Ch. 4
Common types of tax credits include: (Select the best answer below.) A. reimbursements of moving expenses and real estate taxes. B. adoption credits and reimbursements of moving expenses. C. earned income credits and adoption credits. D. earned income credits and reimbursements of moving expenses.
c.
It is important to understand the tax consequences of your financial decisions because it can help you: (Select the best answer below.) A. to minimize your tax liability and ultimately increase your level of wealth. B. increase your income. C. to minimize your tax liability and ultimately increase your income. D. become a tax advisor.
a.
The Affordable Care Act of 2010 affects tax filing by: (Select the best answer below.) A. requiring everyone to report their medical coverage status and the coverage status of all dependents on Tax Form 1040. Your answer is correct.B. requiring everyone to report their medical bills and the medical bills of all dependents on Tax Form 1040. C. requiring everyone to report their medical coverage status, but not the coverage status of all dependents on Tax Form 1040. D. requiring everyone to report their marital status and the marital status of all dependents on Tax Form 1040.
a.
Itemized deductions are: (Select the best answer below.) A. general expenses that can be deducted to reduce taxable income. B. specific expenses that can be deducted to reduce taxable income. C. specific expenses that can be added to the exemptions. D. general expenses that can be added to the exemptions.
b.
Capital gains occur when individuals: (Select the best answer below.) A. buy a house and it increases in value. B. purchase capital equipment and use it to earn profit. C. purchase financial assets and then sell them for a gain. D. experience any increase in the value of an asset.
c.
The five filing statuses are:
1. head of household: single but providing care for a dependent 2. married filing separately: married and filing different returns 3. single: not married 4. qualifying widow or widower: lost spouse and caring for a dependent child 5. married filing jointly: married and filing on the same return
A Coverdell Savings Account is: (Select the best answer below.) A. an account that can be used for qualified education expenses. B. an account that can be used for qualified medical expenses. C. an account that can be used for any education expenses. D. an account that can be used for qualified business expenses.
a.
A tax deduction: (Select the best answer below.) A. reduces the amount of taxable income. B. depends on the tax rate. C. is based on income. D. directly reduces the amount of tax owed.
a.
According to the IRS, gross income is all reportable income from any source including: (Select the best answer below.) A. capital gains, salaries, and dividend income. B. capital gains, veteran's benefits, and dividend income. C. capital gains, salaries, and welfare benefits. D. reimbursements of moving expenses, veteran's benefits, and welfare benefits.
a.
An exemption is permitted for: (Select the best answer below.) A. each person who is supported by the income listed on a tax return. B. the dependents of the person filing the tax return. C. the person filing the tax return. D. the dependents of the person filing the tax return if those dependents have income.
a.
Form 1040 EZ is typically filed by: (Select the best answer below.) A. taxpayers who are single or married filing jointly with no dependents and taxable income of $ 100 comma 000 or less. B. taxpayers who are single or married filing jointly with dependents and taxable income of more than $ 100 comma 000. C. taxpayers who are married filing jointly and have no dependents. D. taxpayers who are single and have dependents.
a.
Some recent examples of targeted tax relief include: (Select the best answer below.) A. provisions for hurricane victims, first-time homebuyers, and a one-time reduction in the Social Security tax withholding rate in 2011-2012 designed to stimulate economic growth. B. provisions for hurricane victims, all homebuyers, and a one-time reduction in the Social Security tax withholding rate in 2011-2012 designed to stimulate economic growth. C. provisions for snowstorm victims, first-time homebuyers, and a one-time reduction in the Social Security tax withholding rate in 2011-2012 designed to stimulate economic growth. D. provisions for hurricane victims, first-time homebuyers, and a lifetime reduction in the Social Security tax withholding rate to stimulate economic growth.
a.
Some types of payments that you might receive that would not be included in gross income are: (Select the best answer below.) A. health and casualty insurance reimbursements, welfare benefits, and veteran's benefits. B. dividend income, income from rental property, and capital gains. C. dividend income, income from rental property, and veteran's benefits. D. dividend income, welfare benefits, and capital gains.
a.
The difference between a tax deduction and a tax credit is: (Select the best answer below.) A. a tax deduction reduces the amount of taxable income, while a tax credit directly reduces the amount of tax owed. B. a tax deduction increases the amount of taxable income, while a tax credit directly reduces the amount of tax owed. C. a tax credit reduces the amount of taxable income, while a tax deductiont directly reduces the amount of tax owed. D. a tax credit reduces the amount of taxable income, while a tax deduction directly increases the amount of tax owed.
a.
Interest income comes from: (Select the best answer below.) A. stock ownership. B. the difference between the market rate and the account rate. C. the expected value of the asset. D. interest on investments such as bonds and CDs.
d.
