Deck 4: Using Tax Concepts for Planning

Question 1

Taxpayers can have more than the minimum amount of required income tax withheld from each pay.

Answer 1

True

Question 2

Your gross wages are subject to FICA (Federal Insurance Contributions Act)taxes that fund the Social Security system and Medicare.

Answer 2

True

Question 3

Knowledge of individual income taxes is crucial to sound financial planning.

Answer 3

True

Question 4

The Tax Relief Act of 2001

A) raised the tax rates for the highest income portion of the population.
B) limits further the ability to contribute to retirement plans tax-free.
C) provided educational incentives to most taxpayers.
D) reduced the child care credit available to most young families.

Question 5

FICA taxes include two components,which consist of

A) accident and disability insurance.
B) unemployment compensation and disability insurance.
C) Social Security and Medicare contributions.
D) old age and unemployment compensation.

Question 6

Knowledge of tax laws can help you conserve your income.

Question 7

Which tax form is generally used by taxpayers whose filing status is married,has no dependents,and whose taxable income if less than $100,000?

A) 1040
B) 1040 A
C) 1040 EZ
D) 1040 X

Question 8

In 2015,self-employed individuals paid FICA taxes at a rate of

A) 1.45 percent.
B) 7.65 percent.
C) 13.3 percent.
D) 15.3 percent.

Question 9

Determining taxes requires you to address all of the following topics except

A) gross income.
B) daily living expenses.
C) deductions.
D) exemptions.

Question 10

There is no Social Security tax on income beyond a certain level.

Question 11

Employers have an option of whether or not to match an employee's Social Security and Medicare taxes.

Question 12

Medicare is a government health insurance program that covers people over age 55 and provides payments to health care providers in case of illness.

Question 13

Students and other taxpayers earning less than $100,000 a year with no dependents are eligible to file the simplest tax return,which is the 1040E-Z.

Question 14

The knowledge of tax laws can help you

A) conserve your income.
B) enhance your investments.
C) protect the transfer of your wealth at your death.
D) All of the above.

Question 15

Which of the following statements is not true regarding FICA taxes paid?

A) These taxes fund both Social Security and Medicare.
B) Employers are required to match employee FICA contributions.
C) All FICA taxes apply to your total income.
D) There is a limit on how much of your income will be taxed for Social Security.

Question 16

Medicare taxes are 1.45% of your salary,regardless of the salary amount.

Question 17

If you have a salary of $30,000,an IRA deduction of $2,000,a standard deduction of $6,300,and a FICA rate of 7.65 percent,how much did you pay in FICA this year?

A) $1,805
B) $1,958
C) $2,142
D) $2,295

Question 18

A branch of the U.S.Treasury Department,called the ________,administers the federal tax system.

A) U.S. Department of Tax
B) Internal Revenue Service
C) U.S. Tax Authority
D) U.S. Department of Collection

Question 19

The Tax Relief Act of 2001 provided educational incentives to a broad range of taxpayers and reduced contribution limits to retirement plans.

Question 20

Which of the following taxes is only paid on the first $118,500 of your salary?

A) Federal Income Tax
B) Social Security Tax
C) Medicare Tax
D) All of the above.

Question 21

Michael's brother,Thomas,lives with Michael in his own home.Thomas has a full-time job and pays his brother for rent and utilities.Michael's filing status is

A) single.
B) head of household.
C) married, filing separately.
D) a qualifying widow(er).

Question 22

Stephanie,who was divorced in 2015,had filed a joint tax return with her husband in 2014.During 2015,she did not remarry and continued to maintain her home in which her three dependent children lived.In preparation of her 2015 tax return,Stephanie should file as

A) single.
B) head of household.
C) married filing separately.
D) qualifying widow(er).

Question 23

Under the Affordable Care Act of 2010,if an individual does not have medical insurance coverage in 2016,they will

A) still not have to pay 100% of their medical expenses if they cannot afford them.
B) be subject to a tax penalty of up to 2.5% of income or $695 per adult.
C) only have to pay 75% of billed medical expenses.
D) be subject to a $250 fine.

Question 24

All interest and dividends received by an individual taxpayer are taxable.

Question 25

If you are a married taxpayer,you may use the ________ filing status.

A) single
B) married filing jointly or married filing separately
C) head of household
D) Any of the above may be used.

Question 26

Different tax rates are associated with each filing status such as single,married filing jointly,and head of household.

Question 27

All taxpayers have a large degree of freedom in choosing their filing status.

