Question 1

Jerome is recently divorced and has two children that live with his ex-wife.What deductions should Jerome claim on his tax return?

Accepted Answer

Spousal support payments are deductible for the payer and taxable income for the recipient under U.S. tax law, unlike child support payments, which are not deductible by the payer or taxable to the recipient. Jerome can claim spousal support payments if he makes them according to the divorce agreement. Child care expenses may be deductible, but typically for the custodial parent, which in this scenario is indicated to be the ex-wife. The caregiver deduction does not apply in this context as described.

Question 2

Which of the following is not a legitimate deduction in Canada?

Accepted Answer

Mortgage interest on your home is not deductible in Canada for personal residences.

Question 3

Interest income would come from earnings on

Accepted Answer

Interest income is typically earned on fixed income investments such as term deposits, bonds, and GICs. Stocks and mutual funds may earn dividends or capital gains, but not interest income. RESPs may earn both interest and dividends, but it is not specified which type of earnings is being referred to in this question.

Question 4

Which of the following income is taxed at the lowest rate?

Accepted Answer

Capital gains are taxed at a lower rate than salaries and wages, with the maximum rate being 20% compared to the top ordinary income tax rate of 37%. Interest income is generally taxed at the same rate as ordinary income, and tips are subject to the same tax rates as salaries and wages.

Question 5

Which of the following is not taxable income?

Accepted Answer

Life insurance benefits are generally not considered taxable income, while EI payments, rental income, and the use of a company car are all taxable.

Question 6

John has been told that he should not take any overtime because it will push him into the next tax bracket.Which of the following is True?

Accepted Answer

The answer of John has been told that he should...

Question 7

If a stock was purchased for $3000 in January 2003 and is sold in June 2003 for $4000,what is the taxable result?

Accepted Answer

The answer of If a stock was purchased for $3000...

Question 8

Which of the following can be used to reduce your federal income taxes?

Accepted Answer

The answer of Which of the following can be used...

Question 9

Which of the following best summarizes the correct process?

Accepted Answer

This process involves all necessary steps to accurately calculate taxable income and apply relevant tax credits and deductions to determine the final tax refund or balance owing.

Question 10

For people in the highest marginal tax bracket,which would save them the largest financial benefit?

Accepted Answer

RRSP contributions provide a tax deduction at the highest marginal tax bracket, which means that the contribution reduces the amount of taxable income subject to that highest rate. This results in a larger tax savings compared to contributing to an RESP or TFSA, which do not provide a tax deduction. Additionally, RRSP contributions can also grow tax-free until withdrawal, further maximizing the financial benefit.

Question 11

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

Accepted Answer

Income earned from the sale of an asset for more than you paid for it is known as a capital gain. Dividend income is earned from owning stocks and receiving a portion of the company's profits. Business income is earned from operating a business. Windfall refers to an unexpected large sum of money, which may include capital gains but is not specific to it.

Question 12

If George is 65 and in a combined marginal tax bracket of 42 percent,then

Accepted Answer

George can save $840 on his taxes from his $2000 RRSP contribution. The combined marginal tax bracket of 42% means that for every additional dollar of income earned, he will be taxed 42 cents. By contributing $2000 to his RRSP, he can reduce his taxable income, which in turn reduces the amount of taxes he has to pay. The tax savings from an RRSP contribution is equal to the contribution multiplied by the marginal tax rate. In this case, 42% of $2000 is $840. The other options given (using his son's tuition amount or medical expenses) may also result in tax savings, but they do not agree with the information given in the question.

Question 13

Which would reduce taxes the most for a high income earner (income over $100 000)?

Accepted Answer

RRSP contributions are deducted from taxable income, so contributing $4800 to an RRSP would directly reduce a high income earner's taxable income and therefore reduce their taxes the most.

Question 14

Which of the following income is taxable income?

Accepted Answer

Tips received are considered taxable income and must be reported to the IRS. Insurance benefits, inheritances, and scholarship income may or may not be taxable depending on certain factors such as the amount received and the specific circumstances surrounding the income.

Question 15

If a stock was purchased in January 2004 for $1000 and sold in December 2005 for $3000,what is the taxable result?

Accepted Answer

The answer of If a stock was purchased in January...

Question 16

When taxable income on a progressive basis exceeds certain thresholds

Accepted Answer

When taxable income on a progressive basis exceeds certain thresholds, the tax rate is increased until a new income level is exceeded. This means that as the income increases, a higher percentage of tax is charged on the increased income above the threshold. This is the basic concept of a progressive tax system.

Question 17

The Federal Government's use of net income versus taxable income ensures

Accepted Answer

The answer of The Federal Government's use of net income...

Question 18

Jake invested $800 in an RRSP.If he is in the 30 percent marginal tax bracket,he will

Accepted Answer

Since Jake is in the 30% marginal tax bracket, he can reduce his taxable income by the amount he invested in the RRSP (i.e., $800) and save 30% of that amount in taxes. Therefore, he would pay $240 less in taxes.

Question 19

Fred's income this past year included salary of $70 000,$3000 investment income,a $4000 capital gain from selling some stock and a $5000 inheritance.For tax purposes,what is his total income this year?

Accepted Answer

The answer of Fred's income this past year included salary...

Question 20

For qualified individuals,a contribution to a registered retirement savings plan (RRSP)will be

Accepted Answer

A contribution to a registered retirement savings plan (RRSP) is a deduction from total income, reducing the taxable income for the year.

Quiz 4: Tools for Financial Planning - Using Tax Concepts for Planning