EVERYTHING FOR CHAPTER 4 FINANCIAL LIT!

Which of the following is not a deductible medical expense?

Funeral expenses

Which of the following is not defined as part of gross income?

Gifts and inheritances

Which of the following is an example of unearned income?

Interest

Which of the following investments normally produce(s) tax-exempt income?

Municipal bonds

_____ taxes are based on one's ability to pay.

Progressive

A person's average tax rate is always lower than his or her marginal tax rate.

T

A short-term capital gain (or loss) occurs when the asset is held for one year or less.

T

An employed taxpayer's effective marginal tax rate on income is higher than his or her federal marginal tax rate.

T

Being able to prove your deductions with actual records is crucial to keeping more of your money.

T

Bonuses given by employers are considered part of gross income.

T

Cash contributions to qualified organizations, such as churches, schools, and other qualifying charities, require a receipt for a contribution of $250 or more.

T

Tax-deferred compounding refers to the tax-free growth of investments in a tax-deferred account.

T

Earned income is reported to the recipient on a

W-2 form.

Taxable income is determined by subtracting ______ from gross income.

exemptions adjustments exclusions Correct Answer all of these

The penalty for tax evasion can include

jail sentences. penalties. interest charges. Correct answer all of these.

A tax credit of up to _____ is available for qualifying costs of an adoption.

$11,390

Vicki Chadwell made a $1,000 capital gain on an investment she owned for 15 months. Assuming Vicki is in the 35 percent marginal tax bracket, how much federal income tax would she pay on this capital gain?

$150

Iris Rosales is single, has no children, and is claimed as a dependent on her parents' tax return. What is the maximum number of personal exemptions Iris can legally claim on her own tax return?

0

Long-term capital gains are taxed at a maximum rate of _____ percent.

15

The yield on a taxable money market mutual fund earning 3.0 percent is equivalent to a _____ percent yield on a tax-exempt money market fund for a taxpayer in the 28 percent marginal tax bracket.

2.2

Children under age 24 who are full-time students are exempt from which of the following dependency tests?

Gross income test

The tax credit(s) for qualifying higher education expenses is

Hope scholarship credit and lifetime learning credit.

Which of the following types of income is (are) tax-exempt?

Income from a car pool Compensatory damages in physical injury cases Life insurance benefits received Correct Answer All of these

A personal exemption is a legally permitted amount deducted from adjusted gross income based on the number of persons supported by the taxpayer's income.

T

A state income tax refund is reported as taxable income only if the taxpayer itemized deductions the previous year.

T

A taxpayer in the 35 percent marginal tax bracket would pay less taxes by holding an investment with capital gains over one year.

T

A taxpayer who is age 65 or older and/or blind may claim an extra amount for his or her standard deduction.

T

A taxpayer who reported lottery winnings of $500 on his or her taxes could deduct a maximum of $500 in gambling losses.

T

A taxpayer with a taxable income greater than $100,000 must use the tax-rate schedules rather than the tax tables to find his or her tax liability.

T

About 3 million high-income taxpayers must pay a higher alternative minimum tax.

T

About 80 percent of taxpayers practice overwithholding.

T

Charitable cash contributions made to people collecting door to door or at a shopping center during holidays are deductible, even though receipts are not given.

T

Charitable contributions of property to a qualifying organization should be valued at fair market value when used as an itemized deduction.

T

Each year the tax brackets are adjusted to reduce the effects of inflation.

T

Employees who want to avoid quarterly estimating can legally change their W-4 forms to increase the payroll withholding.

T

Estimating taxes requires taxpayers to send quarterly installment payments to the IRS.

T

Flexible spending accounts reduce taxes because contributions to these accounts are made with pretax dollars.

T

Flexible spending arrangements are subject to a use-it-or-lose-it rule.

T

If a child is under age 18 and has net investment income exceeding $1,700, the excess is taxed as if it were the income of the parent.

T

If a taxpayer expects to be in a lower tax bracket the next year, he or she would benefit by postponing income to the later year.

