FIN 201 learnsmart
Taxpayers pay income taxes either through payroll ________ or through estimated tax ________.
withholding, payments
If you have made estimated quarterly payments totaling $4,000 and your annual taxes owed total $3,700, then which of the following is true?
You will receive a refund of $300.
If you file Form 4868 to obtain an automatic extension on filing your forms, you must pay your estimated taxes owed or face ________________________.
a penalty for being just one day late
A premature withdrawal from a traditional IRA will result in taxable income and a penalty of ______ percent of the withdrawn amount.
10
If you want to amend (change) a previous return, you would need to file a ______ form
1040X
The second installment for estimated tax is due by June
15
The TCJA may allow you to deduct up to ______ percent of the income due to the Qualified Business Income deduction.
20
If you are in the 28% tax bracket and owe $20,000 on $100,000 of taxable income, your average tax rate and marginal tax rate would be, respectively:
20% for average and 28% for marginal
Recent tax credits include a credit of up to $______ for each dependent under the age of 17.
2000
Which of the following might trigger alternative minimum tax?
High tax deductions for state taxes Significant amount of second mortgage interest High tax deduction for local taxes
Which tool provides options for checking your refund status, requesting tax records, locating free tax prep help, and accessing other interactive tools?
IRS2Go App
1099
Interest, dividends, capital gains and losses, self-employment income, lump-sum payments.
Which of the following is true regarding the use of software when preparing your Form 1040?
It can save you time.
Which statement best describes how taxpayers pay their taxes to the IRS?
It is a pay-as-you-go system utilizing withholding of tax from paychecks or making estimated payments.
Which of the following best describes the purpose of the alternative minimum tax?
It is to assure that people who receive tax breaks pay a fair share of taxes.
The due dates for quarterly estimated payments are April 15, June 15, and September 15 of the current year and ______ 15 as the last payment for the previous year.
January
When taxes are added to a product for each stage in the manufacturing process, this is called:
VAT
If Mary owes the IRS $5,000 for her income taxes and is in the 15% marginal tax bracket, what would be her average tax rate if she had taxable income of $41,667?
about 12%
According to the text, the IRS reviews all tax returns for completeness and ______
accuracy
When husband and wife file a joint return, the income of a husband and wife is:
added together
Financial planners recommend that copies of home ownership documents should be kept for
an indefinite period
You can file Form 4868 to obtain a(n) ______ six-month extension on filing an income tax return by filing the proper forms with the IRS before the April 15 filing deadline.
automatic
The actions the IRS will take if you make an error could include recalculating your tax and sending you a(n) ______ or refund
bill
The simplest type of IRS audit is the ______ audit. this is taken directly from the text.
correspondence
a tax _____ directly reduces taxes owed.
credit
In which month should you decide whether to make payments that would be to your advantage for this year while determining whether you can defer income into the next tax year?
december
In which month should you decide whether to make payments that would be to your advantage for this year while determining whether you can defer income into the next tax year? Multiple choice question.
december
People who claim large or unusual ______ increase their odds of getting audited.
deductions
An additional 10 percent penalty is usually imposed on premature withdrawals unless the withdrawn funds are on account of death or ______
disability
A tax credit for working parents with taxable income under a certain amount is called ______-income credit
earned
True or false: A marginal tax rate is found by dividing the amount of taxes owed by the taxable income.
false
True or false: If you owe $10,000 in taxes but have paid $8,000 in withholding payments and $1,900 in estimated payments, you will have a refund.
false
True or false: Most people who work as employees would need to make estimated tax payments.
false
True or false: State income tax returns are always required to be filed after the federal return is due.
false
A tax that would require all taxpayers regardless of income level to pay the same percentage is:
flat tax
Generally, you should keep your tax records for at least three years after filing your return. However, you may be held responsible for providing back documentation:
for up to six years
If you expect to have a ________ tax rate next year, then one tax avoidance strategy is to accelerate the receipt of income to have it taxed at the current rate.
higher
John owed $10,000 in taxes on taxable income of $40,000. If John earns an additional $1,000, he will pay an additional $280. Therefore:
his average tax rate is about 25%
Flexible spending accounts (FSAs) allow you to reduce your taxable _______ when paying for medical and _______ care expenses.
