Finance: Chapter 4 Smartbook

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

Value

Tax _____ means using legitimate strategies to reduce taxes, while tax _____ involves using illegal means to lower tax liability.

Avoidance; Evasion

As of 2021, the IRA contribution limit was ______.

$6,000

If you want to amend (change) a previous return, you would need to file a ______ form.

1040X

Which of the following statements are true about software and taxes?

A spreadsheet program can help you keep track of income and expenses as the year plays out A spreadsheet program such as MS Excel can help you with your tax planning Software packages such as H&R Block At Home and TurboTax help users prepare and file returns

Which of the following is a tax avoidance strategy?

Accelerate deductions to save taxes this year Delay the receipt of income because you want to delay the payment of taxes until next year

When a stock is sold at a higher price than that for which it was purchased, it is called a ______.

Capital gain

The positive difference between the purchase price of a stock and its sale price is called __________

Capital gains

The simplest type of IRS audit is the _______ audit.

Correspondence

A tax ______ is directly subtracted from taxes owed.

Credit

A tax ______ is an amount subtracted from adjusted gross income to arrive at taxable income

Deduction

A tax imposed on the value of a person's property upon that person's death is called a(n):

Estate tax

State and local income taxes are deductible for:

Federal tax purposes

Two possible tax planning activities for April are filing the tax return by April _____, and, if necessary, filing for an automatic six-month _______.

Fifteenth; Extension

If you find that you have income or deductions that you did not report on your tax return, you should:

File a 1040X to amend the return

Which of the following tax activities must be completed by April 15?

File your federal tax return or file for an extension

Generally, you should keep your tax records for at least three years after filing your return. However, you may be held responsible for providing back documentation:

For up to seven years

What are tax-free savings accounts into which people with high-deductible health insurance plans can place funds each year called?

HSAs

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

Income

On average, the portion of a person's earnings that goes to taxes is ______.

One third

Qualifying widow or widower status is for an individual whose spouse has ______ within the past _______ years and who has a dependent. This is found in the discussion of who must file.

Passed; Two

Which of the following items are included in gross income?

Salaries Wages Commissions Interest

Health ______ accounts are designed to promote personal saving out of which workers can pay routine health care expenses while working and can pay for Medicare copayments and deductibles later, during retirement.

Savings

A(n) ______ can be helpful in maintaining and updating income and expense data.

Spreadsheet program

Which of the following taxes are deductible?

State income taxes Real estate property taxes

CPAs and enrolled agents both offer tax services including return preparation, while a(n) ______ will represent you in the case of an IRS lawsuit.

Tax attorney

Taking advantage of tax credits, deferring capital gains and accelerating capital losses, and considering tax-exempt investments are all strategies to lower income ________

Taxes

You filed a Form 4868 and received a six-month extension on your taxes for 2018. Which of the following is true?

The filing will not postpone your payment liability, so you must pay your estimated payment liability by April 15, 2019.

Target your tax planning efforts toward paying your fair share of taxes while taking advantage of tax benefits appropriate to your personal and financial situation.

True

True or false: A filing system stores records that help provide proof of payment of charitable expenses, medical expenses, and other itemized deductions.

True

True or false: A tax credit is an amount subtracted directly from taxes owed.

True

True or false: Adjusted gross income is gross income reduced for such things as IRA contributions and alimony payments (if deductible).

True

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 and estimated quarterly payments

Real estate property taxes are a major source of revenue for ______.

Local governments

Taxpayers pay income taxes through:

Payroll withholding and through estimated tax payments

One way to reduce your tax liability is to:

Maximize contributions to tax-deferred retirement programs

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

True

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

True

True or false: The contribution limit for an IRA (as of 2021) is $6,000 for workers under the age of 50.

True

True or false: There are five filing statuses for your tax return, and they are affected by marital status and number of dependents.

True

Which of the following do not offer for-profit tax services?

Universities

True or false: Travel expenses can be documented in a daily log with records of mileage, tolls, parking fees, and lodging costs.

True

Financial planners recommend that copies of home ownership documents should be kept for:

An indefinite period

On filing Form 4868, you can ______ a six-month extension on filing an income tax return by filing the proper forms with the IRS before the April 15 filing deadline.

Automatically receive

The two main taxes on salary are income taxes and estate taxes.

False

True or false: Income includes only those earnings that you are actively involved in earning, such as salaries and income from managing a business.

False

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

Itemized

Real estate ______ taxes are based on the value of land and buildings.

Property

Adjusted gross income is gross income ______ by IRA contributions, alimony, and other adjustments.

Reduced

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