dependent is most likely to use the ____________ filing status.

A)single
B)married filing joint return
C)married filing separate return
D)head of household
E)qualifying widow or widower

Question 46

Which one of these terms is defined as the use of legitimate methods to reduce one's taxes?

A)Tax evasion
B)Tax avoidance
C)Tax exemption
D)Tax deferral
E)Tax deduction

Question 47

Which type of audit is the least complicated for taxpayers?

A)A field audit
B)An office audit
C)A research audit
D)A correspondence audit
E)A documentation audit

Question 48

A person with a total tax liability of $4,350 and withholding of federal taxes of $3,975 would:

A)receive a refund of $3,975.
B)owe $4,350.
C)owe $375.
D)receive a refund of $4,350.
E)receive a refund of $375.

Question 49

A short-term capital gain is profit earned on an investment that is:

A)made involving small companies.
B)not taxed as ordinary income.
C)held less than 12 months.
D)in foreign companies.
E)made in real estate.

Question 50

Union dues,fees for tax return preparation,and other miscellaneous expenses are:

A)not deductible.
B)fully deductible.
C)deductible for self-employed individuals only.
D)deductible for people in certain income categories.
E)deductible to the extent they exceed two percent of adjusted gross income.

Question 51

Estimated quarterly tax payments must be made by people who:

A)are employed in a foreign country.
B)receive regular payroll checks.
C)work for the government.
D)do not have taxes withheld from income.
E)itemize deductions.

Question 52

Which one of the following is most apt to qualify as an itemized deduction?

A)Interest on a credit card or charge account
B)Unreimbursed job-related travel expenses
C)Cost of commuting to work
D)Life insurance premiums
E)Traffic violation fee

Question 53

Capital gains refer to:

A)tax-exempt investments.
B)retirement accounts.
C)profits from the sale of a capital asset.
D)earnings from investments such as dividends or interest.
E)tax-deferred investments.

Question 54

Which one of these investments produces tax-exempt income?

A)U.S.savings bonds
B)Corporate stock
C)Stock mutual fund
D)Municipal bond
E)Corporate bond

Question 55

Most people pay federal income tax by:

A)paying the total amount owed on April 15.
B)filing quarterly tax returns.
C)having amounts deducted from his/her pay.
D)earning tax credits for various deductions.
E)filing the 1040 EZ form.

Question 56

A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person's taxes owed by:

A)$10
B)$28
C)$14
D)$50
E)$35

Question 57

A tax ____________ is an amount subtracted directly from the amount of taxes owed.

A)credit
B)exemption
C)deduction
D)exclusion
E)shelter

Question 58

Which one of these statements correctly applies to a Roth IRA?

A)Earnings on the account are tax-free after five years.
B)Annual contributions may exceed $7,000.
C)Deposits must be in federally-insured accounts.
D)Funds are only to be used for educational expenses.
E)Only self-employed workers can contribute to a Roth IRA.

Question 59

Which form would an individual use who has less than $100,000 in taxable income from wages,salaries,tips,unemployment compensation,interest,or dividends,and who is married,over age 67,and does not itemize deductions?

A)Form 1040X
B)Form 1040EZ
C)Form 1040A
D)Schedule A
E)Schedule E

Question 60

The Form 1040 is most helpful to a person who:

A)is single with no other exemptions.
B)makes less than $50,000 with no interest or dividends.
C)itemizes deductions.
D)has exempt income.
E)has a simple tax situation.

Question 61

Which one of the following is a retirement plan that allows a $5,500 annual contribution with tax-free earnings after five years?

A)Roth IRA
B)Education IRA
C)Keogh Account
D)401 Plan
E)SEP

Question 62

Kim Ye is single and earns $40,000 in taxable income.He uses the following tax rate schedule to calculate the taxes he owes.
Calculate the dollar amount of estimated taxes that Kim owes.

A)$4,000.00
B)$5,771.25
C)$6,000.00
D)$10,000.00
E)$11,200.25

Question 63

Maryellen Epplin worked in Mexico for part of the year and earned $50,000 while she was there.This income will not be included in her gross income for the year.This represents a tax:

A)deduction.
B)exclusion.
C)exemption.
D)credit.
E)refund.

Question 64

Elizabeth Gleason just died.At the time of her death the total value of her assets was $150,000.The federal government collected $7,500 in taxes based on this value.What type of tax is this most likely to be?

