Ch. 4

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Common types of tax credits​ include: ​(Select the best answer​ below.) A. reimbursements of moving expenses and real estate taxes. B. adoption credits and reimbursements of moving expenses. C. earned income credits and adoption credits. D. earned income credits and reimbursements of moving expenses.

c.

It is important to understand the tax consequences of your financial decisions because it can help​ you: ​ (Select the best answer​ below.) A. to minimize your tax liability and ultimately increase your level of wealth. B. increase your income. C. to minimize your tax liability and ultimately increase your income. D. become a tax advisor.

a.

The Affordable Care Act of 2010 affects tax filing​ by: ​(Select the best answer​ below.) A. requiring everyone to report their medical coverage status and the coverage status of all dependents on Tax Form 1040. Your answer is correct.B. requiring everyone to report their medical bills and the medical bills of all dependents on Tax Form 1040. C. requiring everyone to report their medical coverage​ status, but not the coverage status of all dependents on Tax Form 1040. D. requiring everyone to report their marital status and the marital status of all dependents on Tax Form 1040.

a.

Itemized deductions​ are: ​(Select the best answer​ below.) A. general expenses that can be deducted to reduce taxable income. B. specific expenses that can be deducted to reduce taxable income. C. specific expenses that can be added to the exemptions. D. general expenses that can be added to the exemptions.

b.

Capital gains occur when​ individuals: ​(Select the best answer​ below.) A. buy a house and it increases in value. B. purchase capital equipment and use it to earn profit. C. purchase financial assets and then sell them for a gain. D. experience any increase in the value of an asset.

c.

The five filing statuses​ are: ​

1. head of household: single but providing care for a dependent 2. married filing separately: married and filing different returns 3. single: not married 4. qualifying widow or widower: lost spouse and caring for a dependent child 5. married filing jointly: married and filing on the same return

A Coverdell Savings Account​ is: ​(Select the best answer​ below.) A. an account that can be used for qualified education expenses. B. an account that can be used for qualified medical expenses. C. an account that can be used for any education expenses. D. an account that can be used for qualified business expenses.

a.

A tax deduction​: ​(Select the best answer​ below.) A. reduces the amount of taxable income. B. depends on the tax rate. C. is based on income. D. directly reduces the amount of tax owed.

a.

According to the​ IRS, gross income is all reportable income from any source​ including: ​(Select the best answer​ below.) A. capital gains​, salaries​, and dividend income. B. capital gains​, veteran's benefits​, and dividend income. C. capital gains​, salaries​, and welfare benefits. D. reimbursements of moving expenses​, veteran's benefits​, and welfare benefits.

a.

An exemption is permitted​ for: ​(Select the best answer​ below.) A. each person who is supported by the income listed on a tax return. B. the dependents of the person filing the tax return. C. the person filing the tax return. D. the dependents of the person filing the tax return if those dependents have income.

a.

Form 1040 EZ is typically filed​ by: ​(Select the best answer​ below.) A. taxpayers who are single or married filing jointly with no dependents and taxable income of $ 100 comma 000 or less. B. taxpayers who are single or married filing jointly with dependents and taxable income of more than $ 100 comma 000. C. taxpayers who are married filing jointly and have no dependents. D. taxpayers who are single and have dependents.

a.

Some recent examples of targeted tax relief​ include: ​(Select the best answer​ below.) A. provisions for hurricane​ victims, first-time​ homebuyers, and a​ one-time reduction in the Social Security tax withholding rate in​ 2011-2012 designed to stimulate economic growth. B. provisions for hurricane​ victims, all​ homebuyers, and a​ one-time reduction in the Social Security tax withholding rate in​ 2011-2012 designed to stimulate economic growth. C. provisions for snowstorm​ victims, first-time​ homebuyers, and a​ one-time reduction in the Social Security tax withholding rate in​ 2011-2012 designed to stimulate economic growth. D. provisions for hurricane​ victims, first-time​ homebuyers, and a lifetime reduction in the Social Security tax withholding rate to stimulate economic growth.

a.

Some types of payments that you might receive that would not be included in gross income​ are: ​(Select the best answer​ below.) A. health and casualty insurance reimbursements​, welfare benefits​, and veteran's benefits. B. dividend income​, income from rental property​, and capital gains. C. dividend income​, income from rental property​, and veteran's benefits. D. dividend income​, welfare benefits​, and capital gains.

a.

The difference between a tax deduction and a tax credit​ is: ​(Select the best answer​ below.) A. a tax deduction reduces the amount of taxable​ income, while a tax credit directly reduces the amount of tax owed. B. a tax deduction increases the amount of taxable​ income, while a tax credit directly reduces the amount of tax owed. C. a tax credit reduces the amount of taxable​ income, while a tax deductiont directly reduces the amount of tax owed. D. a tax credit reduces the amount of taxable​ income, while a tax deduction directly increases the amount of tax owed.

a.

Interest income comes​ from: ​(Select the best answer​ below.) A. stock ownership. B. the difference between the market rate and the account rate. C. the expected value of the asset. D. interest on investments such as bonds and CDs.

d.

