Personal Finance Ch. 4 Questions

The Retirement Savings Contribution Credit is designed to help which individual(s) save for retirement? Upper-income households. Middle- and lower-income households. College students. Households with children.

Middle- and lower-income households.

Self-employment tax consists of: a. a special tax assessed only on self-employed individuals. b. taxes that employees and employers also pay. c. taxes designed to benefit large corporations. d. all taxes paid by self-employed individuals.

b. taxes that employees and employers also pay.

For federal income tax purposes, ____________ is equal to the tax base. gross income adjusted gross income taxable income. both adjusted gross income and taxable income.

taxable income

Tax evasion is: underreporting recognizable income. legal and expected of taxpayers. underreporting frivolous deductions. structuring transactions with economic substance to avoid taxes.

underreporting recognizable income

Paul recently sold an investment for $1380. He purchased the investment for $1080 two years ago. Paul is single and has total taxable income of $25100. What is Paul's tax on the gain on his investment? $30. $0. $90. $45.

$0

The maximum American Opportunity Credit that a taxpayer may receive is: $4,000. $2,500. $1,000. $2,000.

$2,500

Michelle is single and has taxable income of $22500. What is the tax on her taxable income? (Round answers to 2 decimal places, e.g. 52.75.) $0.00. $2509.50. $952.50. $3375.00.

$2509.50

John delivers pizza to earn some extra money to pay for college. If John's self-employment tax is $1310, how much of it can he deduct as a FOR AGI deduction? (Round answers to 0 decimal place, e.g. 5275.) $873. $0. $1310. $655.

$655

Margaret is self-employed and drove her car 1800.00 miles for work this past year. Assuming Margaret has kept proper records of her mileage, what would be Margaret's standard mileage deduction? (Round answers to 2 decimal places, e.g. 52.75.) $981.00. $270.00. $1800.00. $145.80.

$981

The total Social Security tax rate is____, half of which is paid by the employer and half by the employee (or all paid by the self-employed individual). 15.30%. 12.40%. 7.65%. 6.20%.

12.40%

Maria is single, is not claimed as a dependent, and has the following expenses: mortgage interest of $3500; charitable contributions of $530; state and local taxes of $1940. What is the amount of Maria's itemized or standard deduction that she can claim on her tax return. Choose the higher amount. $12000. $6382. $5970. None of these answer choices is correct.

12000

If your tax base for self-employment earnings exceeds $128,400 in 2018, then the self-employment tax rate on the portion of earnings more than $128,400 is: 7.65%. 15.3%. 2.90%. 12.4%.

2.90%

The highest federal marginal income tax bracket rate on earned income in the United States is: 25%. 50%. 37%. 39.6%.

37%

If you purchase a regularly priced $90 shirt on sale and pay only $70, what will the sales tax be if the sales tax rate in your community is 7 percent? (Round answers to 2 decimal places, e.g. 52.75.) $1.40. $6.30. $0.00. $4.90.

4.90

Lisa is considering a new job where she would earn $4500 more per year. With her current job and situation her tax is $4100. With her new pay raise her taxes would increase to $5900. What is Lisa's marginal tax rate?(Round answers to 0 decimal place, e.g. 5275.) 40%. 58%. 67%. 44%.

40%

George has gross income of $50500. George has taxable income of $38500 and paid taxes of $4040. What is George's effective tax rate? (Round answers to 1 decimal place, e.g. 52.7.) 8.0%. 10.5%. 12.0%. None of the other answer choices are correct.

8%

What percentage of households in the United States have a negative effective income tax rate? Approximately 20%. Approximately 30%. Approximately 10%. Approximately 40%.

Approximately 40%.

You should file a tax return for the year if: I.you have earned income during the year. II.your total income is greater than the sum of your standard deduction and personal exemption. III.you earned more than $1,000. I only. I and III only. II and III only. I, II, and III.

I, II, and III.

Traditional IRAs may allow you to achieve which of the following? I.Tax free distributions. II.Tax-deferred growth. III.Reduce current taxable income. I and II. I, II, and III. I only. II and III only.

II and III only.

Tax planning activities take advantage of which of the following? Tax loopholes. Tax evasion. Tax deferral. Tax loopholes and tax-deferral.

Tax loopholes and tax-deferral

Terrance and Lori were married on December 31, 2020, as their way of celebrating New Year's Eve. Lori has a daughter from a prior relationship who lives with her. What filing status should they use when they file their tax returns for 2020? They should file married filing jointly. Lori should use head of household, and Terrance should use single. Both should use head of household. Both should use single.

They should file married filing jointly

Sheryl would like to adjust the amount of income tax withheld from her paycheck. She should contact her employer and fill out a new: W-8 form. W-4 form. 1099-Withholding. W-2 form.

W-4 form

Which of the following statements is true? a. Ad valorem taxes are assessed regardless of the value of the property. b. Flat tax systems avoid being regressive by allowing a uniform reduction in the tax base. c. The most regressive sales tax structures exempt food purchased at grocery stores from the tax base. d. Progressive tax structures lead to progressively lower tax rates for high-income earners over time to stimulate the economy and promote growth.

b. Flat tax systems avoid being regressive by allowing a uniform reduction in the tax base.

Which of the following items is included in gross income? a. Student loan proceeds. b. Interest earned on a savings account. c. Scholarship income used for tuition, fees, and required books and supplies. d. Gifts of $1,000 or more from parents or family members.

b. Interest earned on a savings account.

If you are self-employed, one way to avoid a penalty from the IRS is to: a. owe less than $1,000 when you file your federal income tax return. b. make correct and on-time estimated tax payments. c. be sure to pay all taxes owed by April 15 of the following year. d. both owe less than $1,000 when you file your federal income tax return and make correct and on-time estimated payments.

b. make correct and on-time estimated tax payments.

Not recognizing realized income is a(n): a. A form of tax evasion unless congress has specifically allowed it. b. An effective tax planning strategy. c. A form of tax avoidance. d. A form of tax avoidance, an effective tax-planning strategy, and a form of tax evasion unless congress has specifically allowed it.

d. A form of tax avoidance, an effective tax-planning strategy, and a form of tax evasion unless congress has specifically allowed it.

If federal tax revenues are less than federal expenditures in a given year, then there is a federal _________ for that year. deficit. debt payoff. surplus. debt.

deficit

A nonrefundable tax credit is one that may: result in a negative tax rate. eliminate your tax liability. create a refund more than taxes paid. None of the answer choices is correct.

eliminate your tax liability

The United States has one of the most ___________ income tax systems in the world. proportional unfair regressive progressive

progressive

All of the following are types of tax systems except: FICA tax. property tax. sales tax. regressive tax.

regressive tax.