Module 3

The term "tax sheltered" refers to any investment for which taxes are reduced or eliminated. Many of these shelters require that you pay taxes now when you earn the money but then your money grows tax-free thereafter. All of the following exemplify this type of tax shelter EXCEPT: A. Savings plans for the disabled B. Roth individual retirement accounts C. Flexible spending accounts D. Section 529 college plans E. Coverdell educaton accounts

C. Flexible spending accounts

All of the following "adjustments" are commonly subtracted from a person's total income (up to certain limits) and therefore are not included in a person's adjusted gross income EXCEPT: A. Contributions to IRAs (Indivdual Retirement Accounts) B. Penalties for early withdrawal of savings C. Mortgage interest paid D. Student loan interest E. Moving expenses to take a new job

C. Mortgage interest paid

Our country's tax rules are often designed to encourage behavior that is considered good for the individual taxpayer as well as good for society as a whole. One of those good things is purchasing an education, especially a higher education. Which of the following is a tax account that assists parents in saving for the education of their children in which money that has already been taxed is allowed to grow in value without every being taxed again? A. Traditional IRA B. Keough Plan C. 401(K) Plan D. Coverdell Plan E. Marshall Plan

D. Coverdell Plan

Consider a five-person family consisting of a father, mother, 16-year-old son attending high school, a 19-year-old daughter (a full-time college student who lives at home and does not earn enough money to file an federal income tax herself), and a 75-year- old grandmother for whom the father and mother provide the majority of her financial support. What is the maximum number of personal exemptions that the parents in this household (assuming that they are married and filing jointly) would be able to claim? A. 1 B. 2 C. 3 D. 4 E. 5

E. 5

Some political leaders would like to reduce the number of marginal tax brackets, but how many federal income tax brackets are there today? A. 1 B. 9 C. 5 D. 3 E. 7

E. 7

There is an income threshold below which a person (or multi-person household) does not have to pay any federal income tax at all doesn't even have to file a tax return. This amount, which can change a little from year to year, is not an arbitrary number. This number, which was $10,350 in 2016, represents which of the following: A. Alternative minimum threshold B. Poverty line C. Personal exemption D. Standard deduction E. Personal exemption + standard deduction

E. Personal exemption + standard deduction

Imagine that you are a married couple (filing jointly) and had a household taxable income of $100,000 in 2016. Here is the relevant tax table: Which of the following statements is TRUE? A. You pay 25% tax on your $100,000 income B. You pay 15% income on the first $75,30169,000 and 25% on the remaining amount C. You pay 10% income on the first $75.301 and 25% on the remaining amount D. You pay 10% on the first $18,550 and 25% on the remaining amount of income E. You pay 10% on the first $18,550 of income, 15% on the next $56,750, and 25% on the rest and 25% on the remaining income

E. You pay 10% on the first $18,550 of income, 15% on the next $56,750, and 25% on the rest and 25% on the remaining income

The AVERAGE tax rate equals the MARGINAL tax rate for people in which of the following tax brackets; A. 10% B. 15% C. 25% D. 10% and 15% E. 15% and 25 %

A. 10%

All of the following are categories of itemized deductions EXCEPT: A. Energy conservation expenses B. Medical and dental expenses C. Contributions to charity D. Mortgage interest paid E. Real estate property taxes paid

A. Energy conservation expenses

Suppose you currently make $50,000 per year in taxable income, but you are about to receive a raise. The rate at which the last dollar of your raise is taxed is called the: A. Marginal tax rate B. Eventual tax rate C. Average tax rate D. New tax rate E. Adjusted tax rate

A. Marginal tax rate

People talk about being pushed into the next (higher) bracket as though this is a bad thing. For individuals, $37,650 was the dividing line in 2016 between the 15% tax bracket and the 25% bracket. Imagine that you are single and, in 2015, your taxable income was $30,000, so you are used to thinking of yourself as being in the 15% tax bracket. But you are such a good employee that your company gave you a $10,000 end-of-the-year bonus. Your are worried, however, that the raise puts you in higher tax bracket. How much of your total income will be taxed at 25% rate? A. None of it B. $2,350 C. $22450 D. $30,000 E. All $40,000

B. $2,350

Suppose that you are 50 years old and are involved in an accident. You have some basic health insurance, but you end up having to pay $30,000 in medical bills yourself (out of your own pocket). If your adjusted gross income if $100,000 and you itemize your deductions, how much, if anything, of your medical expenses can you include with your itemized deductions? A. All $30,000 B. $20,000 C. $15,000 D. $10,000 E. $0

B. $20,000

Consider an individual who has a TAXABLE INCOME of $100,000. Using the table below, how much does he/she owe in taxes? In other words, what is his/her "tax liability" to the nearest thousand dollars? A. $18,000 B. $21,000 C. $24,000 D. $28,000 E. $35,000

B. $21,000

In 2016, a married couple (filing jointly) with a taxable income of $185,000 would have paid roughly $38,785 in federal income axes. I calculated their tax liability using the table below. Their marginal tax rate was 28%. What was their AVERAGE tax rate (to the nearest percent). A. 15 B. 18 C. 21 D. 25 E. 28

C. 21

After determining a person (or household's) "taxable income," it is possible to calculate how much is owed ("tax liability"). But before the amount owed is fully determined, there are a few final things to consider. Which of the following describes an amount that is subtracted directly from the preliminary amount owed for low-income working parents AND can result in a full tax refund even if a person doesn't owe any taxes? A. Lifetime Learning credit B. Child tax credit C. Earned income credit D. Health care credit E. Elderly or Diabled credit

C. Earned income credit