Pers Fin Ch 12 Taxes

Two taxes that are included in the Federal Insurance Contributions Act (FICA) are

Social Security and Medicare

A federal tax collected on the value of a person's property at the time of his or her death

estate tax

An amount of income that is not included in a person's gross income

exclusion

Which amounts are NOT included in your gross income?

exclusions

A deduction from a person's adjusted gross income for himself or herself, a spouse, and qualified dependents (anyone the taxpayer provides more than 50% support for)

exemption

A self-employed person is subject to a penalty if he or she

fails to make quarterly payments on time

Form 1040A is the easiest tax form to complete (T/F).

False (1040EZ)

The amount of federal income tax an employer withholds to send to the IRS depends on your tax credits (T/F).

False (depends on marital status and number of withholding allowances)

Property tax is the primary source of revenue for the federal government (T/F).

False (income tax NOT property tax)

You can deduct medical expenses up to 75 percent of your adjusted gross income (T/F).

False (only if the medical expenses are more than 7.5 percent of your adjusted gross income)

Filing an extension gives you more time to pay any taxes you owe (T/F).

False (you still have to pay the taxes you owe postmarked by April 15 or you will be subject to interest and penalities by the IRS)

Which employment form is used to avoid hiring undocumented workers or others who are not eligible to work in the U.S.?

Form I-9

What form should an employer mail or make available to employees by January 31 for an individual to complete his/her annual income tax return?

Form W-2 (which is a summary of employee earnings for the year)

What is an employee required to complete when he/she begins a new job?

Form W-4 (which provides info so the employer can calculate how much income tax to withhold out of employees' paychecks)

A tax audit is a detailed examination of your tax return by the IRS (T/F).

True

A taxpayer must provide more than half of a dependent's supoort to claim him or her on the tax return (T/F).

True

An estate tax is a federal tax on the value of a person's property at the time of his or her death (T/F).

True

An excise tax is a tax on specific goods and services (T/F).

True

If you are self-employed, you must make estimated tax payments to the IRS throughout the year (T/F).

True

A person's gross income after certain reductions such as contributions to an IRA or student loan interest

adjusted gross income (AGI)

Why is it an advantage to take pretax deductions out of your paycheck for things like child care expenses, health insurance premiums, and 401k contributions?

all of these decrease your taxable income meaning you have to pay less income tax

Some states collect a personal property tax on

automobiles

Which of the following is a major tax advantage of owning a home as opposed to renting?

being able to deduct the interest you paid on your home loan and property tax paid when you file your tax return

Earned income includes

bonuses from work

Which of the transactions below involves a capital gain (that would require you to report it as taxable income on your federal and possibly state income tax returns)?

buying a stock at $11 a share and selling it at $132 a share

Which itemized deduction is subject to limitations if it is more than 20 percent of a person's income?

charitable contributions

A person must use Form 1040 if he or she

deducts itemized expenses such as medical costs

Flexible spending accounts allow employees to deduct money on a pretax basis from their paychecks for medical and child care expenses--however, if employees do NOT use all of the money deducted out of their paychecks for actual medical and child care expenses, what happens to this money at the end of the year?

employees lose the money

When you work for a business, the business must pay Social Security and Medicare taxes for each dollar you earn as an employee

including 6.2% for Social Security and 1.45% for Medicare--in addition, the employee has to pay this same amount out of his/her paycheck

Determines whether a person has paid too much or too little in income taxes over the year

income tax return

When you file your tax return and you finid that you owe a large amount in federal and state income taxes, what can you do in the future to avoid repeating this problem?

increase the amount withheld from your paychecks by completing a new W-4 and giving it to your employer

A state tax collected on the property left by a person in his or her will

inheritance tax

The federal government collects a gift tax when

one person gives another land worth $20,000

Any expense a person is allowed to subtract from his or her adjusted gross income to arrive at his or her taxable income

tax deduction

The 401k and 403b retirement plans offered by your employer AND Traditional IRSs privately held by individuals are

tax deferred (meaning you pay taxes later on money in these accounts)

The total amount of taxes a person owes

tax liability

Earnings on a traditional IRA are

tax-deferred

The initerest made from municipal bonds is usually

tax-exempt

What is the difference between tax-exempt and tax-deferred income?

tax-exempt is NOT taxed, whereas tax-deferred is taxed at a later date (usually during retirement)

The amount of inicome on which a person's income tax is computed

taxable income

A tax credit is subtracted from

taxes owed

What do Medicare taxes fund?

the nation's health care program for the elderly and disabled

How do pretax deductions (such as health insurance premiums or 401k retirement contributions that an employee has taken out of his/her paychecks) affect the amount of income tax owed?

these deductions are NOT subject to income tax--they lower taxable income (and therefore the amount of taxes you owe)

Why would a married couple filing their income tax return jointly (together) decrease the number of allowances they put on their W-4?

to decrease the amount they will owe on their tax return at the end of the year (by lowering the number of allowances on their W-4, more income tax will be taken out of each of their paychecks by their employers)

To take out Social Security, Medicare and income tax payments from an employee's paycheck and send it to the Internal Revenue Service (IRS)

withhold