What does FICA stand for and who pays FICA? (Select the best answer below.) A. Federal Insurance Contributions Act and these taxes are paid equally by the employer and the employee. B. Family Insurance Coverage Act and these taxes are paid unequally by the employer and the employee. C. Family Insurance Coverage Act and these taxes are paid by the employee. D. Federal Information Coverage Act and these taxes are paid by the employer.
a.
a taxpayer is entitled to one exemption for: a. himself and one for each of his dependents b. himself c. himself and one for his children d. each of his dependents
a.
Same-sex marriages are treated as: (Select the best answer below.) A. married for all state tax purposes, but for federal tax purposes. B. married for all federal tax purposes. C. single for all state tax purposes, but for federal tax purposes. D. single for all federal tax purposes.
b.
Some types of payments that you might receive that would not be included in gross income are: (Select the best answer below.) a. scholarships that exceed tuition fees and book costs, tips, and reimbursements of moving expenses b. veteran's benefits, welfare benefits, and reimbursements of moving expenses c. scholarships that exceed tuition fees and book costs, tips, and income from a business d. scholarships that exceed tuition fees and book costs, welfare benefits, and income from a business
b.
Taxable income is calculated as: (Select the best answer below.) A. gross adjusted income less the standard or itemized deductions. B. adjusted gross income less either the standard or itemized deductions and less the total exemptions. C. gross adjusted income less the total exemptions. D. gross taxable income less either the standard or itemized deductions and less the total exemptions.
b.
The purpose of income tax is to: (Select the best answer below.) A. control governmental programs and services. B. finance governmental programs and services. C. identify those in need. D. limit consumer spending and inflation.
b.
The deduction: (Select the best answer below.) A. varies according to your filing status and your income. B. varies according to your filing status. C. does not vary according to your filing status. D. is affected by the amount of income you earned during the year.
b.
According to the IRS, gross income is all reportable income from any source including: (Select the best answer below.) A. health and casualty insurance reimbursements, welfare benefits, and veteran's benefits. B. dividend income, welfare benefits, and capital gains. C. dividend income, income from rental property, and capital gains. This is the correct answer. D. dividend income, income from rental property, and veteran's benefits.
c.
Adjusted gross income is determined by calculating: (Select the best answer below.) A. gross income plus special adjustments such as alimony payments. B. gross income minus taxes. C. gross income minus special adjustments such as alimony payments. D. taxable income minus special adjustments such as alimony payments.
c.
A standard deduction is a: (Select the best answer below.) A. fixed amount deducted from unadjusted net income to determine taxable income. B. variable amount deducted from adjusted gross income to determine taxable income. C. variable amount deducted from unadjusted net income to determine taxable income. D. fixed amount deducted from adjusted gross income to determine taxable income.
d.
Deductible medical expenses may be itemized if they are: (Select the best answer below.) A. reimbursed and exceed 15% of adjusted gross income. B. reimbursed and exceed 10% of adjusted gross income. C. unreimbursed and exceed 15% of adjusted gross income. D. unreimbursed and exceed 10% of adjusted gross income.
d.
Section 529 College Savings Plans: (Select the best answer below.) A. were created to encourage parents to save money for their children's future college education expenses. Contributions are made after-tax but all monies grow tax-free and are not taxed upon withdrawal if used once the child is 18 or older. B. were created to encourage students to save money for their future college education expenses. Contributions are made after-tax but all monies grow tax-free and are not taxed upon withdrawal if used for allowable college education expenses. C. were created to encourage parents to save money for their children's future college education expenses. Contributions are made after-tax but all monies grow tax-free and are not taxed upon withdrawal if used for allowable college education expenses. D. were created to encourage parents to save money for their children's future college education expenses. Contributions are made before-taxes and all monies grow tax-free and are not taxed upon withdrawal if used for allowable college education expenses.
c.
Self-employed individuals: (Select the best answer below.) A. do not pay FICA taxes. B. pay only the employee portion of FICA taxes. C. pay both the employer and the employee portion of FICA taxes. D. pay only the employer portion of FICA taxes.
c.
The difference between the tax consequences for short-term and long-term capital gains is that: (Select the best answer below.) A. long-term capital gains are treated as ordinary income, while short-term capital gains receive more favorable tax treatment. B. short-term capital gains are held less than a year, while long-term capital gains are held more than a year. C. short-term capital gains are treated as ordinary income, while long-term capital gains receive more favorable tax treatment. D. long-term capital gains are treated as ordinary income, while short-term capital gains are not taxed.
c.