T

Income taxes must be paid when distributions are taken from the qualified retirement plans.

T

Tony and Liz Montey both work for XYZ Corporation where Tony earns $32,000 and Liz earns $31,000. However, XYZ Corporation does not have a retirement plan for their employees. Tony and Liz have three-year old twin daughters named Trisha and Tasha. The following is their financial information for the current tax year: Gross income $63,000 Tony's IRA contribution $1,000 Liz's IRA contribution $2,000 Total itemized deductions $12,100 Child care expenses $6,500 Personal exemptions $3,400 each Standard deduction $10,700 Marginal tax rate 15 percent Reference: Ref 4-1 What is Tony and Liz's adjusted gross income?

$60,000

Sue is a single mom who is currently going to school as a full-time student. Her son, Billy, is in daycare, which costs $3,500 annually. How much will Sue's dependent care credit be if she qualifies for a 20 percent credit?

$700

Joe and Maria, a married couple with three young children, have a gross income of $120,000, adjustments of $6,700, and itemized deductions totaling $12,900. If personal exemptions for the year are $3,400 each and the standard deduction is $10,700 for married couples, what is Joe and Maria's taxable income if they file jointly?

$83,400

Judy Hays wants to give $3,200 to the building fund at her local church. Assuming Judy can itemize her deductions, how much will this contribution save her on her federal income taxes if she is in the 28 percent marginal tax bracket?

$896

Dave Scott's total income is $42,000, but his taxable income is only $34,650. Therefore, his tax liability is $9,702. Dave's average tax rate is approximately _____ percent.

23

A single individual pays $5,385 on a taxable income of $36,460 and $5,525 on a taxable income of $36,960. What is the marginal tax rate?

28 percent

Ben Shew, a single person, would pay $19,323 in taxes on $95,000 of taxable income. If he won $1,000 in the lottery, he would pay $19,673 in taxes. What is Ben's marginal tax rate?

28 percent

A family of four consisting of a father (age 52 earning $30,000), a mother (age 55 earning $32,000), their child (a full-time university student age 25 earning $5,000), and the father's mother (age 77 earning $1,500) would legally have _____ personal exemptions if the couple filed a joint return. The father and mother provided over 50 percent of the support for both their child and the father's parent.

3

A tax-exempt municipal bond is currently earning 5.4 percent interest while a similar taxable bond is earning 7.5 percent interest. Taxpayers in the _____ percent marginal tax bracket and above would benefit by investing in the tax-exempt bond.

33

John and Kay are in the 33 percent marginal income tax bracket and are subject to the 7.65 percent Social Security tax. If Kay gets a $750 bonus, approximately what percent of this bonus would she get to keep?

67 percent

The yield on a tax-exempt municipal bond earning 5.0 percent is equivalent to _____ percent on a taxable corporate bond for a taxpayer in the 35 percent marginal tax bracket.

7.7

Which is not characteristic of an Coverdell education savings account?

Contributions are deductible.

You may claim both the Hope scholarship credit and the lifetime learning credit for the same year.

F

_____ is (are) a type of FSA.

Both health care and dependent care

Which of the following expenses on a home is (are) deductible annually?

Both interest paid on mortgage and property taxes

The _____ applies to employer-sponsored plans that give the employee a choice of selecting either cash or at least one qualifying nontaxable benefit.

cafeteria plan

Maxine Marshall received $24,000 in disability payments from an insurance policy she paid for. How much of the $24,000 is included in Maxine's gross income?

$0

Clark Hardwick (age 18) will be eligible to be claimed as a dependent on his parents' tax return. Clark must file a tax return of his own if he has any unearned income greater than

$1,700.

Taxpayers with taxable incomes up to _____ can use the IRS tax tables.

$100,000

A donation of old toys and clothes to the Salvation Army valued at $500 will save a single taxpayer in the 33 percent marginal tax bracket

$165 if he or she has other itemized deductions of at least $5,350.

