Personal Finance Quiz 3

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.

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

If Diane was in a 25% tax bracket and received a $1,000 tax credit, by how much would her taxes be reduced?

$1,000 Taxes would be reduced by the full amount of the tax credit: $1,000.

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

1040X

If Jack was in a 25% tax bracket and received a $1,000 tax deduction, by how much would his taxes be reduced?

$250 Taxes would be reduced by (Tax deduction) × (Tax rate) = $1,000 × 25% = $250.

Evan is not concerned about immediate tax benefits but instead wants his investment to grow in value on a tax-free basis. Which of these would be the best for him to invest in today?

A Roth IRA

Using the following table, calculate the taxes for an individual with taxable income of $30,000. 10% Up to $8,500 15% $8,500-$34,500 25% $34,500-$83,600 28% $83,600-$174,400 33% $174,400-$379,150 35% Over $379,150

$4,075

Using the following table, calculate the taxes for an individual with taxable income of $20,800. 10% Up to $8,500 15% $8,500-$34,500 25% $34,500-$83,600 28% $83,600-$174,400 33% $174,400-$379,150 35% Over $379,150

$2,695.

Using the following table, calculate the taxes for an individual with taxable income of $45,000. 10% Up to $8,500 15% $8,500-$34,500 25% $34,500-$83,600 28% $83,600-$174,400 33% $174,400-$379,150 35% Over $379,150

$7,375

Janet is completing her federal income taxes for the year and has identified the amounts listed here. How much can she rightfully deduct? AGI: $42,000 Medical and dental expenses: $1,100 State income taxes: $1,000 Mortgage interest: $7,000 Charitable contributions: $1,250

$9,250 Deductions include the following: State income tax + Mortgage interest + Charitable contributions = $1,000 + $7,000 + $1,250 = $9,250. Medical and dental expenses are not deductible because they must be greater than 10% of her AGI (42,000 × 10% = 4,200).

Which of the following is NOT a valid form for filing federal income taxes?

1040Z

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

1099

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

Alimony received

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.

When calculating federal income taxes, "gross income" includes all of the following except

Earned income. Alimony. Investment income. Earned income credit. (Correct) Passive income.

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

His 12-year-old son. Himself. His 22-year-old daughter who is a full-time student. His wife. His 20-year-old son who is working full-time and living in an apartment. (Correct) To qualify for tax exemptions, a dependent must be under age 19 or a full-time student under the age of 24.

Which of the following is NOT an action that can reduce your taxes?

Owning a home. Taking out a consumer loan. (Correct) Paying certain work expenses such as union dues. Depositing money into a flexible spending account (FSA). Investing in municipal bonds. Interest on home equity loans is deductible, but not interest on consumer loans.

A worker's primary goal should be to

Pay his or her fair share of taxes while taking advantage of appropriate tax benefits.

An advantage of investing in a 401(k) plan is the

Possibility of receiving an employer match on your contributions.

If Brenda wants to pay her fair share of taxes, no more and no less, she should practice

Tax avoidance.

According to Tax Service Warnings, who is responsible for supplying accurate and complete information for completing a tax return?

Taxpayer