Preparing Your Taxes Test 1

You have no employer provided pension plan; your IRA contributions are treated as

An adjustment to gross income

Which of the following are legal methods of reducing your current tax liability?

B and C investing in a tax deferred annuity shifting income to your children

A married couple filing a joint return has Ms. Cindy Cook, a CPA, complete their return. The IRS will hold only Ms. Cook responsible for any errors on the return.

False

Mortgage interest and credit card interest are both itemized deduction items.

False

The Federal personal income tax is a regressive tax.

False

The alternative minimum tax is an issue only for high-income taxpayers.

False

Your take-home pay is what you are left with after subtracting withholdings from your

Gross earnings.

You are preparing your own tax return. The least costly source for answering your questions would be

IRS 800 numbers.

Tax credits reduce your

Tax liability

An investment must be owned over one year in order to qualify for long-term capital gains treatment.

True

One's average tax rate is typically lower than one's marginal tax rate.

True

Opening a traditional IRA would allow you to defer taxes on the earning.

True

Social security taxes are paid on earned income but not on investment income.

True

Tax avoidance is a legal means to minimize tax liabilities.

True

The Congress writes and passes the Internal Revenue Code.

True

You should itemize deductions when total itemized deductions exceed the standard deduction.

True

The federal income tax is

progressive

A capital gain is the result of

selling an asset for more than purchase price.

If you do not wish to itemize deductions, you can use the

standard deduction.