HDFS 2483 --- CHAPTER 9,10,11
True or false: If you itemize your deductions, you can deduct contributions made to charities and amounts paid for real estate taxes.
true
Which of the following are ADJUSTMENTS to gross income?
- IRA contributions - Penalties for early withdrawal of savings - Keogh Plans
Which of the following are part of the requirements of a dependent?
- The dependent must be under 19 year old unless a full-time student. - The dependent must be under 24 year old if a full-time student. - The dependent must reside in your home or be specified relative and meet citizenship requirements. - You provide more than 50% of the dependent's support.
Several incentives exist to reduce premium costs on home owner's policies including:
-installing smoke detectors and fire extinguishers -installing security alarm systems -Maintaining a good credit rating
The majority of people who draw on Medicare are _______ years of age or older.
65
The rule of thumb on how much life insurance to have is between ______ and ______ times your annual salary.
7 and 10
What might a person who is uninsured experience during times of illness and injury?
A financial burden
Medicare Part ___ covers many doctors' services and other health services not covered by Part A.
B
Select the types of investments for Tier III (high-risk, high-potential return) from below:
Commodities Futures
Which of the following best defines home owner's insurance?
Coverage for your residence and the associated financial risks
Managed care is offered by which of the following?
Health maintenance organizations Preferred provider organizations Point-of-service plans
When in the independent life stage of investing, a ________ is a recommended way to save for retirement.
Roth IRA
The highest insurance rates are levied on sports cars, muscle cars, and _____ vehicles.
sport utility
Medicaid is funded by:
state and federal funds
Medicaid is administered by ______ but is funded by a combination of state and _____ funds
states; federal
In targeted and automatic asset-allocation mutual funds, as one gets closer to retirement the account shifts the asset allocation from ______ to _______.
stocks to bonds
Term life insurance is:
temporary insurance
Liability auto insurance protects you against financial loss when you damage:
the property of others
The amount of homeowner's insurance should cover
the value of the house
According to the text, homeowner's insurance covers the dwelling, personal property, and loss of use.
true
Health insurance is one way people protect themselves against economic losses due to illness, accident, or disability.
true
Market risk is the fluctuation of stock and bond prices due to the behaviors of investors in the marketplace.
true
True or false: A household inventory is a list or other documentation of personal belongings with purchase dates and cost information.
true
True or false: Adjusted gross income is gross income reduced for such things as IRA contributions and alimony payments.
true
True or false: Income tax is calculated on adjusted gross income less deductions and exemptions.
true
True or false: Interest rate risk is the result of changes in the interest rates in the economy.
true
True or false: Life insurance is one of a few ways to provide income.
true
True or false: W-2, W-2P, and 1099 forms make up the proof of income documents for a taxpayer.
true
True or false: When setting aside money in saving instruments, you are setting aside funds in a secure, no-risk instrument.
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
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
Salary and wages are reported on:
w-2 forms
Tax-deferred means that your income is taxed ________
when funds are withdrawn
A plan where the policyholder pays the same premium for as long as they live is called a(n):
whole life policy
If you are a young married couple with no children, you will most likely choose investments:
with higher risks
The amount of money or the value of property that can be gifted each year without being subject to federal gift taxes is:
$14,000 per year per person
What is an advantage of enrolling in an employer-sponsored 401(k) plan?
- It is easier to save when your paycheck can be deposited directly into a retirement account. - You can give pre-tax dollars to a 401(k) plan, helping reduce your tax bill. - Many employers match contributions to the retirement plan.
Which of the following would still be allowed if you wanted to use Form 1040A?
- You earn less than $100,000 in salary, interest and dividends. - You can take a tax credit for child care. - You can claim a deduction for an IRA contribution.
Which of the following statements is NOT true?
You have 30 days from the date coverage ends to elect COBRA
Which of the following does not provide an exemption on your tax return?
Your 26 year old daughter who is a full time college student
Which of the following is subject to real estate property taxes?
Your house
Which of the following would disqualify someone from being your dependent?
