Personal Finance Week 2

EXCLUSION

An amount not included in gross income.

TAX DEDUCTION

An amount subtracted from adjusted gross income to arrive at taxable income.

STANDARD DEDUCTION

A set amount on which no taxes are paid.

LIQUID ASSETS

Cash and items of value that can easily be converted to cash.

TAKE-HOME PAY

Earnings after deductions for taxes and other items.

The difference between the amount budgeted and the actual amount received or spent is called the a) Variance b) Cash outflow c) Income d) Cash inflow e) Variable expense

a) Variance

ADJUSTED GROSS INCOME

Income reduced by certain adjustments, such as contributions to an individual.

TAX EXEMPT

Income that is not subject to tax.

BUDGET VARIANCE

The difference between the amount budgeted and the actual amount received or spent.

INSOLVENCY

The inability to pay debts when they are due because liabilities far exceed the value of assets.

TAX AVOIDANCE

The use of legitimate methods to reduce one's taxes.

Annie was required to clarify or document minor questions of her tax form by mail. She participated in a(n) a) Correspondence audit b) Office audit c) Home audit d) Field audit e) Detailed audit

a) Correspondence audit

Which of the following is most correct? a) Rare coins and stamps belong in a safe deposit box b) A birth certificate should be kept in a personal computer system c) W2s for tax records belong in a safe deposit box d) Past budgets belong in a safe deposit box e) Adoption papers belong in a home file

a) Rare coins and stamps belong in a safe deposit box

Individuals who have high income reported on Form 1099 may be required to pay estimated tax payments. a) True b) False

a) True

The current financial position of an individual or family is a common starting point for financial planning. a) True b) False

a) True

At the end of the year, Walter received a form that showed his payments from independent contracting. That form is called _____ a) 1040 b) 1099 c) W2 d) W4 e) Schedule A

b) 1099

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

b) Average tax rate

Which of the following is NOT a tax credit? a) Adoption tax credit b) Domestic tax credit c) Earned-income credit d) Foreign tax credit e) Hope Scholarship tax credit

b) Domestic tax credit

A budget is a record of how a person or family has spent their money. a) True b) False

b) False

A cash flow statement uses the equation: assets liabilities = net worth. a) True b) False

b) False

Contributions to a Keogh or 401(k) are tax-exempt. a) True b) False

b) False

Financial advisers suggest that an emergency fund should cover one to two months of living expenses. a) True b) False

b) False

If your taxes due are greater than the amount you had withheld for the year, then you should expect a refund after you complete your federal income taxes. a) True b) False

b) False

The itemized deduction allowed for an individual 65 and older is higher than the itemized deduction for a younger taxpayer. a) True b) False

b) False

Which of the following is NOT a tax that most people pay? a) Federal taxes on earnings b) Federal taxes on possessions c) Federal taxes on wealth d) Local taxes on property e) State taxes on purchases

b) Federal taxes on possessions

Penny knows that she needs to file her taxes, but 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) W2 e) W4

c) 4868

Which of the following will increase the net worth of a household? a) Decrease saving by $50 per month b) Increase the amount borrowed for major purchases c) Decrease spending by $5 per day d) Invest in possessions whose values do not increase e) Keep an extra $100 in a checking account instead of a savings account

c) Decrease spending by $5 per day

Lauren owns her own 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) Keogh plan

Which of the following ratios indicates the amount of a person's earnings that goes for payments for credit cards, auto loans, and other debt (except mortgage)? a) Debt ratio b) Current ratio c) Liquidity ratio d) Debt payments ratio e) Savings ratio

d) Debt payments ratio

When creating a budget, which of the following statements is true? a) Plan on your income being the same as last year. b) It is easier to create a budget if your earnings vary. c) Common financial problems can be maximized through budgeting. d) Numbers in the budget are estimates. e) It is better to overestimate your income for next year.

d) Numbers in the budget are estimates.

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 because of his marital status? a) Single b) Married, filing joint return c) Head of household d) Qualifying widow or widower e) Married, but filing individually

d) Qualifying widow or widower

When creating a personal balance sheet, which of the following is an investment asset? a) Cash value of life insurance b) Checking account c) Possessions in your home d) Retirement account e) Vacation property

d) Retirement account

Which of the following is NOT a component of money management? a) Creating personal financial records to document business transactions and legal matters b) Creating personal financial statements to measure and assess financial position and progress c) Creating a budget d) None of the above are components of money management e) All of the above are components of money management

e) All of the above are components of money management

When creating a personal balance sheet, which of the following is a current liability? a) Checking account b) Net worth c) Auto loan d) Money your sister owes you in two years e) Charge account

e) Charge account