Tony and Liz Montey both work for XYZ Corporation where Tony earns $32,000 and Liz earns $31,000. However, XYZ Corporation does not have a retirement plan for their employees. Tony and Liz have three-year old twin daughters named Trisha and Tasha. The following is their financial information for the current tax year: Gross income $63,000 Tony's IRA contribution $1,000 Liz's IRA contribution $2,000 Total itemized deductions $12,100 Child care expenses $6,500 Personal exemptions $3,400 each Standard deduction $10,700 Marginal tax rate 15 percent Reference: Ref 4-1 If Tony and Liz can take a $1,000 child tax credit for each child under the age of 17 as a dependent, how much will their child care expenses reduce their tax liability?

$2,000

As a professional financial planner, you contribute your expertise to your church by helping its with its investment decisions. Your contributions to the church for the year are$2,500 cash$4,500 value of your time based on your hourly rate$350 travel expenses using the standard mileage allowanceHow much of your contributions are deductible if you can itemize deductions?

$2,850

Which of the following is most valuable to a taxpayer for the tax savings it provides?

$200 dependent care credit

Tony and Liz Montey both work for XYZ Corporation where Tony earns $32,000 and Liz earns $31,000. However, XYZ Corporation does not have a retirement plan for their employees. Tony and Liz have three-year old twin daughters named Trisha and Tasha. The following is their financial information for the current tax year: Gross income $63,000 Tony's IRA contribution $1,000 Liz's IRA contribution $2,000 Total itemized deductions $12,100 Child care expenses $6,500 Personal exemptions $3,400 each Standard deduction $10,700 Marginal tax rate 15 percent Reference: Ref 4-1 How much will Tony and Liz save in taxes by itemizing deductions rather than by taking the standard deduction?

$210

Kerri and Jason Smith have an adjusted gross income of $55,000. During the year they incurred unreimbursed expenses of $500 on prescription drugs, $2,506 on doctor and dentist bills, $1,200 on health insurance premiums, and $150 on medical related transportation costs. Assuming they have enough total itemized deductions to itemize, how much will they be allowed to deduct for these unreimbursed medical expenses?

$231

The Fishers did very well on their investment choice. They earned $280 in dividend income from their stock investment this year. Later in the same year when they sold the stock, they realized a long-term capital gain of $2,984. How much of this dividend and capital gain income will they have to pay taxes on?

$3,264

Marc is a university student seeking a degree in international business. He has received a scholarship for $6,000. This income was used as follows: Tuition and fees $ 2,400 Room and board $ 3,600 How much of the $6,000 is included in gross income?

$3,600

Marla and Mike Zapata have the following eligible miscellaneous itemized deductions: Employee business expenses $1,670 Tax preparation fees $350 Job hunting expenses $2,946 They have an adjusted gross income of $63,000 and other itemized deductions of $8,580. How much of the above miscellaneous expenses can they add to their other itemized deductions?

$3,706

Sally McKrachen is a single young professional with a gross income of $41,000. Sally has no adjustments to gross income, but she does have itemized deductions totaling $4,375. If personal exemptions for the year are $3,400 each and the standard deduction is $5,350, what is Sally's taxable income?

$32,250

Tony and Liz Montey both work for XYZ Corporation where Tony earns $32,000 and Liz earns $31,000. However, XYZ Corporation does not have a retirement plan for their employees. Tony and Liz have three-year old twin daughters named Trisha and Tasha. The following is their financial information for the current tax year: Gross income $63,000 Tony's IRA contribution $1,000 Liz's IRA contribution $2,000 Total itemized deductions $12,100 Child care expenses $6,500 Personal exemptions $3,400 each Standard deduction $10,700 Marginal tax rate 15 percent Reference: Ref 4-1 What is Tony and Liz's taxable income before the dependent care credit and child care tax credit is deducted?

$34,300

You just sold your prize baseball card collection that you had worked on for the past ten years for a capital gain of $7,500. Assuming you are in the 15 percent marginal tax bracket, how much federal income tax will be due on this gain?