Your son is 21, works full time and lives on his own
The tax rate on your next dollar of taxable income is called:
a marginal tax rate
The tax rate that is used to calculate the tax on the last (or next) dollar of taxable income is
a marginal tax rate
A tax _____ directly reduces taxes owed.
credit
If interest rates increase, the value of a bond will ______
decrease
A tax ______ reduces taxable income, thereby reducing the tax liability.
deduction
People who claim large or unusual ______ increase their odds of getting audited.
deductions
You calculate taxable income by reducing gross income by adjustments, exemptions, and ______
deductions
The risk that the company you are investing in might go under is called:
default risk
Qualifying widow or widower status is for an individual whose spouse has ______ within the past ____ years and who has a dependent. This is taken directly from the text.
died; 2
The potential return on an investment should be:
directly related to the risk assumed
_______ income insurance protects your most valuable asset: your ability to earn money.
disability
Salary is an example of ______ income.
earned
Health insurance coverage is available from:
employers government programs health maintenance organizations private insurance
A tax imposed on the value of a person's property upon that person's death is called a(n):
estate tax
True or false: A tax deduction reduces tax liability directly, dollar for dollar.
false
True or false: A tax-exempt investment generates income to be taxed in later years while a tax-deferred investment produces tax-free income.
false
True or false: Health insurance coverage is only available from private insurance companies.
false
True or false: Insurance for your home should cover the amount you paid for the home.
false: It should cover the cost of rebuilding or repair, not the purchase price.
True or false: Disability insurance allows you to receive your full income plus premiums in the event of becoming disabled.
false; Typically, disability policies will replace 50-70% of your income.
An insurance policy requires the payment of an annual _____ as part of a contract to cover the risk.
fee
Similar to car and life insurance, the individual pays a(n) ____ for health insurance in exchange for some degree of financial assurance.
fee
A health insurance plan that provides a wide range of health care services for a fixed prepaid monthly premium is called a:
health maintenance organization (HMO)
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%
Disability insurance provides payments to replace ______ when an insured person is unable to work
income
One of the many uses of life insurance proceeds is to replace _______ for your family and other debts at the time of death
income
As construction costs rise, you should ________ (increase/decrease) the amount of insurance coverage
increase
An example of tax-exempt income is the interest from most _____ bonds while an example of tax-deferred income is earnings on an IRA.
municipal (state)
Term life insurance provides protection for a specific ______ of time.
period
Inflation is the overall increase in the ______ of goods and services over time.
price
Real estate ______ taxes are based on the value of land and buildings.
property
The major categories of taxes are taxes on ______, property, wealth, and earnings.
purchases
The buying power of a consumer will be reduced if
rate of return is less than inflation
The purpose of the W-2 is to:
report annual earnings and amounts paid in taxes
The difference between the risk-free rate of return and the expected yield of an investment that involves risk is called the _______ ________.
risk premium
Permanent life policies provide a death benefit and a(n) _____ account.
savings
"Safe" investments include:
select mutual funds certificates of deposit government bonds
Which of the following are examples of earned income?
Salary Wages Commissions
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%
Preferred provider organizations are more popular than health maintenance organizations because of which of the following factors?
Choice of physicians Greater flexibility
Which part of Medicare covers prescription drugs?
D
Which insurance provides payments to replace income when an insured person is unable to work for a long period of time?
Disability income insurance
Which of the following is not a deductible tax?
Excise tax
True or false: Anyone can file as single status.
False
True or false: Social Security taxes are calculated based on the value of your property to fund retirement benefits, while income taxes are imposed on wages.
False
Which of the following might trigger alternative minimum tax?
High tax deduction for local taxes High tax deductions for state taxes Significant amount of second mortgage interest
With an HMO you must stay within one network of doctors, yet with a(n) ______ you can choose your own doctor.
PPO
True or false: The amount you can recover with collision insurance is limited to the wholesale value of your vehicle.
false - Coverage is limited to the retail value of the vehicle.
Contributions to a traditional 401(k) are made on a ______ basis.
pretax
Which of the following is NOT a factor in determining the percentage of your investments that should be invested in each asset class?
Your income
A tax _____ will usually reduce taxes more than tax deductions.
credit
In the independent life stage of investing, the two most important savings goals should include your _______ and _______ .
education and retirement
One advantage of investments over savings is the ability to earn a return that can ________ inflation
exceed
Permanent policies are good for people who must be forced to save and for those who plan to keep the policy for a(n) _______ period of time
extended
True or false: A marginal tax rate is found by dividing the amount of taxes owed by the taxable income.
false
The contract that is purchased by the insured person when joining a risk-sharing group is known as
policy
The one who purchases a insurance policy so that risk can be shared with the insurer is called
policyholder
Adjusted gross income is gross income ______ by IRA contributions, alimony, and other adjustments
reduced
The base of the investment pyramid is ___________.
