Ch.3

A person with a total tax liability of $8,850 and withholding of federal taxes of $5,800 would:

owe $3,050

Gross (or total) income includes

passive income

The tax that is a major source of revenue for local governments is called a(n)

real estate property tax

Tax credits include

saver's credit foreign tax credit adoption tax credit earned income credit

What are tax credits?

savers credit earned income credit adoption tax credit foreign tax credit

Income that is not subject to tax is called

tax-exempt income

A tax imposed on the value of a person's property at the time of dealth is called a

Estate tax

A tax due in the purchase of gasoline is called?

Excise tax

Income that is taxed at a later date is

Tax-deferred income

Shannon is working on her federal income tax form and wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is an acceptable deduction? A. Miscellaneous expenses that exceed 2% of AGI B. $10,000 gift to her cousin C. Moving expenses for a new job that is 25 miles from her old home D. Medical and dental expenses less than 10% of AGI E. Credit card interest

A. Miscellaneous expenses that exceed 2% of AGI

Recent tax credits include all of the following expect

AMT tax credit

When calculating federal income taxes, what increases "gross income"?

Alimony received

The tax based on the total tax die divided by taxable income is called?

Average tax rate

Adjustments to income include

Traditional IRA contributions Contributions to a Keogh retirement plan Penalties for early withdrawal of savings Alimony payments

At the end of the year, Xavier received a form from his employer that reported annual earnings and the amounts deducted for taxes. That form is called a

W-2

At the end of the year, employees receive a ____ form that reports annual earnings and the amounts deducted for taxes from their employers.

W-2

Gross income less Adjustments to Income equals

adjusted gross income

Fees, tips, and bounces are forms of

earned income

When calculating federal income taxes, "gross income" includes

investment income earned income alimony passive income

Janet is completing her federal income taxes for the year and has identified the amounts listed here. How much can she rightfully deduct? • AGI: $43,500 • Medical and dental expenses: $1,250 • State income taxes: $1,150 • Mortgage interest: $7,600 • Charitable contributions: $1,500

$10,250 Note: Only the medical & dental expenses that are greater than 10% of AGI are deductible. Therefore, none are deductible in this situation. Total itemized deductions:[ medical & dental > (10% x AGI)] + state income taxes + mortgage interest + charitable contributions

Using the following chart, calculate the taxes for an individual with taxable income of $62,000

$10,690

The maximum amount that an indiviual can give another in a year w/o being subect to estate taxes is

$14,000

Sam and Diane are completing their federal income taxes for the year and have identified the amounts listed here. How much can they rightfully deduct? AGI: $82,000 Medical and dental expenses: $9,200 State income taxes: $3,700 Mortgage interest: $10,300 Charitable contribution: $1,400

$16,400 [Deductions include the following: Medical & Dental in excess of 10%AGI + State income tax + Mortgage interest + Charitable contributions] = ($9,200 - {$82,00 x 0.10} + $3,700 + $10,300 + $1,400 = $16,400)

If Diane was in a 25% tax bracket and received a $2,300 tax credit, by how much would her taxes be reduced?

$2,300

An itemized deduction of $6,350 with a 38% tax rate would reduce a persons taxes by?

$2,413 Dollar reduction in taxes = amount of tax deduction x your tax bracket percent

A tax credit of $230 for a person in a 28% tax bracket would reduce a person's taxes by?

$230 A tax credit reduce the amount of taxes owed dollar-for-dollar

Using the following table, calculate the taxes for an individual with taxable income of $23,800. 10% Up to $8,800 15% $8,800-$36,000 25% $36,000 - $86,600 28% $86,600 - $178,900 33% $178,900 - $383,150 35% Over $383,150

$3,130 Taxes owed = sum of taxes from each tax bracket. For example, if taxable income is $23,800, then the taxes owed = $880 + $2,250 = $3,130: 10% bracket: $8,800 x 10% = $880 15% bracket: ($23,800 - $8,800) x 15% = $2,250

Michele Barbour is considering an additional charitable contribution of $1,250 to a tax-deductible charity, bringing her total-itemized deductions to $12,000. If Michelle is in a 28 percent tax bracket, how much will this $1,250 contribution reduce her taxes?

$350

Using the following table, calculate the taxes for an individual with taxable income of $31,000. 10% Up to $8,600 15% $8,600-$35,000 25% $35,000 - $84,600 28% $84,600 - $175,900 33% $175,900 - $381,150 35% Over $381,150

$4,220

George Washburn had earnings from his salary of $46,200, interest on savings of $1005, a deductible contribution to an IRA of $1,850, and dividends from mutual funds of $675. George's adjusted income (AGI) would be:

$46,030 AGI= (salary + interest on savings + dividends from mutual funds) - contribution to IRA

If Jack was in a 25% tax bracket and received a $1,900 tax deduction, by how much would his taxes be reduced?

$475 Dollar reduction in taxes = amount of tax deduction x your tax bracket percent

Peter filed his income taxes, but needs to make a correction to his income. Which form should he use?

1040X

At the end of the year, Walter received a form that showed his payments from independent contracting. That form is called a?

1099

At the end of the year, Yvonne received a form form her bank that reported income from her savings. That form is called a?

1099

George Franklin paid taxes of $3,500 on a taxable income of $26,000. What was his average tax rate?

13.46% Average tax rate = Paid taxes / taxable income

Penny knows that she needs to file her federal income taxes, but she is unable to do so by April 15. What form does she need to complete to obtain an automatic six-month extension?

4868

Fred has been completing his own tax returns for years. The IRS has recently contacted him with questions about some of his prior returns. How many years back is he responsible for providing documentation?

6 years

Adjustments to income include all but?

Charity contributions

Individuals can file their federal taxes using

Electronic filing using Free File Alliance Use tax preparation software to print and mail Use tax preperation software to file online

Individuals can file their federal taxes using all of the following except

Deliver in person

Which is not a tax credit?

Domestic tax credit

When calculating federal income taxes, "gross income" includes all except

Earned income credit

When Paul completes his taxes, he can include all of the following as exemptions except

His 20 year old son who is working full-time and living in an apartment

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels.

Income tax

The amount levied on the value of property bequeathed by a deceased person is

Inheritance tax

The rate used to calculate the tax dues on the next dollar of income is referred to as the

Marginal tax rate

The tax designated to ensure that those who receive tax breaks also pay their fair share of taxes is called the

Marginal tax rate

Nancy is married to Jerry and needs to complete her tax form. They both earn about the same amount of money each year. What filing status would be best for them?

Married, filing a joint return

Taxpayers over 65 can only deduct expenses that are greater than 7.5% of adjusted gross income for

Medical and dental expenses

Athena wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is NOT a proper deduction?

Miscellaneous expenses less than 2% of AGI

Bob was married to Sandy, and they have a 12-year-old son. Sandy passed away last year. Bob needs to complete his federal income taxes for the year. What filing status could he use for 2 years after the death of his spouse?

Qualifying widow or widower

Taxes on earnings that fund old age, survivor, and disability insurance benefits are called

Social Security taxes

Joseph needs to complete his income taxes for the year. He has already calculated his adjusted gross income. What does he need to do next?

Subtract his itemized deductions

Tanya is a single low-income working parent, and Fred is a single high-income working parent. Because of her status, Tanya, but not Fred, may be eligible for the

earned income credit

What are proper deductions?

mortgage interest Contributions to charitable organizations State income taxes medical and dental expenses that exceed 10% of AGI

You may be required to make estimated tax payments if

you are an independent contractor