Ch.1 -5

Janet is completing her federal income taxes for the year and has identified the amounts listed here. How much can she rightfully deduct? • AGI: $43,500 • Medical and dental expenses: $1,250 • State income taxes: $1,150 • Mortgage interest: $7,600 • Charitable contributions: $1,500

$10,250 Note: Only the medical & dental expenses that are greater than 10% of AGI are deductible. Therefore, none are deductible in this situation. Total itemized deductions:[ medical & dental > (10% x AGI)] + state income taxes + mortgage interest + charitable contributions

Using the following chart, calculate the taxes for an individual with taxable income of $62,000

$10,690

The maximum amount that an indiviual can give another in a year w/o being subect to estate taxes is

$14,000

Sam and Diane are completing their federal income taxes for the year and have identified the amounts listed here. How much can they rightfully deduct? AGI: $82,000 Medical and dental expenses: $9,200 State income taxes: $3,700 Mortgage interest: $10,300 Charitable contribution: $1,400

$16,400 [Deductions include the following: Medical & Dental in excess of 10%AGI + State income tax + Mortgage interest + Charitable contributions] = ($9,200 - {$82,00 x 0.10} + $3,700 + $10,300 + $1,400 = $16,400)

If Diane was in a 25% tax bracket and received a $2,300 tax credit, by how much would her taxes be reduced?

$2,300

An itemized deduction of $6,350 with a 38% tax rate would reduce a persons taxes by?

$2,413 Dollar reduction in taxes = amount of tax deduction x your tax bracket percent

A tax credit of $230 for a person in a 28% tax bracket would reduce a person's taxes by?

$230 A tax credit reduce the amount of taxes owed dollar-for-dollar

Peter filed his income taxes, but needs to make a correction to his income. Which form should he use?

1040X

At the end of the year, Walter received a form that showed his payments from independent contracting. That form is called a?

1099

At the end of the year, Yvonne received a form form her bank that reported income from her savings. That form is called a?

1099

George Franklin paid taxes of $3,500 on a taxable income of $26,000. What was his average tax rate?

13.46% Average tax rate = Paid taxes / taxable income

What is the APY for a one-year $5,200 certificate of deposit with $884 interest?

17% interest/CD

Penny knows that she needs to file her federal income taxes, but she is unable to do so by April 15. What form does she need to complete to obtain an automatic six-month extension?

4868

When Paul completes his taxes, he can include all of the following as exemptions except

His 20 year old son who is working full-time and living in an apartment

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels.

Income tax

The amount levied on the value of property bequeathed by a deceased person is

Inheritance tax

When Angela wanted to provide financial security for her dependents, she considered purchasing a product that would provide income replacement in the event of her untimely death and also provide a savings/investment component while she is alive. Which company would she most likely do business with?

Life insurance company

The rate used to calculate the tax dues on the next dollar of income is referred to as the

Marginal tax rate

The tax designated to ensure that those who receive tax breaks also pay their fair share of taxes is called the

Marginal tax rate

Nancy is married to Jerry and needs to complete her tax form. They both earn about the same amount of money each year. What filing status would be best for them?

Married, filing a joint return

Taxpayers over 65 can only deduct expenses that are greater than 7.5% of adjusted gross income for

Medical and dental expenses

Athena wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is NOT a proper deduction?

Miscellaneous expenses less than 2% of AGI

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 for 2 years after the death of his spouse?

Qualifying widow or widower

When Jack picked up a personal computer from the ______, he was really leasing it.

Rent-to-own center

Steps for goal setting [SMART]

S- specific M- measurable A- Action-Oriented R- realistic T - time-based

Taxes on earnings that fund old age, survivor, and disability insurance benefits are called

Social Security taxes

Joseph needs to complete his income taxes for the year. He has already calculated his adjusted gross income. What does he need to do next?

Subtract his itemized deductions

Income that is taxed at a later date is

Tax-deferred income

At the end of the year, Xavier received a form from his employer that reported annual earnings and the amounts deducted for taxes. That form is called a

W-2

At the end of the year, employees receive a ____ form that reports annual earnings and the amounts deducted for taxes from their employers.

W-2

All are non-deposit institutions

a credit card company a life insurance company an investment company a finance company

annuity

a series of equal deposits or payments; social security or retirement

Income Risk

may result from loss of a job or encountering illness

CPI (Consumer Price Index)

measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services

What are proper deductions?

mortgage interest Contributions to charitable organizations State income taxes medical and dental expenses that exceed 10% of AGI

Liquidity Risk

occurs when savings and investments that have potential for high earnings are difficult to convert to cash or sell without significant loss in value

A person with a total tax liability of $8,850 and withholding of federal taxes of $5,800 would:

owe $3,050

Another name for a regular savings account is a

passbook or statement account

Gross (or total) income includes

passive income

When Imogene brought a necklace to a _______, she received a loan based on its value.

pawnshop

The tax that is a major source of revenue for local governments is called a(n)

real estate property tax

Interest rate risk

resulting from changes in the cost of money which can affect your costs (when you borrow) and benefits (when you save or invest)

Personal money management/personal financial planning

results in financial and personal satisfaction

Inflation

rise in the general level of prices; buying power of the dollar decreases

Tax credits include

saver's credit foreign tax credit adoption tax credit earned income credit

What are tax credits?

savers credit earned income credit adoption tax credit foreign tax credit

intangible-purchase goals

something you can't touch or get back;personal relationships, health, education, community service, and leisure