savings
Cash, CDs, government bonds, and money market mutual funds have very low risk, are all considered very ______ investments and are on level one of the investment pyramid.
secure
True or false: Although anyone can use Form 1040, you must use it if you itemize your deductions.
true
True or false: An exemption is a reduction in taxable income for you, your spouse, and dependents while a standard or itemized deduction is allowed for specific expenses and contributions you make.
true
True or false: Your driver classification is one of the main factors that affects the premium for your vehicle insurance.
true
______ life insurance allows you to change your premium without changing your coverage.
universal
Ben is a father of three children who is concerned about his future career with his company. His investment choices will most likely be:
conservative, less risky
Universal life is similar to whole life insurance, except it does not have a _______ ______return.
guaranteed minimum return
Which of the following accurately describes the split limits of 100/300/100 with bodily injury liability for automobile insurance?
$100,000 limit claim for one person, $300,000 limit for all persons, $100,000 for personal property
A _____ is a collection of investments
portfolio
Life insurance proceeds can be used wisely to:
- pay off home mortgage or debts - provide education or income for children - establish regular income for survivors
Part ____ of Medicare covers all services for inpatient hospital care after you pay a single deductible.
A
Cash value is the amount the policy holder _____ after giving up a life insurance policy
receives
Your household inventory can include
video recording or photos
Which is true regarding tax-deferred investments:
- Taxes are not paid until funds are withdrawn. - It's possible to pay taxes in a lower tax bracket. - Ideally, you withdrawal your tax-defered funds when you are retired.
Health insurance is a form of ________to alleviate the financial burden individuals suffer from illness or injury.
protection
A point-of-service plan is a network of selected contracted participating ______
providers
A whole life policy that combines term insurance and investment elements is called:
universal life
The main factors that influence premiums for automobile insurance are:
vehicle type, rating territory, and driver classification
Which type of investments should be included in Tier I - low risk, low return investments?
High-grade corporate bonds Money market accounts
You must file form 1040 if you (this is taken directly from the text):
have more than $100,000 of income
As the riskiness of an investment increases, the risk premium:
increases
A health insurance plan should be coordinated to the needs of the:
individual
A household ____ is a list or other documentation of personal belongings, with purchase dates and cost information.
inventory
Fluctuation of prices of securities due to the behaviors of investors in the marketplace is known as:
market risk
Real estate taxes and ______ are tax deductible by the homeowner.
mortgage interest
Interest income from ______ bonds issued by state and local governments is not subject to federal tax.
municipal
True or false: A permanent life insurance policy provides both insurance and a savings account.
true
You invest $10,000 today in hopes of purchasing a computer system and gain 3.5% on your investment. At the same time inflation rises 4% over the same time period. It will cost you an additional ______ to purchase the same goods.
$50 Reason: If inflation is 4% on computers, the computer system will cost you $10,400 in one year. You've gained $350 on your investments ($10,000 X 0.035), so your account only has $10,350. You will need to pay the additional $50.
Permanent policies are good for people who:
plan to keep the policy long term. want a more structured way to save.
A group of doctors and hospitals that agree to provide health care at to members at prearranged, reduced fees is called:
preferred provider organization
Which of the following expenses can be itemized on your taxes?
real estate taxes home mortgage interest charitable contributions
A preferred provider organization (PPO) is a group of doctors and hospitals that agree to provide health care to members at ______ fees
reduced
True or false: Any time you invest in stocks, corporate bonds, and mutual funds that invest in stocks, you assume default or credit risk.
true
True or false: Casualty and theft deductions are allowed for financial losses resulting from natural disasters, accidents, or unlawful acts.
true
high risk =
high potential return
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 statements are true about software and taxes?
- Software packages such as H&R Block At Home and Turbo tax help users prepare and file returns. - 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.
Which of the following are conditions of using the 1040EZ form?
- The filer must be single or married filing joint return and claim no dependents - Taxable income must be less than $100,000. - Income can only consist of wages, salaries, and tips and not more than $1,500 of taxable interest.
True or false: Comprehensive physical damage insurance for your car covers damage to your vehicle if you are at fault in an accident with another vehicle.
false - Collision insurance covers your vehicle if you are at fault in an accident.
Which of the following is NOT a document that comprises an individual's income records?
1040
For job related expenses to be deductible, they must exceed ______ of adjusted gross income.
