Chapter 4 & 5, Review Quiz, Quiz, Key Terms, etc.
Mike Hansen has adjusted gross income of $28,000. During the year, Mike decided he needed a larger home. He purchased a home on a golf course in the same town as his first home. Mike incurred $7,500 in moving expenses. How much of this can he deduct from adjusted gross income?
$0
The Federal Deposit Insurance Corporation insures deposits up to $250,000 per person per financial institution. Suzanne has $200,000 in an individual account and $424,000 in a joint account with her husband, Ted. How much of Suzanne's money is not covered by FDIC insurance?
$162,000
____________ are amounts subtracted from adjusted gross income to arrive at taxable income. There is either a standard amount or itemized amounts in certain categories such as medical, charitable contributions and others.
Deductions
Your adjusted gross income is $34,500. You have $12,000 in medical expenses for the year. What would be your itemized deduction for your medical expenses?
$9,412.50
Two types of education savings plans are the Coverdell Education Savings Account and the:
529 plan
A $200 savings account that earns $13 interest in a year has a yield of _______ percent.
6.5
Which one of the following states does not have a general sales tax?
Alaska
A(n) _____________ is a computer terminal where you can withdraw case, make deposits, check your balance conduct other other financial services.
Automated Teller machine
The ____________ is total taxes owed divided by taxable income.
Average tax rate
A(n) ____________ is a savings account that requires the money be left in for a stated period of time which will earn a started rate of interest.
Certificate of Deposit
Elaine's Embroidery Emporium which is run out of Elaine's home is visited by an IRS agent who wants to verify the office expenses Elaine claims are valid. What type of IRS audit is this?
Field audit
Interest income from which are issued by state and local governments are not subject to federal income taxes.
Municipal Bonds
Types of CDs
Rising rate or bump up CDs Liquid CDs zero coupon CDs indexed CDs collable CDs
Filing Status
Single - never married, divorced or legally separated individuals with no dependents Married, filing joint return - combines the income of a husband and a wife Married, filing separate returns - each spouse is responsible for his or her own tax. Under certain conditions, a married couple can benefit from this filing status. Head of Household - an unmarried individual or a surviving spouse who maintains a household for a child or a dependent relative
Which state does not have an income tax?
Texas
Which of the following is not likely to be an allowable deduction (either in whole or part) for federal income taxes?
The $2.50 a day in tolls that you pay to drive to and from your office at work every day.
When you receive an audit notice you have the right to request more time to prepare for the audit. True or false?
True
automatic teller machine (ATM)
a computer terminal used to conduct banking transactions; also called a cash machine
exemption
a deduction from adjusted gross income for yourself, your spouse, and qualified dependents
Tax audit
a detailed examination of your tax return by the IRS
mutual savings bank
a financial institution that is owned by depositors and specializes in savings accounts and mortgage loans
commercial bank
a financial institution that offers a full range of financial services to individuals, businesses, and government agencies
savings and loan association
a financial institution that traditionally specialized in savings accounts and mortgage loans
Trust
a legal agreement that provides for the management and control of assets by one party for the benefit of another
Something similar to a cashier's check that can be purchased at a financial institution, a post office or a store is:
a money order
debit card
a plastic access card used in computerized banking transactions; also called a cash card
compounding
a process that calculates interest based on previously earned interest
share account
a regular savings account at a credit union
A CD that may have a higher interest rate at various intervals is:
a rising or bump-up CD
Money market account
a savings account offered by banks, savings and loan associations and credit unions that requires a minimum balanced and has earnings based on market interest rates
money marker fund
a savings investment plan offered by investment companies, with earnings based on investments in various short term financial instruments
certificate of deposit (CD)
a savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specific interest rate
standard deduction
a set amount of which no taxes are paid
estate tax
a tax imposed on the value of a person' property at the time of his/her death
inheritance tax
a tax levied on the value of property bequeathed by a deceased person
credit union
a user-owned, nonprofit, cooperative financial institution that is organized for the benefit of its members
asset management account
an all-in-one account that includes savings, checking, borrowing, investing, and other financial services for a single fee; also called a cash management account
exclusion
an amount not included in gross income
tax credit
an amount subtracted directly from the amount of taxes owed
tax deduction
an amount subtracted from adjusted gross income to arrive at taxable income
overdraft protection
an automatic loan made to checking account customers to cover the amount of checks written in excess of the available balance in the checking account
Qualifying widow/er
an individual whose spouse died within the past 2 years and who has a dependent; this status is limited to 2 years after the death of a spouse
share draft account
an interest bearing checking account at a credit union
tax shelter
an investment that provides immediate tax benefits and a reasonable expectation of a future financial return
Comparison of earnings for different savings plans can best be accomplished using the:
annual percentage yield
income shifting
attempt to reduce the taxable income of parents by shifting the ownership of investments to children in lower tax brackets
David Wynn gets a personal loan from his credit union for $1,000. David will make monthly payments $85.15 over the next year to repay the loan. What type of financial service is David using?