What does FICA stand for and who pays​ FICA? ​(Select the best answer​ below.) A. Federal Insurance Contributions Act and these taxes are paid equally by the employer and the employee. B. Family Insurance Coverage Act and these taxes are paid unequally by the employer and the employee. C. Family Insurance Coverage Act and these taxes are paid by the employee. D. Federal Information Coverage Act and these taxes are paid by the employer.

a.

a taxpayer is entitled to one exemption for: a. himself and one for each of his dependents b. himself c. himself and one for his children d. each of his dependents

a.

Same-sex marriages are treated​ as: ​(Select the best answer​ below.) A. married for all state tax​ purposes, but for federal tax purposes. B. married for all federal tax purposes. C. single for all state tax​ purposes, but for federal tax purposes. D. single for all federal tax purposes.

b.

Some types of payments that you might receive that would not be included in gross income​ are: ​(Select the best answer​ below.) a. scholarships that exceed tuition fees and book costs, tips, and reimbursements of moving expenses b. veteran's benefits, welfare benefits, and reimbursements of moving expenses c. scholarships that exceed tuition fees and book costs, tips, and income from a business d. scholarships that exceed tuition fees and book costs, welfare benefits, and income from a business

b.

Taxable income is calculated​ as: ​(Select the best answer​ below.) A. gross adjusted income less the standard or itemized deductions. B. adjusted gross income less either the standard or itemized deductions and less the total exemptions. C. gross adjusted income less the total exemptions. D. gross taxable income less either the standard or itemized deductions and less the total exemptions.

b.

The purpose of income tax is​ to: ​(Select the best answer​ below.) A. control governmental programs and services. B. finance governmental programs and services. C. identify those in need. D. limit consumer spending and inflation.

b.

The​ deduction: ​(Select the best answer​ below.) A. varies according to your filing status and your income. B. varies according to your filing status. C. does not vary according to your filing status. D. is affected by the amount of income you earned during the year.

b.

According to the​ IRS, gross income is all reportable income from any source​ including: ​(Select the best answer​ below.) A. health and casualty insurance reimbursements​, welfare benefits​, and veteran's benefits. B. dividend income​, welfare benefits​, and capital gains. C. dividend income​, income from rental property​, and capital gains. This is the correct answer. D. dividend income​, income from rental property​, and veteran's benefits.

c.

Adjusted gross income is determined by​ calculating: ​(Select the best answer​ below.) A. gross income plus special adjustments such as alimony payments. B. gross income minus taxes. C. gross income minus special adjustments such as alimony payments. D. taxable income minus special adjustments such as alimony payments.

c.

A standard deduction is​ a: ​(Select the best answer​ below.) A. fixed amount deducted from unadjusted net income to determine taxable income. B. variable amount deducted from adjusted gross income to determine taxable income. C. variable amount deducted from unadjusted net income to determine taxable income. D. fixed amount deducted from adjusted gross income to determine taxable income.

d.

Deductible medical expenses may be itemized if they​ are: ​(Select the best answer​ below.) A. reimbursed and exceed​ 15% of adjusted gross income. B. reimbursed and exceed​ 10% of adjusted gross income. C. unreimbursed and exceed​ 15% of adjusted gross income. D. unreimbursed and exceed​ 10% of adjusted gross income.

d.

Section 529 College Savings​ Plans: ​ (Select the best answer​ below.) A. were created to encourage parents to save money for their​ children's future college education expenses. Contributions are made​ after-tax but all monies grow​ tax-free and are not taxed upon withdrawal if used once the child is 18 or older. B. were created to encourage students to save money for their future college education expenses. Contributions are made​ after-tax but all monies grow​ tax-free and are not taxed upon withdrawal if used for allowable college education expenses. C. were created to encourage parents to save money for their​ children's future college education expenses. Contributions are made​ after-tax but all monies grow​ tax-free and are not taxed upon withdrawal if used for allowable college education expenses. D. were created to encourage parents to save money for their​ children's future college education expenses. Contributions are made​ before-taxes and all monies grow​ tax-free and are not taxed upon withdrawal if used for allowable college education expenses.

c.

Self-employed individuals: ​(Select the best answer​ below.) A. do not pay FICA taxes. B. pay only the employee portion of FICA taxes. C. pay both the employer and the employee portion of FICA taxes. D. pay only the employer portion of FICA taxes.

c.

The difference between the tax consequences for​ short-term and​ long-term capital gains is​ that: ​(Select the best answer​ below.) A. ​long-term capital gains are treated as ordinary​ income, while​ short-term capital gains receive more favorable tax treatment. B. ​short-term capital gains are held less than a​ year, while​ long-term capital gains are held more than a year. C. ​short-term capital gains are treated as ordinary​ income, while​ long-term capital gains receive more favorable tax treatment. D. ​long-term capital gains are treated as ordinary​ income, while​ short-term capital gains are not taxed.

c.

The form that must be filed with the IRS for itemized deductions​ is: ​(Select the best answer​ below.) A. Schedule B of Form 1040EZ. B. Schedule B of Form 1040. C. Schedule A of Form 1040. D. Schedule A of Form 1040EZ.

c.