A)General sales tax
B)Excise tax
C)Personal property tax
D)Income tax
E)Estate tax

Question 65

An IRA,Keogh plan,and 401 plan are examples of:

A)tax-exempt retirement plans.
B)tax-deferred retirement plans.
C)capital gains.
D)self-employment insurance programs.
E)job-related expenses that are tax deductible.

Question 66

An itemized deduction of $500 with a 36 percent tax rate would reduce a person's taxes by:

A)$500.
B)$36.
C)$464.
D)$280.
E)$180.

Question 67

Al Barkley is single and earns $40,000 in taxable income.He uses the following tax rate schedule to calculate the taxes he owes.
What is Al's average tax rate?

A)14.43%
B)18.27%
C)21.35%
D)23.87%
E)25.00%

Question 68

Elaine's Embroidery Emporium which is run out of Elaine's home is visited by an IRS agent who wants to verify the office expenses Elaine claims are valid.What type of IRS audit is this?

A)Correspondence audit
B)Office audit
C)Field audit
D)Detailed audit
E)Research audit

Question 69

Tim Bridges owns a bass fishing boat.His state imposes an annual 3.25 percent tax on the current value of this boat.What type of tax is this most likely to be?

A)General sales tax
B)Excise tax
C)Personal property tax
D)Income tax
E)Estate tax

Question 70

Mr.and Mrs.Keating want to give their son Dudley a total of $24,000.They each write him a check for $12,000 so they won't have to pay any gift tax.This is an example of:

A)fraud.
B)tax evasion.
C)tax exclusion.
D)tax avoidance.
E)tax deferred income.

Question 71

Joan Sanchez is single and earns $40,000 in taxable income.She uses the following tax rate schedule to calculate the taxes she owes.
What is Joan's marginal tax rate?

A)10%
B)15%
C)25%
D)28%
E)between 10% and 15%

Question 72

Mike Hansen has adjusted gross income of $28,000.During the year,Mike decided he needed a larger home.He purchased a home on a golf course in the same town as his first home.Mike incurred $7,500 in moving expenses.How much of this can he include as an itemized deduction?

A)$7,500
B)$6,340
C)$3,750
D)$750
E)$0

Question 73

Haley Thomas has adjusted gross income of $40,000.She paid $3,600 in property taxes during the year.How much of the tax can she include as an itemized deduction?

A)$3,600
B)$3,000
C)$1,800
D)$600
E)$0

Question 74

John Camey goes into a local department store and purchases a new suit.He pays $43 in taxes on this purchase.What type of tax is this most likely to be?

A)General sales tax
B)Excise tax
C)Personal property tax
D)Income tax
E)Estate tax

Question 75

Drew Davis earns $4,500 per month from his job at Cisco Systems; $900 is withheld from this amount each month for taxes.What type of tax is this most likely to be?

A)General sales tax
B)Excise tax
C)Personal property tax
D)Income tax
E)Estate tax

Question 76

Alex Bates goes on The Price Is Right and earns $875,000 in winnings.What type of income is this?

A)Earned income
B)Investment income
C)Passive income
D)Other income
E)Deferred income

Question 77

A ______ allows a taxpayer to put pre-tax dollars into an employer-sponsored program to cover medical expenses and child care costs.

A)tax credit
B)tax deduction
C)flexible spending account
D)tax deferred investment
E)tax exempt investment

Question 78

Which one of the following is a tax-deferred retirement plan sponsored by an employer?

A)Roth IRA
B)Education IRA
C)Keogh Account
D)401 Plan
E)Traditional IRA

Question 79

The state of Oklahoma imposes a tax of $.17 per gallon on gasoline.What type of tax is this most likely to be?

A)General sales tax
B)Excise tax
C)Personal property tax
D)Income tax
E)Estate tax

Question 80

Randal Ice is 57 years old,and has adjusted gross income of $32,000.He has medical expenses for the year ending 2016 of $6,000.How much of these expenses can he include as an itemized deduction?

A)$0
B)$2,400
C)$2,800
D)$3,600
E)$4,500 Using the revised rate of 10% (until December 31, 2016 for those under 65 years old), the solution would be: $32,000 *10.10 = $3,200; $6,000 - $3,200 = $2,800.