$375

Tony and Liz Montey both work for XYZ Corporation where Tony earns $32,000 and Liz earns $31,000. However, XYZ Corporation does not have a retirement plan for their employees. Tony and Liz have three-year old twin daughters named Trisha and Tasha. The following is their financial information for the current tax year: Gross income $63,000 Tony's IRA contribution $1,000 Liz's IRA contribution $2,000 Total itemized deductions $12,100 Child care expenses $6,500 Personal exemptions $3,400 each Standard deduction $10,700 Marginal tax rate 15 percent Reference: Ref 4-1 Approximately how much will Tony and Liz save in taxes as a result of their IRA contributions?

$450

Les Badway purchased mutual fund shares for $5,000 on October 1, 2008. He sold those shares for $6,300 on February 1, 2009. Assuming Les is in the 35 percent marginal tax bracket, how much federal income tax would he pay on this capital gain?

$455

If Andrea is single and a dependent on her parents' tax return, she will be required to file a tax return if her earned income is greater than _____ or she has unearned income greater than _____.

$5,350; $1,700

Mr. and Mrs. Phal are calculating their capital gains and losses for the year. They sold a piece of land they had purchased in the Southwest in 1994. After all expenses were figured in, they took a loss of $7,000. They also sold 100 shares of XYZ stock they had purchased the same year (1994). They realized capital gains of $1,500 on this transaction after commissions. After looking in their tax reference books, they have discovered that their net loss totals _____, and they will be able to deduct _____ this year against their other types of income.

$5,500; $3,000

Sandra Maxwell is a full-time student and her husband, Joel, is employed, so they take their young son, Sam, to a child care center during the day. They qualify for a 25 percent dependent care tax credit, and they are in the 15 percent marginal tax bracket. If the annual cost of the child care is $2,200, how much will it save Sandra and Joel on their income taxes?

$550

Melissa and Martin McArthur incurred the following interest expenditures: Home equity line of credit $4,700 Investment loan $840 Credit card debt $1,425 Higher education loan $460 How much will these expenditures add to their itemized deductions?

$6,000

Jeff is trying to decide whether to sell his baseball card collection. He has been offered $2,500 by a dealer who has agreed to pay Jeff this price now or in January of next year. This year Jeff is in the 28 percent marginal tax bracket, but next year Jeff expects to be in the 15 percent marginal tax bracket. Therefore, the estimated income tax liability on this $2,500 income would be _____ this year and _____ next year.

$700; $375

Anne and Jose Romero are in the 28 percent marginal federal tax bracket. Two years ago they purchased 100 shares of ABC stock for $28 per share, paying commissions of $75. Last week they sold this stock for $35 per share and paid commissions of $50. How much is their taxable capital gain on this investment?

$725

Irma and Dave Centeno have a $2,000 capital gain on stock they have owned 11 months. They are in the 28 percent marginal tax bracket. How much longer would they have to hold this stock to reduce the tax liability on this gain?

1 month and 1 day

Lucy and Max, ages 28 and 30, have earned income of $32,400 and adjustable gross income of $34,500. They spent $2,200 on child care for their young son so that they could both work part time and finish their college degrees. Which of the following tax credits could reduce their taxes?

Both dependent care credit and earned income credit

Adriana and Domingo, ages 26 and 27, have earned income of $20,000 and adjusted gross income of $22,000. Domingo is gainfully employed while Adriana is a homemaker. They spent $1,500 on child care for their two daughters. Which of the following tax credits could they use to reduce taxes?

Earned income credit

Which of the following persons is (are) practicing tax avoidance?

Employee who deducts qualifying job-related expenses

Which of the following taxes is progressive?

Federal income taxes

Qualifying contributions to personal retirement accounts are deducted as

adjustments to income.

A nonrefundable _____ credit of up to $11,390 is available for the qualifying costs of an adoption.

adoption

Investments are often made with

after-tax dollars.

Adjustments to gross income

are subtracted from gross income. help one qualify for other deductions. can be taken even if one takes the standard deduction. Correct Answer all of these.