The two portions of FICA​ are: ​(Select the best answer​ below.) A. social employment​ taxes, which are used to make payments to the​ unemployed, and Medicare​ taxes, which are used to provide payments to health care providers in the case of illness. B. Social Security​ taxes, which are used to make payments to​ retirees, and life insurance​ taxes, which are used to make payments to surviving family upon death. C. Social Security​ taxes, which are used to make payments to​ retirees, and Medicare​ taxes, which are used to provide payments to health care providers in the case of illness. D. life insurance​ taxes, which are used to make payments to surviving family upon​ death, and Medicare​ taxes, which are used to provide payments to health care providers in the case of illness.

c.

The​ long-term capital gains tax​ benefit: ​(Select the best answer​ below.) A. both the taxpayers in the higher tax​ brackets, who are currently not taxed on capital​ gains, and those in the​ 10% and​ 15% tax​ brackets, who are only taxed at​ 5%. B. both the taxpayers in the​ 10, 15, and​ 25% marginal tax​ bracket, who are currently not taxed on capital​ gains, and those in the​ 28, 33, and​ 35% tax​ brackets, who are only taxed at​ 15%. C. both the taxpayers in the 10 and​ 15% marginal tax​ bracket, who are currently not taxed on capital​ gains, and those in the higher tax​ brackets, who are only taxed at​ 15%. D. both the taxpayers in the 10 and​ 15% marginal tax​ bracket, who are currently not taxed on capital​ gains, and those in the higher tax​ brackets, who are only taxed at​ 10%.

c.

Which of the following is true regarding the differing treatment of dividend and interest income for tax​ purposes? ​(Select the best answer​ below.) A. Interest income is included in gross income to determine taxable income but dividend income is not. B. Neither interest income nor dividend income is included in gross income to determine taxable income. C. Both interest income and dividend income are included in gross income to determine taxable​ income, but dividend income is taxed at lower rates. D. Interest income is not included in gross income to determine taxable income but dividend income is.

c.

dividend income comes​ from: ​(Select the best answer​ below.) A. interest on investments such as bonds and CDs. B. the difference between the market rate and the account rate. C. stock ownership. D. the expected value of the asset.

c.

A marginal tax bracket is​ the: ​(Select the best answer​ below.) A. row in the tax table. A progressive tax system means the lower an​ individual's income, the higher the percentage of income tax paid. B. range of income in a tax bracket. A progressive tax system means the higher an​ individual's income, the higher the percentage of income tax paid. C. tax rate imposed on any income earned. A progressive tax system means the lower an​ individual's income, the higher the percentage of income tax paid. D. tax rate imposed on any additional​ (marginal) income earned. A progressive tax system means the higher an​ individual's income, the higher the percentage of income tax paid.

d.

Itemized deductions might​ include: ​(Select the best answer​ below.) A. medical expenses and health and casualty insurance reimbursements. B. interest expense and welfare benefits. C. health and casualty insurance reimbursements and welfare benefits. D. medical expenses and interest expense.

d.

Most other individual taxpayers​ file: ​(Select the best answer​ below.) A. Form 1040 EZ. B. Form 1040D. C. Form 1040A. D. Form 1040.

d.

The distinction between​ short-term and​ long-term capital gains is important because the capital gains tax is a maximum​ of: ​(Select the best answer​ below.) A. 25 percent of the​ short-term capital gain and​ long-term capital gains are taxed as ordinary income. B. 15 percent of the​ short-term capital gain and​ long-term capital gains are taxed as ordinary income. C. 25 percent of the​ long-term capital gain and​ short-term capital gains are taxed as ordinary income. D. 15 percent of the​ long-term capital gain and​ short-term capital gains are taxed as ordinary income.

d.

The earned income credit​ (EIC) is: ​(Select the best answer​ below.) A. a special credit for​ high-income taxpayers that reduces the amount of taxes owed. B. a special credit for​ low-income taxpayers that increases the amount of taxes owed. C. a special credit for middle class taxpayers that reduces the amount of taxes owed. D. a special credit for​ low-income taxpayers that reduces the amount of taxes owed.

d.

The federal tax system is administered by​ the: ​(Select the best answer​ below.) A. Internal Receipt​ Service, a branch of the U.S. Budget Office. B. Internal Receipt​ Service, a branch of the U.S. Treasury Department. C. Internal Revenue​ Service, a branch of the U.S. Commerce Department. D. Internal Revenue​ Service, a branch of the U.S. Treasury Department.

d.

The following would be included in gross​ income: ​(Select the best answer​ below.) A. child support payments received and veteran's benefits. B. interest income and child support payments received. C. scholarships that exceed tuition fees and book costs and veteran's benefits. D. interest income and scholarships that exceed tuition fees and book costs.

d.

Your filing status​ affects: ​(Select the best answer​ below.) A. tax deferment and tax rates. B. tax credits and standard deductions. C. tax rates and tax credits. D. tax rates and standard deductions.

d.


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