PERSONAL FINANCE SB CH 3

If you want to amend (change) a previous return, you would need to file a _____ form.

1040X

The second installment for estimated tax is due by June ______

15th

Which of the following accurately describes the contribution limits of a 401(k) plan?

Up to $22,500 in 2023 for workers under the age of 50

If you are in the 28% tax bracket and owe $20,000 on $100,000 of taxable income, your average tax rate and marginal tax rate would be, respectively:

20% for average and 28% for marginal

Underpayment of taxes due to negligence or fraud can result in penalties of _____ percent.

50 to 75

A tax _____ reduces taxable income, thereby reducing the tax liability.

deduction

Components of income include earned, investment, and _____ income.

Passive

A tax that would require all taxpayers regardless of income level to pay the same percentage is:

flat tax

The major categories of taxes are taxes on ______, property, wealth, and earnings.

Purchases

Which of the following is true?

Tim, age 55, can contribute a maximum of $30,000 to a 401(k) as of 2023.

John owed $10,000 in taxes on taxable income of $40,000. If John earns an additional $1,000, he will pay an additional $280. Therefore:

his average tax rate is about 25% Reason: His marginal tax rate is 28% ($280/$1,000).

Estate taxes are calculated on the _____ of a person's property at death.

value

As of 2023, the IRA contribution limit for workers under age 50 was $6,500. T or F?

TRUE

The simplest type of IRS audit is the ______ audit. This is taken directly from the text.

correspondence

Which of the following are the filing status categories for federal income tax purposes?

- Married, filing joint return - Married, filing separate return - Qualifying widow or widower - Single - Head of household

A recent tax strategy employed by the government is to allow employees with health care FSAs to carry over up to $ of unused funds. (Enter the numerical value.)

$500

A tax _____ directly reduces taxes owed.

Credit

Which of the following do not offer for-profit tax services?

Universities

Which of the following are categories of taxes?

- Taxes on earnings - Taxes on property - Taxes on purchases - Taxes on wealth

Which of the following statements are true about software and taxes?

- Software packages such as H&R Block At Home and TurboTax help users prepare and file returns. - You can save time while preparing Form 1040 and its accompanying schedules. - A spreadsheet program can help you keep track of income and expenses as the year plays out.

Which of the following taxes are deductible for the person/family paying them?

- State income taxes - Real estate property taxes

Select all the accurate observations below about different types of audits.

- The simplest audit is a correspondence audit. - With an office audit, you must visit the IRS office to answer questions about your return. - A field audit involves an IRS agent visit to your home or office and is the most complex type of audit.

If Mary owes the IRS $5,000 for her income taxes and is in the 15% marginal tax bracket, what would be her average tax rate if she had taxable income of $41,667?

About 12%

Which month is the deadline to file your federal tax return or file an extension if necessary?

April (15)

Which of the following types of interest expense is not deductible?

Automobile loan interest

Which of the following is true?

Bill, age 58, can contribute up to $7,000 in an IRA as of 2023.

All but how many states currently have some type of state income tax?

Eight (Alaska, Florida, Nevada, SD, Tennessee, Texas, Washington & Wyoming)

Which of the following is not an IRS service for tax assistance?

Ernst & Young Tax Guide

A tax imposed on the value of a person's property upon that person's death is called a(n):

Estate tax

Which of the following is not a deductible tax?

Excise tax

Which of the following is not a deductible charitable donation?

Giving money to a homeless person on the street

Which of the following would have tax deductible interest?

Home mortgage

Which tool provides options for checking your refund status, requesting tax records, locating free tax prep help, and accessing other interactive tools?

IRS2Go App

Which of the following is true regarding the use of software when preparing your Form 1040?

It can save you time.

Which statement best describes how taxpayers pay their taxes to the IRS?

It is a pay-as-you-go system utilizing withholding of tax from paychecks or making estimated payments.

Medical costs, taxes, and interest are all examples of _____ deductions that are subtracted from adjusted gross income.

Itemized

A _____ deduction is a set amount on which no taxes are paid.

Standard

A tax credit is an amount subtracted directly from taxes owed. T or F?

