ECON1200 CH 3 & 4
Historically, savings and loans specialized in:
savings accounts and mortgage loans
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
All but how many states currently have some type of state income tax?
seven
A tax imposed on the value of a person's property upon that person's death is called a(n):
estate tax
Common payment choices include:
- checks - cash - debit card - credit card
Check-cashing outlets usually charge fees of:
1 - 20% of the face value of check
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.
____ 15 is the due date for the third installment for estimated tax.
September
A current shortage of cash can be overcome by liquidating savings or borrowing.
true
Selection of a savings plan is influenced by:
- restrictions and fees - rate of return - safety - liquidity
Some of the basic concerns of a financial services customer when comparing financial services include which of the following?
- where can I get the best return on savings? - how can I minimize costs for checking and savings? - will I be able to borrow money when I need it?
Financial services include:
-payment services -financial planning -savings -insurance -investments -borrowing
True or false: Income tax is calculated on adjusted gross income less deductions and exemptions.
true
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%
Which of the following are the filing status categories for federal income tax purposes?
married, filing joint return; single' married, filing separate return; head of household
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 statements are true about software and taxes?
- you can save time while preparing form 1040 and its accompanying schedules - software packages such as H&R Block at home and TurboTax helps users prepare and file returns
Underpayment of taxes due to negligence or fraud can result in penalties of ________ percent.
50-75
A Savings Bond that has an interest rate based on two components is a(n):
I bond
All of the following are deposit institutions that serve as financial intermediaries except:
insurance companies
Which of the following is not an IRS service for tax assistance?
Ernst & Young tax guide
Financial services will usually not be affected by:
stock prices
A regular savings account usually does not have:
- a high interest rate - overdraft protection - a high balance requirement
If you want to amend (change) a previous return, you would need to file a ______ form.
1040X
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
Another name for an automated teller machine (ATM) is:
a cash machine
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 of the following types of interest expense is not deductible?
automobile loan interest
Which of the following is not a deductible tax?
excise tax
Common choices for making payments include all of the following except:
installment loans
A major concern with prepaid debit cards is which of the following?
the high fees often charged
True or false: Income tax is paid during the year through withholding from paychecks and/or estimated payments.
true
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 __ percentage yield is the rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365-day period.
annual
The ______ is the percentage rate expressing the total amount of interest that would be received based upon time and compounding.
annual percentage yield
Money market accounts at commercial banks are insured by ______, whereas money market funds are not.
federal deposit insurance
The two main types of taxes on wages and salary are federal and state ______ tax and Social Security tax.
income
Which of the following is not a common fee associated with prepaid debit cards?
inflation fee
Overdraft protection is an automatic loan made to checking account customers to cover checks written in excess of:
their balance
A savings account provides a safe storage for funds to be used in the future.
true
Financial services can change due to such factors as changing interest rates and rising consumer prices.
true
Which of the following do not offer for-profit tax services?
universities
A person would file as head of household if he or she is:
unmarried with a dependent child
Estate taxes are calculated on the ______ of a person's property at death.
value
Mutual savings banks are owned by ___
depositors
Money market accounts are insured by federal deposit insurance, whereas money market mutual ___ are not
funds
Which of the following would have tax deductible interest?
home mortgage
The rate of ___ is the percentage increase in the value of savings as a result of interest earned.
return
The tax rate on your next dollar of taxable income is called the:
marginal tax rate
True or false: One criterion for choosing a saving plan is the rate of return.
true
A $500 savings account that earned $25 after a year would have a rate of return, or yield, of ______ percent. (Assume annual compounding.)
5%
___ is a process that calculates interest based on previously earned interest.
compounds
A regular savings account usually offers:
a low or no minimum balance requirement
A tax ____ directly reduces taxes owed.
credit
A tax _____ reduces taxable income, thereby reducing the tax liability.
deduction
Check-cashing outlets do not offer which of the following services?
payday loan
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
A ______ form is used to amend a previously filed tax return.
