chapter 4

True or false: Adjusted gross income is gross income reduced for such things as IRA contributions and alimony payments.

True

A tax ________ is directly subtracted from taxes owed. This is a one-word answer.

credit

a tax _______ is directly subtracted from taxes owed.

credit

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

deduction

True or false: A tax deduction reduces tax liability directly, dollar for dollar.

false

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.

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

itemized

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

married, filing joint return head of household qualifying widow or widower single married, filing separate return

Real estate taxes and ______ are tax deductible by the homeowner.

mortgage interest

Interest income from _________ bonds, which are issued by state and local governments, is not subject to federal income taxes.

municipal

On average, the portion of a person's earnings that goes to taxes is ______.

one third

Taxpayers pay income taxes through:

payroll withholding and through estimated tax payments

Which of the following taxes are deductible?

real estate property taxes state income taxes

A(n) ______ can be helpful in maintaining and updating income and expense data.

spreadsheet program

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

true

True or false: Income tax is calculated on income less deductions and exemptions.

true

True or false: 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 do not offer for-profit tax services?

universities

Two tax planning activities for the month of January include ______.

making your final estimate quarterly payment for the previous year for income not covered by withholding record-keeping

Which of the following is a tax avoidance strategy?

Delay the receipt of income because you want to delay the payment of taxes until next year. Accelerate deductions to save taxes this year.

You filed a Form 4868 and received a six-month extension on your taxes for 2018. Which of the following is true?

The filing will not postpone your payment liability, so you must pay your estimated payment liability by April 15, 2019.

Financial planners recommend that copies of home ownership documents should be kept for:

an indefinite period

State and local income taxes are deductible for:

federal tax purposes

If you find that you have income or deductions that you did not report on your tax return, you should:

file a 1040X to amend the return

One way to reduce your tax liability is to:

maximize contributions to tax-deferred retirement programs.