FIN 201: Ch.3 Reading Assignment

Your primary ______ should be to pay your fair share of taxes while taking advantage of appropriate tax benefits. (Enter one word per blank.)

goal

Select all that apply: Which of the following are categories of taxes?

- Taxes on purchases - Taxes on wealth - Taxes on property - Taxes on earnings

True or False: Which of the following are types of investment income?

- dividends - interest - rent from investments

Select all that apply: Which of the following are examples of earned income?

- wages - salary - commission

Estate taxes are calculated on the ______ of a person's property at death.

value

Taxpayers pay income taxes either through payroll ______ or through estimated tax ______.

withholding; payments

Which of the following is not subject to personal property taxes?

your house

Which of the following is subject to real estate property taxes?

your house

A ______ form is used to amend a previously filed tax return.

1040X

Medical costs, taxes, and interest are all examples of ______ deductions that are subtracted from adjusted gross income.

itemized

Adjusted gross income is the gross income after certain ______, such as IRA contributions, penalties for early withdrawal of savings, and alimony payments, have been made.

reductions

Interest on ______ mortgages can result in a person paying the AMT.

second

A tax ______ is an amount subtracted from adjusted gross income to arrive at taxable income.

deduction

A tax credit for working parents with taxable income under a certain amount is called ______-income credit.

earned

Salary is an example of ______ income.

earned

True or False: A tax credit is an amount subtracted directly from taxes owed.

True

True or False: If you itemize your deductions, you can deduct contributions made to charities and amounts paid for real estate taxes.

True

Theft and ______ losses are financial losses resulting from federally declared disasters only.

casualty

A tax imposed on the value of a person's property upon that person's death is called a(n):

estate tax

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

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

The major categories of taxes are taxes on ______, property, wealth, and earnings.

purchases

True or False: Social Security taxes are calculated based on the value of your property to fund retirement benefits, while income taxes are imposed on wages.

False

When husband and wife file a joint return, the income of a husband and wife is:

added together

The ______ minimum tax is structured to ensure that those who receive tax breaks also pay their fair share of taxes.

alternative

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%

True or False: Adjusted gross income is gross income reduced for such things as IRA contributions and alimony payments.

True

True or False: Income tax is paid during the year through withholding from paychecks and/or estimated payments.

True

True or False: A filing system stores records that help provide proof of payment of charitable expenses, medical expenses, and other itemized deductions

True

True or False: Casualty and theft deductions are allowed for financial losses resulting from federally declared natural disasters.

True

True or False: If you are an employee, your employer should withhold a certain amount for taxes from your paycheck while self-employed individuals should make estimated tax payments.

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: There are five filing statuses for your tax return, and they are affected by marital status and number of dependents.

True

True or False: Travel expenses should be documented in a daily log with records of mileage, tolls, parking fees, and lodging costs.

True

Which type of income results from business activities in which you do not actively participate?

passive

Real estate ______ taxes are based on the value of land and buildings.

property

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: Passive income results from business activities in which you participate regularly.

False

A tax ______ reduces taxable income, thereby reducing the tax liability.

deduction

True or False: The two main taxes on salary are income taxes and estate taxes.

False

Underpayment of taxes due to negligence or fraud can result in penalties of ________ percent.

50 to 75

______ income is the net amount of income, after considering allowable deductions, on which tax is computed.

taxable

A tax ______ directly reduces taxes owed.

credit

True or False: A marginal tax rate is found by dividing the amount of taxes owed by the taxable income.

False

Select all that apply: 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

True or False: A tax deduction reduces tax liability directly, dollar for dollar.

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: Income includes only those earnings that you are actively involved in earning, such as salaries and income from managing a business.

False

Select all that apply: Which of the following events might cause a taxpayer to make estimated tax payments?

- Earnings from independent contracting - Significant earnings from savings or investments - Royalties - Lump-sum payments from pensions

Select all that apply: Which of the following taxes are deductible for the person/family paying them?

- Real estate property taxes - State income tax

True or False: Only cash contributions to qualified charitable organizations are allowed as deduction.

False

In 2020, individuals are allowed to give money or items valued at $______ or less in a year to a person without being subject to taxes.

$15,000

The amount of money or the value of property that can be gifted each year without being subject to federal gift taxes is:

$15,000 per year per person.

Which of the following are not considered expense records?

W-2 forms

Components of income include earned, investment, and ______ income.

passive

Select all that apply: Which of the following might trigger alternative minimum tax?

- Significant amount of second mortgage interest - High tax deduction for local taxes -

Which of the following is not a deductible tax?

Excise tax

Estimated quarterly tax payments are due on which day of the given month in the quarter?

The 15th

As "Tax Freedom Day" came in mid-April, it means that the portion of the year people work to pay their taxes is represented by January 1 to:

Mid-April

Investment income in the form of dividends, interest, and rent from investments is also called:

Portfolio income

Select all that apply: 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 - Citizens of the United States who reside in Puerto Rico

Select all that apply: The value of properties upon which personal property taxes may be assessed include:

- furniture - boats - farm equipment - automobiles

True or False: Most people who work as employees would need to make estimated tax payments.

False

Which of the following would have tax deductible interest?

Home mortgage

True or False: An inheritance tax is paid for the right to acquire the inherited property.

True

Which of the following is an adjustment to income rather than an itemized deduction?

IRA contributions

Recent tax credits include a credit of up to $______ for each dependent under the age of 17.

2,000

True or False: The calculation of your total tax due begins by using your taxable income with either tax tables or a tax schedule.

True

Tax planning starts with which of the following?

Knowing current tax laws

Your ______ income is the basis for computing the amount of tax owed.

taxable

Select all that apply: Which of the following statements are true with regard to taxes on wages?

- For most people, Social Security tax is 6.2 percent - Income taxes are imposed by federal, some state, and some local governments to fund government operations.

Select all that apply: Which of the following are adjustments to gross income?

- IRA contributions - Keogh Plans - Penalties for early withdraw of savings

Select all that apply: Which of the following events might cause a taxpayer to make estimated tax payments?

- Lump-sum payments from pensions - Significant earnings from savings or investments - Earnings from independent contracting - Royalties

If you want to amend (change) a previous return, you would need to file a ______ form.

1040X

Mortgage interest is reported to you by your mortgage lender on form ______.

1098

Interest, dividend, and capital gains income are reported to the taxpayer and IRS by financial institution on Form ______. The taxpayer reports this to the IRS on a Schedule B form.

1099

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

Which month is the deadline to file your federal tax return or file an extension if necessary?

April

Which of the following types of interest expense is not deductible?

Automobile loan interest

Which of the following is not a deductible charitable donation?

Giving money to a homeless person on the street

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.

Making the final estimated tax payment from the previous year should be done in which month?

January

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

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.

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.

The tax rate that is used to calculate the tax on the last (or next) dollar of taxable income is:

a marginal tax rate.

Financial planners recommend that copies of home ownership documents should be kept for:

an indefinite period

The two main types of taxes on wages and salary are federal and state ______ tax and Social Security tax.

income

A(n) ______ tax is calculated on the value of property bequeathed by a deceased person.

inheritance