Chapter 3

Gross (or total) income includes A) Tax-deferred income. B) Tax-exempt income. C) Tax deductions. D) Passive income. E) Exclusions.

passive income

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? A) Head of household B) Married, filing a joint return C) Qualifying widow or widower D) Married, but filing individually E) Single

qualifying widow or widower

A tax imposed on the value of a person's property at the time of death is called a(n) A) Sales tax. B) Estate tax. C) Income tax. D) Excise tax. E) Real estate property tax.

Estate Tax

A tax due on the purchase of gasoline is called a(n) A) Excise tax. B) Income tax. C) Inheritance tax. D) Real estate property tax. E) Estate tax.

Excise Tax

Income that is taxed at a later date is A) Earned income. B) Tax-deferred income. C) Tax-exempt income. D) Adjusted gross income. E) Exclusions from income.

Tax-deferred income

Income that is not subject to tax is called A) Tax-deferred income. B) Adjusted gross income. C) Earned income. D) Passive income. E) Tax-exempt income.

Tax-exempt income

The tax based on the total tax due divided by taxable income is called the A) AMT. B) Marginal tax rate. C) Average tax rate. D) Income tax rate. E) Total tax rate.

average tax rate

Adjustments to income include all of the following except A) Contributions to a Keogh retirement plan. B) Penalties for early withdrawal of savings. C) Charity contributions. D) Alimony payments. E) Traditional IRA contributions.

charity contributions

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? A) Add his tax credits. B) Subtract his itemized deductions. C) Add his tax exemptions. D) Subtract his tax-exempt income. E) Add his tax-exempt income.

subtract his itemized deductions

The maximum amount that an individual can give another in a year without being subject to estate taxes is A) All gifts are taxable. B) $14,000. C)$10,000. D) $15,000. E) No gifts are taxable.

$14,000

If Diane was in a 25% tax bracket and received a $2300.00 tax credit, by how much would her taxes be reduced? A) $2300.00 B) $1150.00 C)$575.00 D) $115.00 E) $57.50

$2300.00

Using the following table, calculate the taxes for an individual with taxable income of $31,000. 10​ % Up to $8600 15​ % $8600 − $35,000 25​ % $35,000 − $84,600 28​ % $84,600 − $175,900 33​ % $175,900 − $381,150 35​ % Over $381,150 A) $4220 B) $6110 C)$4650 D) $860 E) $2150

$4220

Peter filed his federal income taxes, but he needs to make a correction to his income. Which form should he use? A) 1040 B) 1040A C) 1040Z D) 1040EZ E) 1040X

1040X

At the end of the year, Yvonne received a form from her bank that reported income from her savings. That form is called a A) 1099. B) Schedule A. C) 1040. D) W-2. E) W-4.

1099

George Franklin paid taxes of $3500 on a taxable income of $26,000. What was his average tax rate? A) 18.46% B) 13.46% C) 8.13% D) 30.77% E) 34.46%

13.46%

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? A) 1099 B) W-2 C) 4868 D) 1040 E) W-4

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? A)Until he files his returns. B) 6 years. C) 3 years. D) 15 years. E) 10 years.

6 years

The tax designed to ensure that those who receive tax breaks also pay their fair share of taxes is called the A) Marginal tax rate. B) AMT. C) Average tax rate. D) Total tax rate. E) Income tax rate.

AMT

Recent tax credits include all of the following except the A) Savers credit. B) AMT tax credit. C) Earned income credit. D) Foreign tax credit. E) Adoption tax credit.

AMT tax credit

Gross income less Adjustments to Income equals A) Earned income. B) Tax-exempt income. C) Adjusted gross income. D) Tax-deferred income. E) Exclusions from income.

Adjusted gross income

The amount levied on the value of property bequeathed by a deceased person is A) Sales tax. B) Inheritance tax. C) Real estate property tax. D) Social Security tax. E) Excise tax.

Inheritance Tax

The tax that is a major source of revenue for local governments is called a(n) A) Estate tax. B) Real estate property tax. C) Gift tax. D)Income tax. E) Sales tax.

Real Estate Property Tax

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 A) W-2. B) W-4. C) 1040. D) Schedule A. E) 1099.

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. A) 1040 B) Schedule A C) 1099 D) W-4 E) W-2

W-2

You may be required to make estimated tax payments if A) You are an independent contractor. B) You receive a paycheck with taxes withheld. C) You have no pension payments. D) You do not have interest income from savings. E) You have no royalties.

You are an independent contractor

When calculating federal income taxes, what increases "gross income"? A) Exclusions B) Tax-exempt income C) Tax-deferred income D) Alimony received E) Tax deductions

alimony received

When calculating federal income taxes, "gross income" includes all of the following except A) Passive income. B) Earned income credit. C) Alimony. D) Investment income. E) Earned income.

Earned income credit

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels. A) Excise tax B) Income tax C) Real estate property tax D) Sales tax E) Estate tax

Income Tax

Taxes on earnings that fund old age, survivor, and disability insurance benefits are called A) Sales taxes. B) Excise taxes. C) Real estate property taxes. D)Social Security taxes. E) Estate taxes.

Social Security Tax

Individuals can file their federal taxes using all of the following except A) Electronic filing using Free File Alliance. B) Use tax preparation software to print and mail. C) Deliver in person. D) Use tax preparation software to file online. E) All of these can be used.

deliver in person

Which of the following is NOT a tax credit? A) Savers credit B) Adoption tax credit C) Domestic tax credit D) Foreign tax credit E) Earned income credit

domestic tax credit

Fees, tips, and bonuses are forms of A) Passive income. B) Earned income. C) Tax-deferred income. D) Tax-exempt income. E) Exclusions from income.

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 A) Alternative minimum tax. B) Itemized deduction credit. C) Withholding credit. D) Student deduction. E) Earned income credit.

earned income credit

When Paul completes his taxes, he can include all of the following as exemptions except A) His 20-year-old son who is working full-time and living in an apartment. B) Himself. C) His wife. D)His 22-year-old daughter who is a full-time student. E) His 12-year-old son.

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

The rate used to calculate the tax due on the next dollar of income is referred to as the A) AMT. B) Total tax rate. C) Income tax rate. D) Marginal tax rate. E) Average tax rate.

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? A) Married, filing a joint return B) Head of household C) Married, but filing individually D) Qualifying widow or widower E) Single

married, filing a joint return

Taxpayers over 65 can only deduct expenses that are greater than 7.5% of adjusted gross income for A) Taxes. B) Medical and dental expenses. C) Mortgage interest. D) Miscellaneous expenses. E) Contributions to charitable organizations.

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 itemized deduction? A) Contributions to charitable organizations B) Miscellaneous expenses less than 2% of AGI C) Mortgage interest D)Medical and dental expenses that exceed 10% of AGI E) State income taxes

miscellaneous expenses less an 2% of AGI

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)Credit card interest B) $10,000 gift to her cousin C) Medical and dental expenses less than 10% of AGI D) Moving expenses for a new job that is 25 miles from her old home E) Miscellaneous expenses that exceed 2% of AGI

miscellaneous expenses that exceed 2% of AGI