Income that is not subject to tax is called

tax-exempt income

personal financial planning

the process of managing your money to achieve personal economic satisfaction; allows you to control your financial situation

adult life cycle

the stages in the family situation and financial needs of an adult

personal opportunity costs

time, energy, health, ability, and knowledge; time used in one activity that could be use in another; ex. time comparing several brands of personal computers

opportunity cost

what a person gives up by making a choice; trade off decision ; viewed in both personal and financial resources

You may be required to make estimated tax payments if

you are an independent contractor

Based on the following information, what amount would be subtracted from the bank balance side of a checking account reconciliation? Service charge $39 Outstanding checks $290 Interest $11 Deposit in transit $860

$290

Using the following table, calculate the taxes for an individual with taxable income of $23,800. 10% Up to $8,800 15% $8,800-$36,000 25% $36,000 - $86,600 28% $86,600 - $178,900 33% $178,900 - $383,150 35% Over $383,150

$3,130 Taxes owed = sum of taxes from each tax bracket. For example, if taxable income is $23,800, then the taxes owed = $880 + $2,250 = $3,130: 10% bracket: $8,800 x 10% = $880 15% bracket: ($23,800 - $8,800) x 15% = $2,250

Michele Barbour is considering an additional charitable contribution of $1,250 to a tax-deductible charity, bringing her total-itemized deductions to $12,000. If Michelle is in a 28 percent tax bracket, how much will this $1,250 contribution reduce her taxes?

$350

Using the following table, calculate the taxes for an individual with taxable income of $31,000. 10% Up to $8,600 15% $8,600-$35,000 25% $35,000 - $84,600 28% $84,600 - $175,900 33% $175,900 - $381,150 35% Over $381,150

$4,220

George Washburn had earnings from his salary of $46,200, interest on savings of $1005, a deductible contribution to an IRA of $1,850, and dividends from mutual funds of $675. George's adjusted income (AGI) would be:

$46,030 AGI= (salary + interest on savings + dividends from mutual funds) - contribution to IRA

If Jack was in a 25% tax bracket and received a $1,900 tax deduction, by how much would his taxes be reduced?

$475 Dollar reduction in taxes = amount of tax deduction x your tax bracket percent

6 Steps Procedure for Financial Planning

1. Determine current financial situation 2. Develop your financial goals 3. Identify alternative course of action 4. Evaluate alternatives 5. Create and implement your financial action plan 6. Review and revise the financial plan

What affects financial decisions?

1. Life situations 2. Personal Values 3. Economic factors

8 steps of Financial Planning

1. Obtaining 2. Planning 3. Saving 4. Borrowing 5. Spending 6. Manage Risk 7. Investing 8. Retirement and Estate planning

Making Financial decisions related to income involves?

1. Spending 2. Saving 3. Sharing

Fred has been completing his own tax returns for years. The IRS has recently contacted him with questions about some of his prior returns. How many years back is he responsible for providing documentation?

6 years

Cathy needs a full range of financial services, including checking, savings, and lending. To which of the following should she go?

A commercial bank

Billy accepted a job at a company that specializes in providing money for short-term retail lending. Where did he go to work?

A credit card company

All of the following are non-deposit institutions except?

A credit union

Financial Plan

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.

Harvey needed cask quicky, so he received a short-term loan based on the value of an old-ring. Where did he go?

A pawnshop

Shannon is working on her federal income tax form and wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is an acceptable deduction? A. Miscellaneous expenses that exceed 2% of AGI B. $10,000 gift to her cousin C. Moving expenses for a new job that is 25 miles from her old home D. Medical and dental expenses less than 10% of AGI E. Credit card interest

A. Miscellaneous expenses that exceed 2% of AGI

Recent tax credits include all of the following expect

AMT tax credit

When calculating federal income taxes, what increases "gross income"?

Alimony received

The tax based on the total tax die divided by taxable income is called?

Average tax rate

Adjustments to income include all but?

Charity contributions

Individuals can file their federal taxes using all of the following except

Deliver in person

Which is not a tax credit?

Domestic tax credit

When calculating federal income taxes, "gross income" includes all except

Earned income credit

Individuals can file their federal taxes using

Electronic filing using Free File Alliance Use tax preparation software to print and mail Use tax preperation software to file online

A tax imposed on the value of a person's property at the time of dealth is called a

Estate tax

Use of Financial Institutions for...

Evaluating you alternatives

A tax due in the purchase of gasoline is called?

Excise tax

Adjustments to income include

Traditional IRA contributions Contributions to a Keogh retirement plan Penalties for early withdrawal of savings Alimony payments

Gross income less Adjustments to Income equals

adjusted gross income

Interest

amount is: savings x annual interest rate x time period

Intermediate-goals

between 2-5 years

Future value

compounding

Present value

discounting

Rule 72

divide 72 by the annual inflation(interest) rate; used to find out how fast prices will double

Inflation Risk

due to rising or falling (deflation) prices that cause changes in buying power

Fees, tips, and bounces are forms of

earned income

Tanya is a single low-income working parent, and Fred is a single high-income working parent. Because of her status, Tanya, but not Fred, may be eligible for the

earned income credit

Consumable-products goals

goes away almost immediately; food, clothing, entertainment

Long-Term goals

greater than 5 years

Time value of money

increase in an amount of money as a result of interest earned; formula= principal x Interest x Time period

When calculating federal income taxes, "gross income" includes

investment income earned income alimony passive income

financial opportunity costs

involve monetary values of decisions made.; ex forgoing wages to attend school

Personal Risk

involves tangible and intangible factors that create a less than desirable situation, such as health or safety concerns

Durable-product goals

last awhile; appliances, cars, sporting equiptment

Borrowers

less likely to be harmed by inflation

Short-Term Goals

less than 2 years