TRUE

If you are an employee, your employer should withhold a certain amount for taxes from your paycheck while self-employed individuals should make estimated tax payments. T OR F?

TRUE

If you itemize your deductions, you can deduct contributions made to charities and amounts paid for real estate taxes. T or F?

TRUE

Income tax is calculated on adjusted gross income less deductions and exemptions. T or F?

TRUE

When taxes are added to a product for each stage in the manufacturing process, this is called:

VAT (value-added tax)

Taxpayers pay income taxes either through payroll______ or through estimated tax _____ .

Withholding, Payments

If you have made estimated quarterly payments totaling $4,000 and your annual taxes owed total $3,700, then which of the following is true?

You will receive a refund of $300.

The tax rate that is used to calculate the tax on the last (or next) dollar of taxable income is:

a marginal tax rate.

If you file Form 4868 to obtain an automatic extension on filing your forms, you must pay your estimated taxes owed or face ______.

a penalty for being just one day late

When husband and wife file a joint return, the income of a husband and wife is:

added together.

A CPA and enrolled agents both offer tax services including return preparation while a(n) _____ will represent you in the case of an IRS lawsuit.

attorney

The tax rate on your next dollar of taxable income is called the:

marginal tax rate.

eal estate taxes and _____are tax deductible by the homeowner.

mortgage interest

Interest income from ______ bonds issued by state and local governments is not subject to federal tax.

municipal

The two main types of taxes on wages and salary are federal and state _____ tax and Social Security tax.

income

Tax avoidance means using ______ strategies to reduce taxes, while tax ______ involves using illegal means to lower tax liability

Legal, Evasion

A _____ form is used to amend a previously filed tax return.

1040-X

Two possible tax planning activities for April are filing the tax return by April _____, and, if necessary, filing for an automatic ______.

15th, Extension

Underpayment of taxes due to negligence or fraud can result in penalties of ______ percent.

50 to 75

As "Tax Freedom Day" came in mid-April, it means that the portion of the year people work to pay their taxes is represented by January 1 to:

Mid-April

Which of the following best describes why the home can be a tax shelter?

Mortgage interest and real estate taxes are tax deductible, which helps lower the cost of home ownership.

Which of the following is not a recent tax strategy change?

Mortgage interest deduction

A marginal tax rate is found by dividing the amount of taxes owed by the taxable income. T or F?

FALSE

A tax deduction reduces tax liability directly, dollar for dollar.

FALSE

If you owe $10,000 in taxes but have paid $8,000 in withholding payments and $1,900 in estimated payments, you will have a refund. T or F?

FALSE

Income includes only those earnings that you are actively involved in earning, such as salaries and income from managing a business. T or F?

FALSE

Only cash contributions to qualified charitable organizations are allowed as deduction. T or F?

FALSE

State income tax returns are always required to be filed after the federal return is due. T or F?

FALSE

The two main taxes on salary are income taxes and estate taxes.

FALSE

Which of the following is true regarding automatic extensions by filing Form 4868?

Filing for an automatic extension extends your deadline for filing by six months.

Tax planning starts with which of the following?

Knowing current tax laws

Which of the following would potentially have tax-free withdrawals?

Roth IRA

The due date for the third installment for estimated tax is ______ 15.

SEPTEMBER

The due date for the third installment for estimated tax is in which month?

September

Income tax is paid during the year through withholding from paychecks and/or estimated payments. T or F?

TRUE

The calculation of your total tax due begins by using your taxable income with either tax tables or a tax schedule. T or F?

TRUE

While municipal bonds pay a lower rate of interest than other types of bonds, the after-tax income may be higher than other types of bonds.

TRUE

Which of the following is not legal?

Take cash for work done and do not declare it as income.

Your _____ income is the basis for computing the amount of tax owed.

Taxable

_____ income is the net amount of income, after considering allowable deductions, on which tax is computed.

Taxable

You can file Form 4868 to obtain a(n) Blank______ six-month extension on filing an income tax return by filing the proper forms with the IRS before the April 15 filing deadline.

automatic

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

traditional or regular

As of 2023, the IRA contribution limit for workers under age 50 was $6,500.

true

A person would file as head of household if he or she is:

unmarried with a dependent child