Ch 3 Smartbook / Quiz, PF

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

flat tax

Taxpayers pay income taxes either through payroll ______ or through estimated tax __________.

deductions, payments

Calculate Adjusted Gross Income (AGI)

determine your AGI by calculating your annual income from wages and other income sources (gross income), then subtracting certain types of payments, such as student loan interest, alimony, retirement contributions, or health savings account contributions, you've made during the year.

True or false: Only cash contributions to qualified charitable organizations are allowed as deduction.

False

True or false: The two main taxes on salary are income taxes and estate taxes.

False (Estate taxes are imposed on the value of a person's property upon death. The two main taxes on salary are income taxes and Social Security taxes.)

The tax credit for dependents under the age of 17 is

$2,000

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

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

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.

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

1040-X

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. (The average tax rate is $20,000 divided by $100,000, which is 20%.) (Marginal rate is given, it is the 'tax bracket'.)

A recent tax strategy employed by the government is to allow employees with healthcare FSA's to carry over up to $____ of unused funds

500

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% (Average rate is taxes owed divided by taxable income. Her average rate is $5,000/$41,667=12%.)

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

April

A tax _______ directly reduces tax owed.

Credit

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

Deduction (A tax credit reduces the tax due directly, it does not reduce the taxable income.)

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? -Real estate -Excise tax -State/local income -Personal property

Excise tax (taxes on certain goods (like gas), services, activites)

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

False (A tax deduction reduces taxes indirectly by the amount of the tax rate. On the other hand, a tax credit would result in a direct dollar-for-dollar reduction.)

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. (but you must pay your estimated taxes owed to avoid penalties.)

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% (His average tax rate after earning the additional $1,000 would be about 25% (($10,000+$280)/($40,000+$1,000)). (His marginal tax rate is 28% ($280/$1,000).

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

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

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

Itemized

Tax planning starts with which of the following?

Knowing current tax laws

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

Marginal tax rate

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.

IRS services for tax assistance include:

Phone hot line, Publication 17, walk in service

The tax that is a major source of revenue for local governments

Real estate/ property taxes

Which of the following would potentially have tax-free withdrawals? -Traditional IRA -401K -1099 -Roth IRA

Roth IRA

__________ 15th s the due date for the third installment for estimated tax.

September (Jan 1-March 31 =April 15) (April 1-May 31 = June 15) (June 1-Aug 31 = Sept 15)

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

Seven (Alaska, Florida, Nevada, South Dakota, Tennessee, Washington, Wyoming, Texas) (Now 8 since Texas passed new law July 2023).

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

Social security taxes

Which of the following is not legal? -Delay the receipt of income if you expect a lower tax rate next year. -Take cash for work done and do not declare it as income. -Delay deductions if you think you will have a higher tax rate next year. -Accelerate deductions this year if you expect a lower tax rate next year.

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

What is average tax?

The tax owed divided by taxable income.

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

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

True

True or False: A field audit involves an IRS agent visit to your home or office and is the most complex type of audit.

True

True or False: As of 2020, the IRA contribution limit for workers under age 50 was $6,000.

True

True or False: 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.

True

True or False: Most home improvements are not tax deductible; however, you can add them to the basis (purchase price) of your home so that you pay less in capital gains tax when you sell the home.

True

True or False: The simplest audit is a correspondence audit.

True

True or False: With an office audit, you must visit the IRS office to answer questions about your return.

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

True or false: Income tax is paid during the year through withholding from paychecks and/or estimated payments.

True (You either have your employer pay your withholding taxes, and/or you make estimated tax payments quarterly to the IRS.)

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

True (Charitable contributions and real estate taxes paid are common itemized deductions.)

True or false: Income tax is calculated on adjusted gross income minus deductions and exemptions.

True (Deductions, and exemptions, are subtracted from your AGI to derive taxable income upon which income taxes are calculated.)

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

VAT (Value-added Tax)

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

Value

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.

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

Calculate Marginal Tax Rate

apply the appropriate tax rate to the amount of taxable income you have in each of the seven income tax brackets, then total the results. Only the amount of income included in each bracket is subject to the tax rate connected to that bracket

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

income

A _______ tax is imposed when you inherit cash or property.

inheritance

Tax avoidance means using___________ strategies to reduce taxes, while tax_________ involves using illegal means to lower tax liability.

legal, evasion

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

municipal

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

-State income tax -Real estate property taxes (Estate taxes are paid from the assets of the deceased; the deceased does not file an income tax return, but the estate files a return in that year.) (Inheritance taxes are not deductible)