Personal Finance tax unit test study guide

"Tax Day" is:

April 15, the deadline to file your taxes

All of the following information should appear on your W-2 form EXCEPT: A- Your name, address, and employer information B- Your interest earned on savings and investments C- Your wages, tips, and compensation from that particular employer D- The amount you paid during the last year for Medicare and Social Security

B

All of the following are ways to pay any taxes you owe EXCEPT: A- Using your debit or credit card to make an online payment B- Sending a check C- Make a payment directly from your bank account D- Use an app or website like PayPal or Venmo

D

What is the largest source of income for the Federal government?

Income tax

Definitions for marginal and effective tax rates:

Marginal rate is based on your total income and determines what tax bracket you are in, while effective rate is the average tax rate on your entire income.

A factor that does not impact the amount someone may pay in taxes:

Political party

Why should someone accurately complete a W-4 form any time they start a new job or change their tax status?

The W-4 determines how much Federal income tax money an employer should withhold

If you claim a large number of allowances on your W-4 form, your taxes withheld will:.

decrease, and your take-home pay will increase

Which of the following people might want to claim EXEMPT on their W-4 form? A- Joe, who is 22 and expects to earn $14,850 from his internship. B- Sharon, who is 16 and expects to earn $8,500 from her part-time job. C- Donald, who is 24 and expects to earn $16,000 from his part-time job. D- Harriett, who is 26 and expects to earn $57,000 from her full-time job.

B

Which person should expect to receive a W-2 form from their employer by January 31st, 2019? A- Mary, who has sold handcrafted vases online for the past 5 years B- Joe, whose first job started on January 10, 2019 C- Anne, who did an unpaid internship in summer 2018 for a local newspaper D- Keira, who has worked for the same department store for the last 15 years

D

Who is legally required to file a tax return? (Note: All of the following people can be claimed as a dependent.) A- Marty, who earned $370 from her cake business. B- Michael, who received $700 in investment income. C- Gerry, who earned $1,125 from his part-time job. D- Rhianna, who earned $13,250 from her internship.

D

John filed his taxes and found out he owes money. What can he do to prevent this from happening next tax year?

He can decrease the number of withholdings on his W-4 form.

When you sit down to file your 1040 form, which document should you have in front of you?

W-2 form(s)

What penalty might you face if you fail to file a tax return?

You are charged 5% of the amount you owe every month

Serena was able to lower her overall tax burden by directly reducing the amount of money she owes to the IRS. Which of the following most likely explains what happened? A- She received tax CREDITS. B- She claimed EXEMPT on her W-4 form. C- She received a tax DEDUCTION. D- She is considered a household employee, and is therefore exempt from self-employment taxes.

A

Which of the following high schoolers would be considered a self-employed contractor? A- Nancy, who makes homemade jewelry in her spare time and sells them through her online store. B- Arlene, who babysits during the week and weekends. C- Sam, who mows lawns for his neighbors after school. D- Jeremiah, who delivers his neighborhood's newspapers on weekday mornings.

A

Which of the following statements is TRUE about the cost of living and state and local taxes? A- The cost of living and how much you pay in state and local taxes are not directly related, but they can impact how much extra money you have from each paycheck. B- States with HIGHER costs of living have HIGHER state and local taxes. C- States with HIGHER costs of living have LOWER state and local taxes. D- The state and local governments use the cost of living to determine what the tax rates should be.

A

Which of the statements about the current U.S. tax system is TRUE? A- Our current system is described as being a progressive system because the more you make the more you pay in taxes B- Your friend tells you his marginal tax rate is 25%. That means that he pays 25% on all of his income. C- Everyone in the US who makes more than $12,000 pays one flat tax rate. D- Our current system is described as being a regressive system because it imposes higher rates on those who earn less.

A

Tina found out that she owes $3,200 in taxes. She cannot afford to pay the entire amount right now, so she is going to arrange an installment plan with the IRS. What is the one thing that Tina should be prepared for? A- She'll have to redo her tax return so that she can note she'll be using an installment plan. B- She will pay more than $3,200 because she will be paying additional money in interest with each payment. C- Her credit score may decrease because of her inability to pay back the total she owes to the IRS. D- She will have to meet an earlier tax filing deadline next year in case she owes money again.

B

Which is a type of EARNED income? A- Social Security Benefits B- Retirement Account Distributions C- Money Received from Bonuses D- Unemployment Compensation

C

Which statement about filing a tax return is FALSE? A- Paper filing your tax return is free, but it takes a lot longer to process and get back a refund if you are owed one. B- Filing with a tax professional may be good for those people who got a divorce, bought a house, or changed their financial situation in another major way. C- People who are not familiar with filing taxes should not use e-filing software, because there is no access for support if they need it. D- Filing with a tax professional is often the method that is most susceptible to scams.

C

What form do you use to file a tax return with the IRS?

Form 1040

Ginger has decided to e-file her taxes this year. Why should she file her state and Federal taxes together through the same software?

Ginger will have just one submission ID, which makes it less likely that the state will reject her state tax return.

The Federal government spends the most amount of tax money on?

Healthcare

A dependent is someone who:

Relies on someone else to provide more than half of their financial support.