Chapter 3

How long should you generally keep tax records?

B. 3 years

The taxes based on the total tax due divided by taxable income is called

B. Average tax rate

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

A. AMT

Gross income after certain reductions have been made is

A. Adjusted gross income

Annie was required to clarify or document minor questions of her tax form by mail. She participated in a(n)

A. Correspondence audit

A tax imposed on the value of a person's property at the time of death is called a(n)

A. Estate tax

The amount owed on property received from a deceased person is

A. Estate tax

The maximum that an individual can contribute to an education IRA each year is

B. $2,000

Using the table below, calculate the taxes for an individual with taxable income of $20,000.

B. $2,598.75

Sam and Diane are completing their federal income taxes for the year and have identified the amounts listed below. How much can they rightfully deduct? • AGI: $90,000 • Medical and dental expenses: $10,000 • State income taxes: $4,500 • Mortgage interest: $10,500 • Charitable contributions: $2,000

B. $20,250

Using the table below, calculate the taxes for an individual with taxable income of $50,000.

B. $8,843.75

George Franklin paid taxes of $4,400 on a taxable income of $42,000. What was his average tax rate?

B. 10.5%

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?

B. Subtract his itemized deductions

Which of the following is NOT an action that can reduce your taxes?

B. Taking out a consumer loan.

If Brenda wants to pay her fair share of taxes, no more and no less, she should practice

B. Tax avoidance

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

D. Real estate tax

The maximum amount (in 2009) that an individual can give another in a year without being subject to federal taxes is:

C. $13,000

In 2008, taxable income was reduced by ______ for each exemption claimed.

C. $3,500

The maximum than an individual can contribute to a Roth IRA each year is A. $1,000

C. $5,000

An advantage of investing in a 401(k) plan is the

C. Possibility of receiving an employer match on your contributions

Payroll deductions for federal government retirement benefits (such as old-age, survivor, and disability) are called

C. Social Security taxes

Who is ultimately responsible for supplying accurate and complete information for the completing of a tax return?

C. Taxpayer

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

C. W-2

Jason's household consists of himself, his wife, and their 2-year old daughter. How much can Jason claim for his exemptions?

D. $10,500

Adjustments to income include all except

D. Roth IRA contributions

Income that is taxed at a later date is

D. Tax-deferred income

You may be required to make estimated tax payments if:

D. You own your own business

If Diane was in a 28% tax bracket and received a $2,000 tax credit, how much would her taxes be reduced?

E. $2,000

Which of the following is NOT a valid form for filing federal income taxes?

E. 1040Z

The maximum than an individual can contribute to a Keogh Plan each year is

E. 25% of annual income, up to a maximum of $30,000

The major sections of Form 1040 include all except

E. All are sections of Form 1040

Which of the following is NOT a tax credit?

B. Domestic tax credit

Fees, tips, and bonuses are forms of

B. 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

B. Earned-income credit

A tax due on the purchase of gasoline is called a(n)

B. Excise tax

Which of the following is NOT a tax that most people pay?

B. Federal taxes on possessions

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 Nancy?

B. Married, filing joint return

Using the table below, calculate the taxes for an individual with taxable income of $30,000.

C. $4,098.75

If Jack was in a 28% tax bracket and received a $2,000 tax deduction, how much would his taxes be reduced?

C. $560

Amanda and Jack are working on their taxes and need to determine which form to file. They had wages, interest, and dividends. In addition they bought a house this past year and are thinking of itemizing their deductions. Which form should he use?

C. 1040

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?

C. 4868

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?

C. 6 years

David thinks that his salary and tax rate for next year will be higher than for this year. What step should he take to minimize his taxes?

C. Accelerate receipt of income.

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?

C. Keogh plan

Individuals can deduct expenses only in excess of 7.5 percent of adjusted gross income for

C. Medical and dental expenses

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

C. W-2

Janet is completing her federal income taxes for the year and has identified the amounts listed below. How much can she rightfully deduct? • AGI: $40,000 • Medical and dental expenses: $600 • State income taxes: $500 • Mortgage interest: $6,500 • Charitable contributions: $750

D. $7,750

In 2008, federal tax tables included tax rates of: A. 0%, 10%, 20%, 30%, 40%, 50%

D. 10%, 15%, 25%, 28%, 33%, 35%

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

D. 1040X

Connie thinks that her salary and tax rate for next year will be lower than for this year. What step should she take to minimize her taxes in the current year?

D. Accelerate deductions.

When calculating federal income taxes, "income" includes all of the following categories except

D. Active income

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

D. Alimony

An IRS agent visited Henry's home to verify some information on his tax return. This visit was called a(n)

D. Field audit

Recent tax credit include all except

D. Graduate learning tax credit

The tax due on the next dollar of income is referred to as the

D. Marginal tax rate

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?

D. Miscellaneous expenses in excess of 2% of AGI

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?

D. Miscellaneous expenses less than 2% of AGI

Total income (gross) includes

D. Passive income

A worker's primary goal should be to

D. Pay his or her fair share of taxes while taking advantage of appropriate tax benefits

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?

D. Qualifying widow or widower

Individuals can file their federal taxes using

E. All of the above

Tax resources include all except

E. All of the above are tax resources.

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

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

All of the following can reduce your taxes today except investing in

E. Roth IRA

Evan wants to minimize his future taxes. Which of these would be the best for him to invest in today?

E. Roth IRA

Income that is never subject to tax is called

E. Tax-exempt income

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

B. 1099

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

B. 1099

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

C. Income tax