income, dependent
Making the final estimated tax payment from the previous year should be done in which month?
january
In which month is the second installment for estimated taxes due?
june
Two tax planning activities for the month of January include:
making the final estimated tax payment from the previous year record-keeping
The tax rate on your next dollar of taxable income is called the:
marginal tax rate
Some employers provide a ______ contribution in their 401(k) plans.
matching
Many employers provide a(n) ____________________ for their employees' 401(k) plans.
matching contribution
Real estate taxes and ______ are tax deductible by the homeowner.
mortgage interest
Which of the following is not a recent tax strategy change?
mortgage interest deduction
An example of tax-exempt income is the interest from most _______ bonds while an example of a tax-deferred income is earnings on an IRA.
municipal
Interest income from _______ bonds issued by state and local governments is not subject to federal tax
municipal
______ 15 is the deadline for filing a tax return for those who received the automatic six-month extension.
october
w-2p
pension income
FSAs lower taxes because they allow workers to put ______ dollars into employer and government sponsored programs.
pretax
The purpose of the W-2 is to:
report annual earnings and amounts paid in taxes
Which of the following would potentially have tax-free withdrawals?
roth ira
w-2
salary, wages, taxes withheld
interest on _____ mortgages can result in a person paying the AMT
second
The due date for the third installment for estimated tax is in which month?
september
________ 15 is the due date for the third installment for estimated tax.
september
Every U.S. citizen who earns above a certain amount must file a tax return. The amount is determined by filing _____ and other factors.
status
Your ______ income is the basis for computing the amount of tax owed.
taxable
The biggest difference between a(n) _________ IRA and a Roth IRA is that the Roth IRA contribution is not tax deductible, but after five years, its earnings are tax free
traditional
As of 2020, the IRA contribution limit for workers under age 50 was $6,000.
true
The calculation of your total tax due begins by using your taxable income with either tax tables or a tax schedule.
true
True or False: The IRS reviews all returns for completeness and accuracy.
true
True or false: A SEP-IRA plan is a tax-deferred retirement plan designed for self-employed people.
true
True or false: A tax credit is an amount subtracted directly from taxes owed.
true
True or false: Many taxpayers view an annual tax refund as a "windfall," extra money they can count on each year.
true
True or false: While municipal bonds pay a lower rate of interest than other types of bonds, the after-tax income may be higher than other types of bonds.
true
Which of the following do not offer for-profit tax services?
universities
A person would file as head of household if he or she is:
unmarried with a dependent child
Which of the following accurately describes the contribution limits of a 401(k) plan?
up to 19500 in 2020
The form a worker receives after the end of the year that reports the worker's annual earnings and amounts deducted for taxes is called a ______.
w-2
Salary and wages are reported on:
w-2 forms
Which of the following are not considered expense records?
w-2 forms
Which of the following is not legal?
Take cash for work done and do not declare it as income
Which of the following are tax-deferred investments?
Tax-deferred annuities Health savings plans IRA
Which of the following statements is true?
Tax-exempt income is not subject to tax while tax-deferred income will be taxed at a later date.
Which of the following statements is not true regarding tax services?
Refund anticipation loans are always good for the taxpayer.
Underpayment of taxes due to negligence or fraud can result in penalties of ________ percent.
50-75
A recent tax strategy employed by the government is to allow employees with health care FSAs to carry over up to $ ________ of unused funds
500
As of 2020, a SEP-IRA permits contribution of 25 percent of the qualifying person's annual income, up to a maximum of $______.
57,000
All but how many states currently have some type of state income tax?
7
You should avoid which of the following when selecting a tax preparation service?
A preparer who earns a percentage of your refund
Which of the following strategies if employed help to support your tax return in the event of an IRS audit?
Avoid common filing errors. Keep accurate records. Retain all your receipts and canceled checks.
Which of the following are tax credits to reduce the amount of taxes owed?
Child tax credit up to $2,000 for dependents under 17 years Credit for foreign taxes paid Credit for higher education expenses
Select all the reasons most planners advise people to contribute as much as possible to a SEP-IRA or 401(k) plan
Contributions reduce adjusted gross income and therefore reduce taxes. Increased value accumulates on a tax-free basis until funds are withdrawn.