The casualty or theft loss is difficult to qualify for because the loss must

be unreimbursed and exceed 10 percent of adjusted gross income plus $100.

The strategy of shifting the payment dates of deductible items is called

bunching deductions.

It is possible to deduct some types of transportation expenses with all of the following itemized deductions except

casualty losses.

Tony and Liz Montey both work for XYZ Corporation where Tony earns $32,000 and Liz earns $31,000. However, XYZ Corporation does not have a retirement plan for their employees. Tony and Liz have three-year old twin daughters named Trisha and Tasha. The following is their financial information for the current tax year: Gross income $63,000 Tony's IRA contribution $1,000 Liz's IRA contribution $2,000 Total itemized deductions $12,100 Child care expenses $6,500 Personal exemptions $3,400 each Standard deduction $10,700 Marginal tax rate 15 percent Reference: Ref 4-1 The _____ will provide Tony and Liz the most tax benefit from their child care expenses.

child tax credit

A way to defer income to later years is to

contribute to individual retirement accounts. postpone income. contribute to defined-contribution retirement plans. Correct answer all of these.

Interest penalties for early withdrawal of savings from certificates of deposit are

deductible as an adjustment to gross income.

A(n) _____ is an IRS-approved retirement plan sponsored by an employer to which employees may make pretax contributions that lower their tax liability.

defined-contribution retirement plan

Total itemized deductions must be _____ to reduce your tax liability.

greater than your standard deduction

To legally claim exempt from withholding, you must have

had no income tax liability last year and were entitled to a full refund of any tax withheld.

Your average tax rate

is less than your marginal tax rate.

Sal is a 27-year-old single taxpayer in the 28 percent marginal tax bracket. Assuming Sal's standard deduction is $5,350 and she has itemized deductions totaling $6,500, Sal should take the _____ for the additional tax savings of _____.

itemized deduction; $322

An extra benefit of a defined-contribution retirement plan is that most employers offer full or partial _____ to employees accounts.

matching contributions

Numerous job-related expenses can potentially be deducted from federal income taxes as _____ expenses.

miscellaneous

A tax that requires a higher-income person to pay a higher percentage of his or her income in taxes is called a _____ tax.

progressive

Singles with adjusted gross incomes of less than $26,000 and joint filers earning less than $52,000 can claim a nonrefundable _____ credit.

retirement savings contribution

There are now _____ marginal tax rates for federal income taxes.

six

You pay personal taxes on your _____ income.

taxable

Certain real estate losses are deductible against ordinary taxable income up to a limit of $25,000 when the

taxpayer has an adjusted gross income of $150,000 or less and the taxpayer actively participates in the management of the property.

Practically everything you receive in return for your work or services and any profit from the sale of assets is considered income, whether the compensation is paid in cash, property, or services. Listing these earnings will reveal your

total income.

The practice in which any unspent dollars in an account at the end of the year are forfeited and not returned to the employee is known as the

use-it-or-lose-it rule.

Tony and Liz Montey both work for XYZ Corporation where Tony earns $32,000 and Liz earns $31,000. However, XYZ Corporation does not have a retirement plan for their employees. Tony and Liz have three-year old twin daughters named Trisha and Tasha. The following is their financial information for the current tax year: Gross income $63,000 Tony's IRA contribution $1,000 Liz's IRA contribution $2,000 Total itemized deductions $12,100 Child care expenses $6,500 Personal exemptions $3,400 each Standard deduction $10,700 Marginal tax rate 15 percent Reference: Ref 4-1 What is the maximum number of personal exemptions Tony and Liz can take this year?

Four

You can file an amended tax return to obtain deserved refunds for the previous five years.

F

Section 529 college savings plans are state-sponsored.

T

State sales tax is an example of a regressive tax.

T

Tax credits can be taken both by taxpayers who itemize deductions and by those who don't itemize.

T

Tax deferral with a traditional IRA allows investment income to grow without being taxed until it is withdrawn.

