Unit 1 Financial Management

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

True

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

Pay the third installment of estimated taxes.

True or false: Married, filing separate returns require that each spouse is responsible for his or her own income tax.

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

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

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

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

taxes

The second installment for estimated tax is due by June

15

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.

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

15, 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:

7 years

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

File your federal tax return or file for an extension.

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 of the following is a difference between a traditional IRA and a Roth IRA?

The initial contribution to a Roth IRA is not tax deductible.

True or false: Many taxpayers view an annual tax refund as a "windfall," extra money they can count on each year.

True

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

True or false: A marginal tax rate is found by dividing the amount of taxes owed by taxable income.

False

True or false: Only cash contributions to qualified charitable organizations are deductible.

False

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.

A premature withdrawal from a traditional IRA will result in taxable income and a penalty of______% of the withdrawn amount.

10

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

1040X

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.

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

Pay the second installment of estimated taxes.

Select all the accurate observations below about different types of audits.

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. The simplest audit is a correspondence audit.

Which of the following is a tax-deferred investment?

a retirement plan

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

capital gain

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

capital gain

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

an indefinite period

Which of the following taxes are deductible?

real estate property tax, state income tax

If you get a large tax refund, it is wise to:

save it for retirement. change your withholding amount. pay off credit cards.

For calculating your total tax due, your taxable income is to be used in conjunction with either tax tables or tax rate

schedules

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

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

universities

You calculate taxable income by reducing gross income by adjustments, exemptions, and standard or ______ deductions.

itemized

The tax rate that is used to calculate the tax on the last (or next) dollar of taxable income is

marginal tax rate

One way to reduce your tax liability is to:

maximize contributions to tax-deferred retirement programs.

Interest income from ________bonds, which are issued by state and local governments, is not subject to federal income taxes.

municipal

Taxpayers pay income taxes through:

payroll withholding and through estimated tax payments.

The purpose of the W-2 is to:

report, document annual earnings and amounts paid in taxes.

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

HSAs

_______ 15 is the due date for the third installment for estimated tax.

September

As of 2021, the IRA contribution limit was

$6,000

Taxable income is calculated as salaries minus adjustments, such as IRA contributions, Keogh retirement plan contributions, and alimony.

false

State and local income taxes are deductible for:

federal tax purposes.

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.

Investment interest expense is deductible up to

an amount equal to investment income

On filing Form 4868, you can Blank______ 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

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

Which of the following types of interest expense is not deductible?

automobile loan interest

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

avoidance, evasion

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

avoidance, evasion

A premature withdrawal from an IRA may be subject to a tax penalty. What is the age considered "premature"?

before age 59 1/2

The simplest type of IRS audit is the ___________ audit. This is a one-word answer.

correspondence

A tax _____ is directly subtracted from taxes owed. This is a one-word answer.

credit

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

itemized

A tax planning activity for February would be to check to see if you have received all of your W-2 forms (salary and wages) and all of your _________ forms (interest and dividends) so you can begin to organize and prepare your income tax return.

1099

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.

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

qualifying widow or widower head of household single married, filing joint return married, filing separate return

For calculating your total tax due, your taxable income is to be used in conjunction with either tax tables or tax rate _______.

schedules

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

spreadsheet program

When calculating total tax due,______ are subtracted.

tax credits

Which of the following tax activities should be completed in February?

Check to make sure you received all forms to complete your tax return.

Charitable contributions greater than ______ % of adjusted gross income are subject to limitations on deductibility.

20

You calculate taxable income by reducing gross income by adjustments, exemptions, and standard or _____ deductions

itemized

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

Which of the following are tax-deferred investments? life insurance proceeds Section 529 savings plans municipal bond tax-deferred annuities Keogh IRA

Section 529 savings plans tax-deferred annuities Keogh IRA