FIN-210 Personal Finance Topic 4 SmartBook

Qualifying widow or widower status is for an individual whose spouse has [_____] within the past [_____] years and who has a dependent. This is found in the discussion of who must file.

died, 2

For job related expenses to be deductible, they must exceed ______ of adjusted gross income.

2%

On filing Form 4868, you can ______ a six-month extension on filing an income tax return by filing the proper forms with the IRS before the April 15 filing deadline.

automatically receive

Charitable contributions greater than ______ % of adjusted gross income are subject to limitations on deductibility.

20

True or false: A deduction for moving expenses is allowed if you move for any reason at least 25 miles away from your current residence.

False (it's 50)

______ tax is calculated on the value of property bequeathed by a deceased person to heirs. This is found in the discussion of taxes on wealth.

Inheritance

You filed a Form 4868 and received a six-month extension on your taxes for 2018. Which of the following is true?

The filing will not postpone your payment liability, so you must pay your estimated payment liability by April 15, 2019.

Which of the following is a difference between a traditional IRA and a Roth IRA?

The initial contribution to a Roth IRA is not tax deductible.

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

True

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

estate tax

Payments for Blank______ taxes are due by April 15, June 15, September 15, and January 15 of the following year.

estimated

State and local income taxes are deductible for:

federal tax purposes

If you find that you have income or deductions that you did not report on your tax return, you should:

file a 1040X to amend the return.

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.

A flexible spending account allows you to reduce your taxable [____] when paying for medical expenses or child care costs.

income

Flexible spending accounts (FSAs) allow you to reduce your [_____] taxable when paying for medical and [_____] care expenses.

income, child

Tax planning involves knowing the current laws, maintaining good records, and making purchase and ______ decisions that minimize income taxes.

investment

Real estate property taxes are a major source of revenue for ______.

local governments

Form 1098 reports ______.

mortgage interest

Real estate taxes and ______ are tax deductible by the homeowner.

mortgage interest

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

TRUE

The purpose of the W-2 is to:

report, document annual earnings and amounts paid in taxes.

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

value

Select all that apply Which of the following are the filing status categories for federal income tax purposes? -- single -- head of household -- qualifying widow or widower -- married, filing joint return -- married, filing separate return -- single, filing joint return -- deceased, filing joint return

-- single -- head of household -- qualifying widow or widower -- married, filing joint return -- married, filing separate return

Select all that apply Which of the following taxes are deductible? Multiple select question. estate taxes inheritance taxes state income taxes real estate property taxes

-- state income taxes -- real estate property taxes

Moving expenses are deductible when a change in residence is associated with a new job that is at least ______ miles farther from your former home than your old main job location.

50

TRUE OR FALSE The two main taxes on salary are income taxes and estate taxes.

FALSE

True or False: Taxable income is calculated as salaries minus adjustments, such as IRA contributions, Keogh retirement plan contributions, and alimony.

FALSE

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

FALSE

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.

You did some independent contracting in 2018 that resulted in a tax liability of $1,000. You did not make estimated tax payments. Your withholding for 2018 was $2,500 and your total tax liability is $3,200. Your tax liability for 2017 was $2,100. Will you incur penalties as a result of your underpayment in 2018?

No, because your withholding is more than your tax liability for the previous year.

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%

Investment interest expense is deductible up to ______.

an amount equal to investment income

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

an indefinite period.

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

automobile loan interest

A premature withdrawal from an IRA may be subject to a tax penalty. What is the age considered "premature"?

before age 59 1/2

Failure to file a tax return:

can result in a 25% penalty in addition to taxes owed.

An example of tax-exempt income is the interest from bonds issued by ______, while an example of tax-deferred income is an IRA.

cities or states

A tax _____ is an amount subtracted gross income to arrive at taxable income.

deduction

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

deduction

Components of income include earned, investment, and [_______] income.

passive

Taxpayers pay income taxes through:

payroll withholding and through estimated tax payments.

Investment income in the form of dividends, interest, and rent from investments is also called (found in discussion of types of income) ______.

portfolio income

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

property

When calculating total tax due, ______ are subtracted.

tax credits

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

On average, the portion of a person's earnings that goes to taxes is ______.

One third

Select all that apply Which of the following are examples of earned income? Multiple select question. commissions dividends interest wages salary

- commissions - wages - salary

Choose All that Apply: The goals of tax planning include: Multiple select question. maintaining complete and appropriate tax records. using tax planning strategies to generate capital gains. understanding how tax laws impact you. making purchases and investments that reduce tax liability. evading taxes by using various strategies.