1040x
A ____ savings bank is owned by depositors and specializes in savings and mortgages.
mutual
the rate of return is:
the percentage increase in the value of an account
If there is a shortage of cash, you will have two basic choices to cope with the situation: ____ from a savings or ____ .
withdraw ; borrow
Two possible tax planning activities for April are filing the tax return by April _____, and, if necessary, filing for an automatic _____.
15, extension
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
Tax planning starts with which of the following?
knowing current tax laws
A savings plan that requires a certain amount of money to be left for a specified amount of time is a:
certificate of deposit
Overdraft protection is designed to:
cover underfunded checks
A $200 savings account that earned $8 after a year would have a rate of return, or yield, of ______ percent. (Assume annual compounding.)
4
A certified check is a personal check with:
a guaranteed payment
A tax ___ reduces taxable income, thereby reducing the tax liability.
deduction
Using savings for paying ____ expenses is one of the mistakes people make when managing current cash needs.
current
True or false: The two main taxes on salary are income taxes and estate taxes.
false
The two parts of interest on an I bond are a(n):
fixed rate of interest for the life of the bond and inflation rate that changes semiannually
Using compounding, how much interest will be earned in the second year of a savings account that has an original balance of $200 and earns 6 percent interest per year?
$12.72
Using compounding, how much interest will be earned in the second year of a savings account that has an original balance of $100 and earns 5 percent interest per year?
$5.25
Which tool provides options for checking your refund status, requesting tax records, locating free tax prep help, and accessing other interactive tools?
IRS2GO App
Share draft accounts at a credit union:
are interest bearing until a minimum balance is maintained.
Which type of financial institution typically charges higher rates?
check cashing outlets
A ____ bank is a financial institution that offers a full range of services.
commercial
___ banks are organized as corporations, with investors contributing the capital for operations.
commercial
Which of the following deposit-type institutions serve as financial intermediaries?
commercial banks credit unions savings and loans
A customer has more security in case of fraudulent transactions when a debit card is processed like a(n) _____.
credit card
A ___ ticket or slip is used to add funds to a checking account.
deposit
A certificate of ____ is a savings plan requiring that a certain amount be left on deposit for a stated time period.
deposit
What is not typically a basic concern of a financial services customer?
does the bank offer tax preparation services?
True or false: A tax deduction reduces tax liability directly, dollar for dollar.
false
True or false: Debit cards allow you to wait to deduct the amounts from your account.
false
True or 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.
false
True or false: State income tax returns are always required to be filed after the federal return is due.
false
Compounding is the process that calculates earnings based on previously earned:
interest
Which of the following is true regarding the use of software when preparing your Form 1040?
it can save you time
Medical costs, taxes, and interest are all examples of ____ deductions that are subtracted from adjusted gross income.
itemized
Non-deposit institutions mentioned in the text include:
life insurance companies, investment companies, and brokerage firms
A drawback of U.S. savings bonds is:
lower rates for early redemption
Which of the following taxes are deductible for the person/family paying them?
real estate property taxes and state income taxes
Saving funds for future use is necessary for financial:
safety
A ____ and loan association traditionally specializes in savings accounts and mortgage loans.
savings
A ___ draft account is an interest-bearing checking account at a credit union
share
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
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 tax credit is an amount subtracted directly from taxes owed.
true
True or false: If you itemize your deductions, you can deduct contributions made to charities and amounts paid for real estate taxes.
true
Taxpayers pay income taxes either through payroll ___ or through estimated tax ____.
withholding, payments
Common mistakes made when managing current cash needs include:
- lacking sufficient liquid assets to pay current bills - leaving funds in low-interest accounts too long - using savings for current expenses - overspending
Benefits of U.S. savings bonds include:
- govt guarantee - exemption from state and local taxes - low minimum deposit
Financial services are now offered by:
- insurance companies - investment brokers - credit card companies
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