FIN 221 Quiz 3 and 4

When calculating federal income taxes, "gross income" includes all of the following except: -Earned income. -Tax-exempt income -Gambling winnings -Passive income. -Investment income.

Tax-exempt income

Betsy Williams has the following tax information. If the Standard Deduction for 2019 is $12,200, calculate her taxable income. Gross income: $62,250 Investment income: $275 Itemized deductions: $9,000 Interest earned on her savings account: $150 Adjustments to income: $2,000 Deductions include the following: State income tax + Mortgage interest + Charitable contributions = $1,000 + $7,000 + $1,250 = $9,250. Medical and dental expenses are not deductible because they must be greater than 10% of her AGI (42,000 × 10% = 4,200).

$48,475

Using the following table, calculate the taxes for an individual with taxable income of $35,500. 10%Up to $8,500 15% $8,500-$34,500 25% $34,500-$83,600 28% $83,600-$174,400 33% $174,400-$379,150 35% Over $379,150

$5,000

If Cindy was in a 22% tax bracket and was able to take a $500 tax credit, by how much would her taxes be reduced?

$500

If you deposited $2,000 each year for 40 years, into an account earning 8% interest (compounded annually), how much would you expect to have at the end of 30 years? $80,000 $23,850 $43,450 $86,400 $518,120

$518,120

Victor read the fine print for a checking account he was thinking about using. The fine print said, "A minimum balance of $500 is required. If your balance falls below this level, you will be assessed a monthly fee of $8." Since Victor was planning to keep only a $50 balance in his account, how much could he be charged each year? -$8.00 -$400.00 -$50.00 -$60.00 -$96.00

$96.00

George Franklin paid taxes of $4,375 on a taxable income of $32,000. What was his average tax rate? -13.7% -15% -28% -25% -10%

13.7%

Fred has been completing his own tax returns for years. The IRS has recently contacted him with questions about some of his prior returns. How many years back is he responsible for providing documentation? -Until he files his returns. -3 years. -15 years. -10 years. -7 years.

7 years

Cathy needs a full range of financial services, including checking, savings, and lending. To which of the following should she go? -A check-cashing outlet -A life insurance firm -A commercial bank -A payday loan company -A pawnshop

A commercial bank

All of the following are non-deposit institutions except: -An investment company. -A credit card company. -A finance company. -A life insurance company. -A credit union.

A credit union.

The tax based on the total tax due divided by taxable income is called the: -Marginal tax rate. -Average tax rate. -Total tax rate. -AMT. -Income tax rate.

Average tax rate

Many people make mistakes when managing current cash needs. Which of these is NOT a frequently made mistake? -Failing to put unneeded funds in an investment plan -Budgeting for your spending -Having insufficient liquid assets to pay current bills -Overspending due to impulse buying and over using credit -Using savings or borrowing to pay for current expenses

Budgeting for your spending

Which of the following provides deposit insurance for banks? -FDIC -FDCU -NCUA -SAIF -None of these

FDIC

An IRS agent visited Henry's home to verify some information on his tax return. This visit was called a(n): -Home audit. -Field audit. -Detailed audit. -Correspondence audit. -Office audit.

Field audit.

When calculating federal income taxes, what increases "gross income"? -Gambling winnings -Exclusions -Tax deductions -Tax-exempt income -Tax-deferred income

Gambling winnings

Taxable Income is calculated by the following: -Salary plus interest earned minus 401(k) contributions -Gross Income minus adjustments minus tax credits -Gross Income minus adjustments minus standard deduction -Gross Income minus 401(k) contributions times the tax table -Gross Income minus itemized deductions minus taxes owed

Gross Income minus adjustments minus standard deduction

Which of the following is correct about inflation? -If inflation is 7% and your rate of return in your savings account is 4%, you will experience an overall gain in buying power. -If you earn 5% and inflation is 10%, your buying power will increase. -As the inflation rates increases, the interest rates offered to savers decrease. -Inflation does not affect interest rates for savings accounts. -In order to increase buying power, you need to earn a rate higher than the rate of inflation.

In order to increase buying power, you need to earn a rate higher than the rate of inflation.

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels. -Sales tax -Excise tax -Real estate property tax -Estate tax -Income tax

Income tax

All of the following are examples of the four major taxable categories EXCEPT: -Investments -Property -Purchases -Earnings -Wealth

Investments

Which of the following refers to the opportunity to withdraw your money on short notice without incurring a loss in value? -Safety -Compounding -Liquidity -Minimum deposit -Rate of return

Liquidity

Which of the following will provide you with the highest rate of return? -Monthly compounding -Annual compounding -Quarterly compounding -Simple interest -None of the above

Monthly compounding

When interest rates are expected to be falling over the next several years, you would be well served to: -Select short term savings instruments and lock in fixed rates on long term loans -Select high yield bonds for savings and a pay day lender for loans -Select 1 year Certificates of Deposit for savings and 5 year terms for loans -Select 1 year Certificates of Deposit for savings and 1 year terms for loans -Select long term savings instruments and variable rates on long term loans

Select long term savings instruments and variable rates on long term loans

Taxes on your earnings that fund old age, survivor, and disability insurance benefits are called: -Excise taxes. -Social Security taxes. -Estate taxes. -Sales taxes. -Real estate property taxes.

Social Security taxes.

If Brenda wants to pay her fair share of taxes, no more and no less, she should practice: -Tax maximization. -Tax acceleration. -Tax evasion. -Tax elimination. -Tax avoidance.

Tax avoidance

The Truth in Savings Act requires financial institutions to disclose the ________ on savings accounts. -annual percentage yield (APY) -tax rate -safety certification -compounding -liquidity

annual percentage yield (APY)