The form that must be filed with the IRS for itemized deductions is: (Select the best answer below.) A. Schedule B of Form 1040EZ. B. Schedule B of Form 1040. C. Schedule A of Form 1040. D. Schedule A of Form 1040EZ.
c.
The two portions of FICA are: (Select the best answer below.) A. social employment taxes, which are used to make payments to the unemployed, and Medicare taxes, which are used to provide payments to health care providers in the case of illness. B. Social Security taxes, which are used to make payments to retirees, and life insurance taxes, which are used to make payments to surviving family upon death. C. Social Security taxes, which are used to make payments to retirees, and Medicare taxes, which are used to provide payments to health care providers in the case of illness. D. life insurance taxes, which are used to make payments to surviving family upon death, and Medicare taxes, which are used to provide payments to health care providers in the case of illness.
c.
The long-term capital gains tax benefit: (Select the best answer below.) A. both the taxpayers in the higher tax brackets, who are currently not taxed on capital gains, and those in the 10% and 15% tax brackets, who are only taxed at 5%. B. both the taxpayers in the 10, 15, and 25% marginal tax bracket, who are currently not taxed on capital gains, and those in the 28, 33, and 35% tax brackets, who are only taxed at 15%. C. both the taxpayers in the 10 and 15% marginal tax bracket, who are currently not taxed on capital gains, and those in the higher tax brackets, who are only taxed at 15%. D. both the taxpayers in the 10 and 15% marginal tax bracket, who are currently not taxed on capital gains, and those in the higher tax brackets, who are only taxed at 10%.
c.
Which of the following is true regarding the differing treatment of dividend and interest income for tax purposes? (Select the best answer below.) A. Interest income is included in gross income to determine taxable income but dividend income is not. B. Neither interest income nor dividend income is included in gross income to determine taxable income. C. Both interest income and dividend income are included in gross income to determine taxable income, but dividend income is taxed at lower rates. D. Interest income is not included in gross income to determine taxable income but dividend income is.
c.
dividend income comes from: (Select the best answer below.) A. interest on investments such as bonds and CDs. B. the difference between the market rate and the account rate. C. stock ownership. D. the expected value of the asset.
c.
A marginal tax bracket is the: (Select the best answer below.) A. row in the tax table. A progressive tax system means the lower an individual's income, the higher the percentage of income tax paid. B. range of income in a tax bracket. A progressive tax system means the higher an individual's income, the higher the percentage of income tax paid. C. tax rate imposed on any income earned. A progressive tax system means the lower an individual's income, the higher the percentage of income tax paid. D. tax rate imposed on any additional (marginal) income earned. A progressive tax system means the higher an individual's income, the higher the percentage of income tax paid.
d.
Itemized deductions might include: (Select the best answer below.) A. medical expenses and health and casualty insurance reimbursements. B. interest expense and welfare benefits. C. health and casualty insurance reimbursements and welfare benefits. D. medical expenses and interest expense.
d.
Most other individual taxpayers file: (Select the best answer below.) A. Form 1040 EZ. B. Form 1040D. C. Form 1040A. D. Form 1040.
d.
The distinction between short-term and long-term capital gains is important because the capital gains tax is a maximum of: (Select the best answer below.) A. 25 percent of the short-term capital gain and long-term capital gains are taxed as ordinary income. B. 15 percent of the short-term capital gain and long-term capital gains are taxed as ordinary income. C. 25 percent of the long-term capital gain and short-term capital gains are taxed as ordinary income. D. 15 percent of the long-term capital gain and short-term capital gains are taxed as ordinary income.
d.
The earned income credit (EIC) is: (Select the best answer below.) A. a special credit for high-income taxpayers that reduces the amount of taxes owed. B. a special credit for low-income taxpayers that increases the amount of taxes owed. C. a special credit for middle class taxpayers that reduces the amount of taxes owed. D. a special credit for low-income taxpayers that reduces the amount of taxes owed.
d.
The federal tax system is administered by the: (Select the best answer below.) A. Internal Receipt Service, a branch of the U.S. Budget Office. B. Internal Receipt Service, a branch of the U.S. Treasury Department. C. Internal Revenue Service, a branch of the U.S. Commerce Department. D. Internal Revenue Service, a branch of the U.S. Treasury Department.
d.
The following would be included in gross income: (Select the best answer below.) A. child support payments received and veteran's benefits. B. interest income and child support payments received. C. scholarships that exceed tuition fees and book costs and veteran's benefits. D. interest income and scholarships that exceed tuition fees and book costs.
d.
Your filing status affects: (Select the best answer below.) A. tax deferment and tax rates. B. tax credits and standard deductions. C. tax rates and tax credits. D. tax rates and standard deductions.
d.