- maintaining complete and appropriate tax records. - understanding how tax laws impact you. - making purchases and investments that reduce tax liability.

Select all that apply: Which of the following items are included in gross income? wages adjustments standard deductions commissions interest salaries exemptions

- wages - commissions - interest - salaries

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

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

False

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 and estimated quarterly payments.

Which of the following best describes the purpose of the alternative minimum tax? This is found in the discussion of calculating taxes owed.

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 of the following year.

January

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

True

True or false: Underpayment penalties are usually avoided if you make sure you pay in, through withholding and estimated payments, an amount that is equal to or more than last year's tax liability or pay in at least 90% of the current year's tax liability.

True

True or false: W-2, W-2P, and 1099 forms make up the proof of income documents for a taxpayer.

True

Which of the following is not a wise financial decision regarding an income tax refund?

Use it to make an impulse purchase.

Salary and wages are reported on:

W-2 forms, while pension income is reported on W-2P forms.

You received your W-2 and it had the following information: Wages, tips, other compensation: $35,000, Federal income tax withheld: $4,500. You do your 1040 and find that your taxes owed are $3,500. Which of the following is true?

You will receive a refund of $1,000.

Salary is an example of ____ income

earned

Very low-income workers can benefit from the Blank______.

earned income credit

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

income

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

itemized

You calculate taxable income by reducing gross income by adjustments, exemptions, and standard or [____] deductions.

itemized

Which of the following would be included in gross income?

salaries, wages, commissions, dividends, interest, and profits from business

Fill in the blank: For calculating your total tax due, your taxable income is to be used in conjunction with either tax tables or tax rate [______]

schedule

Select all that apply Which of the following are types of investment income? Multiple select question. bonuses interest dividends salaries rent

- investment - dividends - rent

Select all that apply If you get a large tax refund, it is wise to: -- pay off credit cards. -- save it for retirement. -- spend it impulsively. -- put it in your checking account. -- change your withholding amount.

-- pay off credit cards. -- save it for retirement. -- change your withholding amount.

IRS can impose a penalty of ______ of the tax liability for failure to file a tax return.

25%

TRUE OR FALSE: An inheritance tax is paid for the right to acquire the inherited property.

TRUE

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

1099

Select all that apply Which of the following might trigger alternative minimum tax? -- significant amount of second mortgage interest -- high tax deductions for local taxes --IRA deduction -- a large deduction for self-employment tax -- high tax deductions for state taxes

-- significant amount of second mortgage interest -- high tax deductions for local taxes -- high tax deductions for state taxes

A premature withdrawal from a traditional IRA will result in taxable income and a penalty of ______% of the withdrawn amount.

10

True or false: A marginal tax rate is found by dividing the amount of taxes owed by 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: Only cash contributions to qualified charitable organizations are deductible.

False

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: Income tax is calculated on income minus deductions and exemptions.

TRUE

TRUE OR FALSE: Income tax is paid during the year through withholding from paychecks and/or estimated payments.

TRUE

Adjusted gross income is gross income ______ by IRA contributions, alimony, and other adjustments.

reduced

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

a marginal tax rate

A tax [____] is directly subtracted from taxes owed. This is a one-word answer.

credit

Select all that apply Which of the following expenses qualify to be deducted as job-related expenses if they total more than 2 percent of AGI? -- Union dues -- Unreimbursed job travel -- Reimbursed job travel -- Tickets to a baseball game -- Cost of required continuing education

-- Union dues -- Unreimbursed job travel -- Cost of required continuing education

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

1040X

Mortgage interest is reported to you by your mortgage lender on form [_____]

1098

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.

True or False: Target your tax planning efforts toward paying your fair share of taxes while taking advantage of tax benefits appropriate to your personal and financial situation.

TRUE

True or false: Adjusted gross income is gross income reduced for such things as IRA contributions and alimony payments (if deductible).

TRUE

Which of the following statements is true? -- Tax-deferred income is not subject to tax, while tax-exempt income will be taxed at a later date. -- Tax-exempt income is not subject to tax, while tax-derived income will be taxed at a later date. -- Tax-exempt income is not subject to tax, while tax-deferred income will be taxed at a later date. -- Tax-derived income is not subject to tax, while tax-deferred income will be taxed at a later date.

Tax-exempt income is not subject to tax, while tax-deferred income will be taxed at a later date.