Personal Finance Chapter 4 - Homework Part 2

The advantage of a Coverdell Education Savings Account is that the contribution of $2,000 our year is tax deductible.

False: the contribution is not tax deductible, but the earnings are tax free

The types of properties upon which personal taxes may be assessed include:

Furniture, farm equipments, boats and automobiles.

What are the filling status categories for federal income tax purposes?

Single, head of household, married filling joint return, married filing separate return, qualifying widow or widower.

A Keogh plan is a tax-deferred retirement plan designed for self-employed people.

True

The contribution limit for an IRA (as 2016) is $5,500 for workers under the age of 50

True

True or False: An exemption is a deduction from adjusted gross income for you, your spouse and dependents.

True

True or False: If you itemize your deductions, you can deduct contributions made to charities and amount paid for real estate taxes.

True

True or False: The EIC is a credit that low-income working families can claim to lower their taxes or receive a check from the IRS.

True

For 2016, the amount of money or the value of property that can be gifted without being subject to federal gift taxes is:

$14,000 per year per person

True or False: A tax-exempt investment generates income to be taxed in later years while a deferred investment produces tax-free income.

False

Two of the tax advantages of being self-employed are that you can deduct the cost of health (medical) and ------ insurance as a business expense.

life

What accurately describes the contribution limits of 401(K) plan for a 40 year old?

$18,000 in 2016

if you are in the 28% tax bracket and owe $20,000 on $1000,000 of taxable income, your average tax rate and marginal tax rate would be, respectively:

20% for average and 28% for marginal

The following are adjustment to gross income:

IRA contributions, penalties for early withdrawal of savings, Keogh plans

Tax-deferred investments are:

Tax-deferred annuities, Section 529 Savings Plans, IRA, Keogh

Which of the following do NOT offer for-profit taxes? a. H&R Block b. CPA c. Enrolled agents d. Universities.

d. Universities.

The biggest difference between a(n) ----- IRA and a Roth IRA is the Roth IRA contribution is not tax deductible, but after five years, its earnings are tax free.

deductible

Flexible spending accounts (FSAs) allow you to reduce your taxable ----- when paying for medical and ----- care expenses.

income, child

A premature withdrawal from a traditional IRA will result in taxable income and a penalty of ------ of the withdrawn amount

10%

Two possible tax planning activities for April are filling the tax return by April -----, and if necessary, filling for an automatic six-month -----

15th, extension

The actions the IRS will take if you make an error could include recalculating your tax, sending you a(n) ----- or refund, or, in the worst case scenario, notify you of a tax ----

a bill, audit

Most planners advise people to contribute as much as possible to Keogh or 401(K) plan because:

a. the increased value of the investment accumulates on a tax-free basis until the funds are withdrawn and b. contributions reduce your adjusted gross income for computing your current tax liability.

Which of the following statements are true with regard to taxes on wages? a. Most states do not have a state income tax b. social security is a tax on wages to fund old-age, survivor, and disability income benefits by the federal government. c. social security is imposed to fund federal government programs such as food stamps and unemployment. d. income taxes are imposed by federal, some state, and some local governments to fund government operations.

b. social security is a tax on wages to fund old-age, survivor, and disability income benefits by the federal government. d. income taxes are imposed by federal, some state, and some local governments to fund government operations.

Which of the following is not true about filling your income tax return online? a. You can find a filling service at www.irs.gov b. Filling online is often easier and less expensive. c. The IRS website has a link to help you select an online filling company, including descriptions and any limitations of their service. d. "Free file fillable forms" option is available for taxpayers whose income is below the income limitations for free filling.

d. "Free file fillable forms" option is available for taxpayers whose income is below the income limitations for free filling.

Which of the following best describes the purpose of the alternative minimum tax?

it is to assure that people who receive tax breaks pay a fair share of taxes

Income shifting strategies allows you to move investment income such as interest and dividends to the ----- tax brackets of your children

lower

Many employers provide a(n) ----- contribution to 401(K) plans.

matching

Real estate taxes and ---- are tax deductible by the homeowners.

mortgage interest

Many taxpayers have found filling -------

online to be easier and less expensive than paper filling.

Taking advantage of tax credits, deferring capital gains and accelerating capital losses, and considering tax-exempt investments are all strategies to lower income ------

tax