T

Tax losses are "paper losses."

T

Tax losses are created when deductions generated from an investment (such as depreciation and net investment losses) exceed the income from an investment.

T

Taxes are compulsory charges imposed by a government on its citizens and their property.

T

Taxpayers are required to pay taxes during the year through either payroll withholding or estimated taxes.

T

Taxpayers may claim both the child tax credit and the dependent care tax credit in the same year.

T

The IRS requires receipts for cash contributions of $250 or more.

T

The IRS says you must do what a "reasonable business person" would do to make a profit when running your own business.

T

The Internal Revenue Service is the agency that collects federal income taxes.

T

The amount of income tax withheld can be found on one's W-2 form.

T

The amount of the standard deduction depends on one's filing status.

T

The highest marginal tax rate is currently 35 percent.

T

The key to reducing one's tax liability is to reduce taxable income.

T

The marginal tax rate may be the single most important concept in personal finance.

T

The objective in effective tax management is to legally reduce gross income to the lowest possible taxable income.

T

The tax break for losses from passive investments begins to phase out for taxpayers with adjusted gross incomes of $100,000 and above.

T

There are some cases when you should file a federal income tax return even if you are not legally required to do so.

T

To qualify for the earned income credit, taxpayers must have earned income.

T

Typically, a tax shelter defers taxes until a later date rather than avoiding taxes forever.

T

Union or professional dues qualify as a miscellaneous itemized deduction.

T

Adjusted gross income is not a factor in calculating which of the following itemized deductions?

Taxes

Tony and Liz Montey both work for XYZ Corporation where Tony earns $32,000 and Liz earns $31,000. However, XYZ Corporation does not have a retirement plan for their employees. Tony and Liz have three-year old twin daughters named Trisha and Tasha. The following is their financial information for the current tax year: Gross income $63,000 Tony's IRA contribution $1,000 Liz's IRA contribution $2,000 Total itemized deductions $12,100 Child care expenses $6,500 Personal exemptions $3,400 each Standard deduction $10,700 Marginal tax rate 15 percent Reference: Ref 4-1 Tony and Liz have just inherited $25,000. Which of the following statements is true?

The $25,000 is an exclusion for federal income taxes.

Which of the following is (are) deductible for federal income tax purposes?

Real estate property taxes

Which of the following is not a way of reducing taxable income?

Reducing deductions

One must file a tax return to receive a deserved earned income credit.

T

Personal income taxes are paid only on your taxable income.

T

Postponing income can achieve the same result as bunching deductions.

T

A person who is claimed as a dependent on someone else's tax return can claim _____ exemption(s) and at least a _____ standard deduction on his or her own tax return.

0; $5,350

Publication 17 is a book put out by the IRS that is an important source of tax preparation information.

T

Which of the following sources of income associated with divorce is (are) reported as part of gross taxable income?

Alimony

You are legally required to include which of the following in gross income?

Alimony received Lottery winnings Illegal income Correct Answer All of these

Which of the following would be considered smart financial planning?

Contribute to your employer-sponsored 401(k) retirement plan at least up to the amount of the employer's matching contribution.

When income, dividends, profits, or capital gains are tax deferred, the investor pays the current-year tax liability.

F

A regressive tax is one that demands a higher percentage of a person's income as income increases.

F

A taxpayer can claim a personal exemption for any person he or she provides over 50 percent of support during the tax year.

F

A taxpayer must purchase replacement property to avoid paying taxes on capital gains on the sale of his or her home.

F

A taxpayer whose itemized deductions were less than his or her standard deduction would benefit by itemizing deductions.

F

Adjustments are called below-the-line deductions because they may be subtracted from gross income regardless of whether the taxpayer itemizes deductions or takes the standard deduction amount.

F

Adjustments to gross income are permitted only if you itemize deductions.

F

All of a taxpayer's income is subject to federal income taxes.

F

All of the income received from Social Security benefits is included in gross income.

F

Because of their tax-exempt status, municipal bonds offer higher nominal returns than taxable alternatives.

