FIN 100 Chapter 3 Quiz

An example of an excise tax is Social Security. True or False

False

Federal income tax returns must be filed by April 1 of each year. True or False

False, April 15th

If Diane was in a 25% tax bracket and received a $1,000 tax credit, by how much would her taxes be reduced? a) $25 b) $50 c) $250 d) $500 e) $1,000

e

The types of tax services available that offer professional tax assistance include: a) National Firms (such as H&R Block) b) Enrolled Agents c) Accountants d) Attorneys e) All of the above

e

A tax credit reduces the taxable income on which the tax liability is computed. True or False

false

Some tax disputes have gone to the U.S. Supreme Court. True or False

True

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? a) Add his tax-exempt income. b) Subtract his itemized deductions. c) Add his tax credits. d) Subtract his tax-exempt income. e) Add his tax exemptions.

b

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: $80,000 • Medical and dental expenses: $9,000 • State income taxes: $3,500 • Mortgage interest: $9,500 • Charitable contributions: $1,000 a) $14,000 b) $15,000 c) $20,000 d) $23,000 e) $57,000

b

The tax based on the total tax due divided by taxable income is called the a) AMT. b) Average tax rate. c) Income tax rate. d) Marginal tax rate. e) Total tax rate.

b

Which of the following is NOT an action that can reduce your taxes? a) owning a home b) taking out a consumer loan c) paying certain work expenses such as union dues d) depositing money into a flexible spending account (FSA) e) Investing in municipal bonds

b, Interest on home equity loans is deductible, but not interest on consumer loans.

According to Tax Service Warnings, who is responsible for supplying accurate and complete information for completing a tax return? a) professional tax preparer b) IRS enrolled agent c) Taxpayer d) Taxpayer's dependents e) Taxpayer's attorney

c

Amanda and Jack are working on their taxes and need to determine which form to file. They had wages, interest, and dividends. In addition, they bought a house this past year and are thinking of itemizing their deductions. Which form should they use? a) 1040EZ b) 1040A c) 1040 d) 1040X e) 1040Z

c

An advantage of investing in a 401(k) plan is the a) Ability to invest up to 25% of your annual income. b) Opportunity to save $25,000 per year. c) Possibility of receiving an employer match on your contributions. d) Ability to pay taxes on distributions. e) Ability to withdraw contributions before age 55 without penalty.

c

In 2014, taxable income was reduced by ______ for each exemption claimed. a) $1,000 b) $2,500 c) $3,950 d) $5,000 e) $10,000

c

Lauren owns her business and is thinking about saving for retirement. She wants to invest up to 25% of her annual income. Which plan should she use? a) Roth IRA b) 401(k) c) Keogh Plan d) FSA e) Traditional IRA

c

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? a) 1040 b) 1099 c) 4868 d) W-2 e) W-4

c

The maximum that an individual can contribute to a Roth IRA for the 2014 year is: a) $1,000. b) $3,000 c) $5,500 d) $10,000 e) $15,500

c

Income that is taxed at a later date is: a) adjusted gross income b) earned income c) exclusions from income d) tax-deferred income e) tax-exempt income

d

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) $10,000 gift to her cousin b) Credit card interest c) Medical and dental expenses less than 10% of AGI d) Miscellaneous expenses that exceed 2% of AGI e) Moving expenses for a new job that is 25 miles from her old home

d

When calculating federal income taxes, "gross income" includes all of the following except a) earned income b) alimony c) investment income d) earned income credit e) passive income

d