Question 28

If you are a surviving spouse,you may continue to use the married filing jointly tax rates unless

A) you are divorced and your ex-spouse died in the last five years.
B) your spouse died in the last two years.
C) you have children you can claim as an exemption.
D) you pay more than half the cost of maintaining your residence.

Question 29

If you are married with two children and your two elderly parents live with you in an "in-law" suite,but pay a nominal rent monthly,you should file as

A) married filing separately.
B) married filing jointly with 4 total personal exemptions.
C) married filing jointly with 6 total personal exemptions.
D) married filing jointly with parents.

Question 30

Gross income consists of all reportable income from any source.

Question 31

A long-term capital gain results from profit on the sale of capital assets that were held 12 months or more.

Question 32

If you are working part time while going to school and have no dependents other than yourself,do not itemize deductions and have no capital asset transactions,which Federal Income Tax return form should you file?

A) 1040EZ
B) 1120
C) 1040X
D) Since you are part time and make just a few thousand dollars, you do not need to file an income tax return.

Question 33

Which of the following is not a tax filing status option?

A) Single
B) Divorced
C) Married filing jointly
D) Head of household

Question 34

To qualify for "head of household" you must

A) be single.
B) have at least one dependent in your household.
C) be a homeowner.
D) Both A and B are correct.

Question 35

Employee contributions to qualified Individual Retirement Accounts (IRAs)and interest paid on student loans are adjusted from gross income to calculate a taxpayer's adjusted gross income.

Question 36

The timing on the sale of an investment asset earning a capital gain makes little or no difference in the amount of taxes that are owed.

Question 37

________ is withheld at a rate of 6.2% on the first $118,500 of your 2015 earnings.

Question 38

Lucky Louie's base salary is $90,000 per year and he earns an additional $75,000 in annual bonus.Luckily,Lucky only has to pay FICA on

A) his base salary.
B) his base salary plus bonus up to the annual legal withholding limit for FICA.
C) all of his earnings.
D) $130,000.

Question 39

Jerry is divorced and has two children that live with him.What filing status should Jerry claim on his tax return?

A) Single
B) Head of household
C) Married filing separately
D) Married filing jointly

Question 40

Assume you are still single and have no children,but your two siblings live with you in your home,you should file as

A) single.
B) head of household with two dependents.
C) single with two dependents.
D) single filing separately.

Question 41

Income earned from the sale of an asset for more than you paid for it is classified as a(n)

A) dividend income.
B) interest income.
C) capital gain.
D) windfall.

Question 42

Which of the following is not subject to immediate taxation?

A) A Christmas bonus
B) Tips from your waitressing job
C) Salary and wages
D) Contributions to your employer-sponsored retirement account

Question 43

All of the following are types of nontaxable income except

A) child support payments.
B) casualty insurance reimbursements.
C) rental income.
D) reimbursements of moving expenses by an employer.

Question 44

Jane purchased General Motors stock seven years ago for $20,000.In 2015,she sold the stock for $35,000.What is Jane's gain or loss?

A) $15,000 long-term gain
B) $15,000 short-term gain
C) $15,000 extraordinary gain
D) No gain or loss is recognized

Question 45

For qualified individuals,a contribution to a traditional IRA (Individual Retirement Account)is a(n)

A) credit.
B) adjustment to gross income.
C) itemized expense.
D) additional exemption amount.

Question 46

Which of the following gross income is not taxable income?

A) Health insurance reimbursements
B) Interest income
C) Dividends
D) Tips received

Question 47

Gross income includes all of the following except

A) salary or wages.
B) interest or dividends received.
C) employer's current contribution to 401(k).
D) capital gains realized.

Question 48

If you sell an asset that you owned for less than 12 months for more than you paid for it,you will report a(n)________.

Question 49

All reportable income from any source is called

A) wages and salaries.
B) gross income.
C) interest income.
D) dividend income.

Question 50

If you were to receive $100,000 from a corporation,the most tax-efficient way to receive it would be as

A) dividends.
B) interest.
C) capital gains.
D) salary.

Question 51

Jake invested $800 in an IRA.If he has a 15% marginal tax rate and the contribution is tax deductible,Jake will

A) pay $120 more in taxes.
B) pay $120 less in taxes.
C) receive no change to his tax liability.
D) have $800 more in adjusted gross income.

Question 52

________ and ________ are both reported on a Schedule B.

Question 53

Which of the following is not taxable for income tax purposes?

A) Interest income
B) Income from a rental property
C) Child support
D) Dividend income from selling stock

Question 54

If a stock was purchased in January 2014 for $1,000 and sold in December 2015 for $3,000,a ________ of $2,000 results.

