PFS Chapter 3

At the end of the year, employees receive a ________ form that reports annual earnings and the amounts deducted for taxes from their employers.

W-2

A tax imposed on the value of a person's property at the time of death is called a(n)

Estate tax.

The rate used to calculate the tax due on the next dollar of income is referred to as the

Marginal tax rate

Nancy is married to Jerry and needs to complete her tax form. They both earn about the same amount of money each year. What filing status would be best for them?

Married, filing a joint return

Income that is taxed at a later date is

Tax-deferred income

Income that is not subject to tax is called

Tax-exempt income

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?

6 years

Recent tax credits include all of the following except the

AMT tax credit

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels.

Income tax

Using the following table, calculate the taxes for an individual with taxable income of $31,000. 10​ % Up to $8600 15​ % $8600 − $35,000 25​ % $35,000 − $84,600 28​ % $84,600 − $175,900 33​ % $175,900 − $381,150 35​ % Over $381,150

$4220

Peter filed his federal income taxes, but he needs to make a correction to his income. Which form should he use?

1040X

At the end of the year, Walter received a form that showed his payments from independent contracting. That form is called a

1099

The tax based on the total tax due divided by taxable income is called the

Average tax rate

Adjustments to income include all of the following except

Charity contributions

Individuals can file their federal taxes using all of the following except

Deliver in person

Fees, tips, and bonuses are forms of

Earned income

Tanya is a single low-income working parent, and Fred is a single high-income working parent. Because of her status, Tanya, but not Fred, may be eligible for the

Earned income credit

When calculating federal income taxes, "gross income" includes all of the following except

Earned income credit.

Gross (or total) income includes

Passive income

If Diane was in a 25% tax bracket and received a $2300.00 tax credit, by how much would her taxes be reduced?

$2300.00

Which of the following is NOT a tax credit?

Domestic tax credit

You may be required to make estimated tax payments if

You are an independent contractor

The tax designed to ensure that those who receive tax breaks also pay their fair share of taxes is called the

AMT

Gross income less Adjustments to Income equals

Adjusted gross income

When calculating federal income taxes, what increases "gross income"?

Alimony received

The maximum amount that an individual can give another in a year without being subject to estate taxes is

$14,000.

At the end of the year, Yvonne received a form from her bank that reported income from her savings. That form is called a

1099

George Franklin paid taxes of $3500 on a taxable income of $26,000. What was his average tax rate?

13.46%

Penny knows that she needs to file her federal income taxes, but she is unable to do so by April 15. What form does she need to complete to obtain an automatic six-month extension?

4868

A tax due on the purchase of gasoline is called a(n)

Excise tax.

When Paul completes his taxes, he can include all of the following as exemptions except

His 20-year-old son who is working full-time and living in an apartment.

The amount levied on the value of property bequeathed by a deceased person is

Inheritance tax

Taxpayers over 65 can only deduct expenses that are greater than 7.5% of adjusted gross income for

Medical and dental expenses

Athena wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is NOT a proper itemized deduction?

Miscellaneous expenses less than 2% of AGI

Shannon is working on her federal income tax form and wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is an acceptable deduction?

Miscellaneous expenses that exceed 2% of AGI

Bob was married to Sandy, and they have a 12-year-old son. Sandy passed away last year. Bob needs to complete his federal income taxes for the year. What filing status could he use for 2 years after the death of his spouse?

Qualifying widow or widower

The tax that is a major source of revenue for local governments is called a(n)

Real estate property tax.

Taxes on earnings that fund old age, survivor, and disability insurance benefits are called

Social Security taxes

Joseph needs to complete his income taxes for the year. He has already calculated his adjusted gross income. What does he need to do next?

Subtract his itemized deductions

At the end of the year, Xavier received a form from his employer that reported annual earnings and the amounts deducted for taxes. That form is called a

W-2.