2%
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
You can lower the amount you pay in income taxes by having which of the following:
IRA cafeteria plan 401k 403b
Which of the following is an adjustment to income rather than an itemized deduction?
IRA contributions
What are some ways of reducing premiums on automobile insurance?
Installing security devices Completing driver training Comparison shopping for automobile insurance Maintaining a safe driving record
_____ is the process of paying a premium in exchange for financial protection.
Insurance
What type of risk associated with preferred stocks or government or corporate bonds is the result of changes in the interest rates of the economy?
Interest rate risk
Which of the following should be considered for Tier II (intermediate-risk, intermediate-return) investments:
Real estate Blue-chip stocks Money market accounts
Which of the following best describes the purpose of the alternative minimum tax?
It is to assure that people who receive tax breaks pay a fair share of taxes.
Which type of insurance provides liquidity at the time of death?
Life insurance
What program was designed to provide medical assistance to low-income individuals and families?
Medicaid; Medicare is for the elderly and the disabled.
Which part of Medicare helps pay for doctors' services and a variety of other health services and supplies?
Medical (Part B)
_____was designed to provide medical assistance normally to low-income families and individuals who are eligible to receive payments under one of the cash assistance programs.
Medicare
______policies make up the difference between Medicare payments and medical costs not covered by providing supplemental insurance that can be purchased.
Medigap
Which insurance supplements Medicare by filling the difference between Medicare payments and medical costs not covered by Medicare?
Medigap insurance
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.
______ work like HMOs, except the networks are managed by groups of doctors and hospitals.
PPOs
Which of the following are the filing status categories for federal income tax purposes?
Single Married, filing joint return Married, filing separate return Qualifying widow or widower Head of household
Which of the following are covered by a home owner's policy?
Sometimes other structures Personal property House
Which of the following taxes are deductible for the person/family paying them?
State income taxes Real estate property taxes
Choosing a health insurance plan requires which of the following?
Study Comparison shopping
Which of the following are categories of taxes?
Taxes on wealth Taxes on purchases Taxes on property Taxes on earnings
At any given age you purchase life insurance, which type of policy will have the lowest premium?
Term
Which Tier group should you have the smallest percentage invested?
Tier II - high risk
Married, filing separate returns require that each spouse is responsible for his or her own income tax.
True
True or false: Income tax is paid during the year through withholding from paychecks and/or estimated payments.
True
Identify the policy that supplements your basic personal liability coverage and provides protection for all kinds of personal injury claims?
Umbrella policy
Disability income insurance protects your most valuable asset. which is your:
ability to earn income
An umbrella policy will cover the insured for:
additional personal liability coverage
The person named in a life insurance policy to receive benefits from the insurance company is called a:
beneficiary
Comprehensive insurance for your car covers any damage to your car from such risks as fire, theft, falling objects, and hitting an animal but not the result of a(n) ______ accident.
car
The amount received after giving up a whole life type of insurance policy is called the:
cash value
Medical costs, taxes, and interest are all examples of _____ deductions that are subtracted from adjusted gross income.
itemized
The two main categories of automobile coverage are:
liability full coverage
Investments that take longer to cash out are subject to what kind of risk?
liquidity risk
The risk of not being able to cash out an investment quickly enough to meet cash flow needs or to prevent a loss is called _______ risk
liquidity risk
low risk =
low return
The amount you can collect with collision insurance is limited to the actual ____ value of the automobile at the time of the accident.
market
medium risk =
medium potential return
A rise in the general level of prices is called:
inflation
Insurance is a protection against possible _______ loss, and provides protection against many ________
financial, risks
Your insurance protection for your home should be based on the amount needed to _____ or repair your house and not the amount you originally _____ for the home.
fix; paid
A health maintenance organization (HMO) is a health insurance plan that provides a wide range of health care services for a(n) ________ monthly premium.
fixed prepaid
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.
A universal life does not have a ____ minimum return
guaranteed
Which of the following statements regarding asset allocation is not true?
Age and the time factor have little to do with asset allocation
The purpose of managed care is to control __________ __________ costs and improve the methods used to select health care providers.
health care
Point-of-service plans (POS) are different from health maintenance organizations (HMO) in that they reimburse expenses for out-of-plan providers, but outside the network there are _____ overall costs.
higher
True or false: Completing driver training and maintaining a safe driving record will help reduce your automobile insurance premiums.
true