A) long-term capital gain
B) short-term capital gain
C) long-term capital loss
D) short-term capital loss

Question 55

If a stock was purchased for $5,000 in January 2015 and is sold in December 2015 for $3,000,a ________ of $2,000 results.

A) long-term capital gain
B) short-term capital gain
C) long-term capital loss
D) short-term capital loss

Question 56

Reductions of gross income for such items as individual retirement accounts (IRAs),moving expenses,and student loan interest payments will result in

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

Question 57

Interest income would come from earnings on

A) stocks.
B) savings accounts.
C) capital gains on investments.
D) sale of mutual funds.

Question 58

Use the following two columns of items to answer the matching questions below:
gross income

A)interest earned from savings and debt securities
B)forms used to report interest and deductions
C)reportable income from any source
D)earnings from stocks
E)selling an asset for more than it cost

Question 59

Gross income and adjusted gross income can be the same if you do not have any special adjustments.Which of the following is not one of these special adjustments?

A) Capital gains are deducted and capital losses are added.
B) IRA contributions are subtracted from gross income.
C) Interest and dividend income is part of the income calculation.
D) Alimony payments are deducted from gross income.

Question 60

If you own stock that has increased in price,it would be best to sell it after you have owned it for at least

A) 6 months and one day.
B) 12 months and one day.
C) 18 months and one day.
D) 24 months and one day.

Question 61

Use the following two columns of items to answer the matching questions below:
dividend

A)interest earned from savings and debt securities
B)forms used to report interest and deductions
C)reportable income from any source
D)earnings from stocks
E)selling an asset for more than it cost

Question 62

Use the following two columns of items to answer the matching questions below:
capital gains

A)interest earned from savings and debt securities
B)forms used to report interest and deductions
C)reportable income from any source
D)earnings from stocks
E)selling an asset for more than it cost

Question 63

The government usually adjusts the exemptions and standard deductions amounts annually to account for inflation.

Question 64

Use the following two columns of items to answer the matching questions below:
tax return

A)interest earned from savings and debt securities
B)forms used to report interest and deductions
C)reportable income from any source
D)earnings from stocks
E)selling an asset for more than it cost

Question 65

The standard deduction (assuming you are not over 65 or blind)is largest for

A) single filers.
B) head of household filers.
C) married filing jointly.
D) married filing separately.

Question 66

Which of the following is not includable in gross income for Federal income tax purposes?

A) Sales commissions
B) Cash you receive for painting your neighbor's house
C) Qualifying dividends
D) Municipal bond interest

Question 67

________ are specific expenses instead of a standard amount that reduce adjusted gross income.

A) Exemptions
B) Household expenses
C) Itemized deductions
D) Tax credits

Question 68

Itemized deductions can include mortgage interest expense,state income tax expense,charitable contributions,and other employee expenses.

Question 69

Interest expense paid on home loans and car loans is deductible from your income tax.

Question 70

All taxpayers have a choice of whether to take the standard deduction or itemize deductions.

Question 71

A personal exemption can be claimed for the person filing a tax return,for a spouse,and for each dependent.

Question 72

Which of the following is not a legitimate itemized deduction?

A) Mortgage interest expense
B) Real estate tax
C) Interest paid on credit cards
D) State income tax

Question 73

Use the following two columns of items to answer the matching questions below:
interest income

A)interest earned from savings and debt securities
B)forms used to report interest and deductions
C)reportable income from any source
D)earnings from stocks
E)selling an asset for more than it cost

Question 74

A young couple buying a home would usually be better off to take the standard deduction rather than itemizing deductions.

Question 75

All medical expenses may be deducted from income as long as you have the receipts or can show proof of payment.

Question 76

The filing status that yields the largest standard deduction per taxpayer is

A) married, filing jointly.
B) head of household.
C) single individual.
D) married, filing separately.

Question 77

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

A) life insurance premiums.
B) real estate property taxes.
C) travel to work expenses.
D) driver license fees.

Question 78

The standard deduction is smallest for

A) single filers, assuming under age 65.
B) head of household filers, assuming over age 65 or blind.
C) married filing separately, assuming over age 65 or blind.
D) married filing jointly, assuming under age 65.

Question 79

Which of the following conditions will not afford you a tax advantage?

A) Being over age 65
B) Being deaf
C) Being widowed within the past two years
D) Being blind

Question 80

Lucky Louie earned $100,000 salary this year,had total itemized deductions of $10,000,one personal exemption equal to $4,000 and interest income of $3,000.Louie,was not so lucky in the stock market however and had capital losses of $8,000. What was Lucky Louie's taxable income?

A) $86,000
B) $81,000
C) $89,000
D) $90,000