Question 1

Which is not an example of unearned income?

Accepted Answer

Unearned income refers to income that is not earned from direct employment or business activities. Rents, dividends, and royalties are all examples of unearned income. However, tips are generally earned through personal services and therefore do not fall under the category of unearned income.

Question 2

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 in cash, property, or services, as well as profits from the sale of assets.

Question 3

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 income. The Fishers will have to pay taxes on both the $280 dividend income and the $2,984 capital gain, which adds up to $3,264.

Question 4

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 5

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 6

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 7

Earned income is reported to the recipient on a

Accepted Answer

Earned income is reported to the recipient on a W-2 form, which employers must provide to their employees by January 31st each year. The W-2 form reports the amount of money an employee earned during the previous year and the taxes that were withheld from their earnings. The W-4 form is used by employees to calculate how much tax should be withheld from their paycheck, while Form 1099 is used to report non-employee compensation (such as freelance or contractor work) and Form 1040 is the individual income tax return form that taxpayers file with the IRS.

Question 8

Which of the following is an example of earned income?

Accepted Answer

Self-employment income is money earned through work done by oneself in a business or trade, which can include freelancing, consulting, or owning a small business. It is considered earned income because the individual is actively working to earn the money.

Question 9

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.

Question 10

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 11

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 purchase price of the stock including commissions is:
100 x $28 + $75 = $2,875

The sale price of the stock including commissions is:
100 x $35 - $50 = $3,450

The capital gain is the difference between the sale price and the purchase price, which is:
$3,450 - $2,875 = $575

Since Anne and Jose are in the 28 percent marginal federal tax bracket, their capital gains tax rate is 15 percent. Therefore, their taxable capital gain on this investment is:
$575 x 0.15 = $86.25

So the best choice is C) $575.

Question 12

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 13

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

Accepted Answer

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

Question 14

____ cannot be deducted as an adjustment to income.

Accepted Answer

State income taxes paid cannot be deducted as an adjustment to income. The other options listed (IRA contributions, job-related moving expenses, and student loan interest) are all allowable adjustments to income.

Question 15

Adjustments to gross income

Accepted Answer

Adjustments to gross income are subtracted from gross income, which ultimately helps in qualifying for other deductions. These adjustments can also be taken even if one opts for the standard deduction. So, all of these options are correct.

Question 16

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 an insurance policy that was paid for with after-tax dollars are not taxable income. Therefore, the entire $24,000 is not included in Maxine's gross income.

Question 17

Marc is a university student seeking a degree in international business.He has received a scholarship for $6,000.This income was used as follows:

How much of the $6,000 is included in gross income?

Accepted Answer

The answer of Marc is a university student seeking a...

Question 18

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. Property settlements and child support payments received are not included in gross taxable income.

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

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. This rate applies to individuals with taxable income greater than $441,450 ($496,600 for married couples filing jointly) in 2021. Therefore, option B is the correct answer. The other options are incorrect as they do not reflect the current tax law.

Quiz 4: Managing Income Taxes