Which of the following is not a reason that tax planners suggest people contribute as much as possible to 401(k) plans?
Contributions to a 401(k) are never taxed
Which of the following is not an IRS service for tax assistance?
Ernst & Young Tax Guide
Which of the following events might cause a taxpayer to make estimated tax payments?
Lump-sum payments from pensions Earnings from independent contracting Royalties Significant earnings from savings or investments
Which of the following best describes why the home can be a tax shelter?
Mortgage interest and real estate taxes are tax deductible, which helps lower the cost of home ownership.
Which of the following must file a federal tax return assuming their income exceeds a certain amount?
Residents of the United States Citizens of the United States who reside in Puerto Rico Citizens of the United States
Which of the following is not a (possible) tax-deferred investment in that contributions to it do not reduce your taxable income for the current year?
Roth IRA
Which of the following are the filing status categories for federal income tax purposes?
Single Married, filing separate return Head of household Married, filing joint return Qualifying widow or widower
Which is true regarding refund anticipation loans?
They frequently charge very high interest rates.
Which of the following is generally true regarding how many taxpayers view an annual tax refund?
They view it as a "windfall", or extra money they can count on.
Which of the following is true?
Tim, age 55, can contribute a maximum of $26,000 to a 401(k) as of 2020.
Select all the accurate observations below about different types of audits.
With an office audit, you must visit the IRS office to answer questions about your return. The simplest audit is a correspondence audit. A field audit involves an IRS agent visit to your home or office and is the most complex type of audit.
Mortgage interest is reported to you by your mortgage lender on form
1098
A tax planning activity for February would be to check to see if you have received all of your W-2 forms (salary and wages) and all of your _________ forms (interest and dividends) so you can begin to organize and prepare your income tax return.
1099
Estimated quarterly tax payments are due on which day of the given month in the quarter?
15th
Two possible tax planning activities for April are filing the tax return by April ______, and, if necessary, filing for an automatic
15th, extension
Which of the following statements are true about software and taxes?
A spreadsheet program can help you keep track of income and expenses as the year plays out. Software packages such as H&R Block At Home and TurboTax help users prepare and file returns. You can save time while preparing Form 1040 and its accompanying schedules.
Which of the following is not a strategy employed to help support your tax return in the event of an IRS audit?
Avoid earning dividend income from investments.
Which of the following is true?
Bill, age 58, can contribute up to $7,000 in an IRA as of 2020.
Which of the following is a tax avoidance strategy?
Delay the receipt of income because you want to delay the payment of taxes until next year. Accelerate deductions to save taxes this year.
Which of the following is true regarding automatic extensions by filing Form 4868?
Filing for an automatic extension extends your deadline for filing by six months.
Which of the following is considered an indicator for an increased likelihood of being audited?
Filing large deductions
The two key tax planning activities of December are deciding whether to make payments that would be to your ________ for this year while deferring _______ into the next tax year
advantage; income
the ________ minimum tax is structured to ensure that those who receive tax breaks also pay their fair share of taxes.minimum tax is structured to ensure that those who receive tax breaks also pay their fair share of taxes.
alternative
A CPA and enrolled agents both offer tax services including return preparation while a(n) ______ will represent you in the case of an IRS lawsuit.
attorney
Factors to consider when evaluating tax services include experience and training of the provider, the fee, and if the provider will represent you with the IRS in the case of a(n) ________.
audit
a tax _______ is a detailed examination of your tax return by the IRS
audit
In which month should you check to see if you have received all of your W-2 and 1099 forms so you can begin to organize and prepare your income tax return?
febuary
Tax avoidance means using ______ strategies to reduce taxes, while tax ______ involves using illegal means to lower tax liability.
legitimate; evasion
Two of the tax advantages of being self-employed are that you can deduct the cost of both health and certain ______ insurance as a business expense.
life
True or false: Casualty and theft deductions are allowed for financial losses resulting from federally declared natural disasters.
true
True or false: The EIC is a credit that low-income working families can claim to lower their taxes or receive a check from the IRS.
true
True or false: W-2, W-2P, and 1099 forms make up the proof of income documents for a taxpayer.
true