F

Both alimony received and child support received are considered part of gross income.

F

Claiming exempt from withholding will stop withholding for both income and Social Security taxes.

F

Contributions to a Roth IRA and a Coverdell education savings account are tax-deductible and earnings accumulate tax-free.

F

Elderly disabled tax credit is also known as a saver's tax credit.

F

For a mortgage interest tax credit, the home must not cost more than 95 to 105 percent of the average area purchase price.

F

Gross income is defined as all income received in the form of money.

F

Homeowners with appreciated principal residences can avoid tax on gains of up to $500,000 if married and filing jointly and up to $250,000 if single. The home must have been owned and used as the taxpayer's private residence for two out of the last three years prior to the date of sale.

F

If one can itemize deductions, all of his or her qualifying unreimbursed medical expenses will be deductible.

F

If you have a tax refund coming, the IRS will automatically send the refund to you.

F

Interest income is reported to the recipient on a W-2 form.

F

Interest paid on automobile loans is partially deductible as an itemized deduction (for those who can itemize).

F

It is illegal to prepay the next year's professional association dues and take the deduction this year.

F

Life insurance benefits received are taxable income.

F

Most tax shelters are methods permitting an investor to avoid taxes forever.

F

Other factors being equal, tax-sheltered income is preferable to tax-free income.

F

Overwithholding occurs when employees have their employers withhold more in estimated taxes than the tax liability ultimately due the government, and this is a recommended technique for saving money.

F

Tax avoidance is illegal whereas tax evasion is legal.

F

Tax-exempt income is most valuable to low-income taxpayers.

F

The IRS disallows expenses for business-related trips.

F

The burden of proof concerning numerical accuracy of a return is on the IRS, not the taxpayer.

F

The full market value of any lost property can be deducted as a casualty or theft loss when the loss results from a sudden, unexpected, or unusual event.

F

The income of children over 18 years of age is taxed at the parents' marginal tax rate.

F

The kiddie tax applies to children under the age of 14 and means that the child's income is taxed at their parents' marginal tax rate.

F

The lifetime learning credit may be claimed for tuition and related expenses only for the first two years of postsecondary school.

F

The most popular defined-contribution plan is the Roth IRA.

F

The rule for tax-related records is, "When in doubt, throw it out."

F

The tax rate paid on your last dollar of income is called the average tax rate.

F

To claim an earned income credit, one must have a child.

F

When a taxpayer overwithholds, the IRS will refund the overpayment plus interest.

F

Which of the following deductible expenses can be prepaid for tax purposes?

Personal property taxes Charitable contributions Medical expenses Correct answer All of these

Which of the following job-related apparel is most likely to qualify as a deductible expense?

Safety goggles for a welder

Which of the following is an example of earned income?

Self-employment income

Which of the following types of deductions cannot be taken by a taxpayer if he or she itemizes deductions?

Standard deduction

A U.S. taxpayer can take a personal exemption for a person who is a legal resident of Canada assuming the person meets all the other dependency tests.

T

A flexible spending arrangement is also known as an expense reimbursement account.

T

A long-term capital gain (or loss) occurs when the asset is held for over one year.

T

A method of forced savings practiced by over half of all taxpayers is tax overwithholding.

T

For taxpayers who are not dependents, the value of personal exemption(s) plus the appropriate standard deduction determines if they must file a return.

T

Form 1040-X must be used to obtain a refund when correcting any tax filing mistakes.

T

Homeowners with appreciated principal residences can avoid tax on gains of up to $500,000 if married and filing jointly and up to $250,000 if single. The home must have been owned and used as the taxpayer's private residence for two out of the last five years prior to the date of sale.

T

Individuals who are age 65 and older or are permanently and totally disabled may claim a nonrefundable federal tax credit.

T

Numerous employer-provided fringe benefits are not included in gross income.

T

Which is not an example of unearned income?

Tips

_____ cannot be deducted as an adjustment to income.

Travel expenses (for more than 300 miles)