borrowing service
Which of the following is inflation? a. it is the annual yield you earn on a savings plan b. it is the fact that you may earn interest on interest c. it is the fact that your purchasing power may change as price levels change and must be considered when comparing savings plans d. it is the fact that you can withdraw your money on short notice without loss of principal e. none of the above is inflation
c. it is the fact that your purchasing power may change price levels change and must be considered when comparing savings plans
Which of the following types of financial institutions provide Federal Deposit Insurance (FDIC) coverage?
commercial banks, credit unions, and savings and loans
The interest paid on which type of loan is not tax deductible?
credit card
Which of the following is a drawback of a money market mutual fund? a. low rate of return b. penalty for early withdrawal c. high minimum balance d. not insured e. all of the above
d. not insured
alternative minimum tax
designed to ensure that those who receive tax breaks also pay their fair share of taxes
What is the term used to refer to the rate financial institutions are charged to borrow funds from Federal Reserve Banks?
discount rate
medical/dental expenses
doctor's fees, prescription medications, hospital expenses, hearing aids, eyeglasses, etc.
Money received by an individual for personal effort is classified as ______________ income.
earned
itemized deductions
expenses that can be deducted from adjusted gross income, such as medical expenses, real estate property taxes, home mortgage interest, charitable contributions, casualty losses, and certain work related expenses
casualty and theft losses
financial losses resulting from natural disasters, accidents or unlawful acts
adjusted gross income
gross income reduced be certain adjustments, such as contributions to an individual retirement account (IRA) and alimony payments
passive income
income resulting from business activities in which you do not actively participate
tax-exempt income
income that is not subject to tax
tax-deferred income
income that will be taxed at a later date
Money received in the form of dividends or interest is classified as ____________ income.
investment
real estate property tax
major source of revenue for local governments; based on the value of land and buildings
A trust has the purpose of:
managing the assets of a person
earned income
money received for a personal effort such as wages, salary, commission, fees, tips, or bonuses
investment income
money received in the form of dividends, interest, or rent from investments
field audit
more complex; an IRS agent visits your home, business or office of your accountant to have access to your records; can also be done to verify whether an individual has an office in the home claimed
interest
mortgage interest, home equity loan interest, and investment interest expenses up to an amount equal to investment income
contributions
of cash or property to qualified charitable organizations
A tax on the value of automobiles, boats, or furniture is referred to as:
personal property taxes
Capital gains refer to:
profits from the sale of an investment asset
capital gains
profits from the sale of capital asset such as stocks, bonds, or real estate
The ______________ property tax is based on the value of land and buildings at some point in time.
real estate
An expense that would be included in the itemized deductions of a taxpayer is:
real estate property taxes
This type of savings plan is usually considered to be very liquid:
regular savings account
office audit
requires you to visit an IRS office to clarify some aspect of your tax return; takes an hour or two
The storage of funds for future use is a purpose of ____________ services.
savings
Nate Rogers deposited $5,000 in a 3-year bank CD which pays six percent interest. What type of financial service is Nate using?
savings service
home equity loans
second mortgages
correspondence audit
simplest and most common type of audit; mail inquiry; 30 days to submit
taxes
state and local income tax, real estate property taxes and state/local personal property tax
job related and other miscellaneous expenses
such as un-reimbursed job travel, union dues, requires continuing education
Excise tax
tax imposed on specific goods and services, such as gasoline, cigarettes, alcoholic beverages, tires and air travel
personal property taxes
taxes issued by state or local governments on the value of automobiles, boats, furniture, and farm equipment
taxable income
the net amount of income after allowable deductions on which income tax is computed
rate of return
the percentage of increase in the value of savings as a result of interest earned; also called yeild
annual percentage yield (APY)
the percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365 day period
marginal tax rate
the rate used to calculate tax on the last (and next) dollar of taxable income
tax evasion
the use of illegal actions to reduce one's taxes
tax avoidance
the use of legitimate methods to reduce one's taxes
average tax rate
total tax due dividend by taxable income
flexible spending accounts
type of health savings account; allows you to reduce your taxable income when paying for medical expenses/child care costs
The "head of household" filing status is for people who are:
unmarried and have dependent children
moving expenses
when a change in residence is associated with a new job that is at least 50 miles farther from your former home than your old main job location
The Expedited Funds Availability Act requires that funds be available to depositors:
within 2 days for local checks
Your selection of a savings plan is not influenced by the rate or return on the plan. True or false?
False
The average cost of cashing a check at a check-cashing outlet is 2-3% of the value of the check. True or false?
True
Approximately what percent of tax filers are audited each year?
1%
Which of the following statements regarding debit and credit card liability is correct?
A debit card carries more risk of loss to the cardholder
An excise tax is a tax on your wealth. True or false?
False
Retirement and Education Plans
Individual Retirement Plans (IRAs) - Traditional and Roth IRAs Coverdell Education Savings Account 529 Plan Keough Plan 401(K) Plan
You own 1000 shares of Abbot Laboratories and they paid you a dividend of $.94 per share last year. This money is part of:
Investment income
A credit card is a plastic card used in computerized banking transactions. True or False?
True
Every citizen or resident of the U.S. must file a federal income tax form if their income is above a certain amount based on their filing status. True or false?
True
Pawnshops make loans based on the value of tangible possessions such as jewelry or other valuable items. True or false?
True