Chapter 3

Assume Samantha Jones had the following itemized deductions.

Itemized deduction s=Donations + Medical expenses in excess of 10% of AGI + State income tax +Job-related expenses in excess of 2% of AGI =$3,350 + $1,990 + $1,440 + $2,325 =$9,105

The rate used to calculate the tax due on the next dollar of income is referred to as the

Marginal tax rate.

Nancy is married to Jerry and needs to complete her tax form. They both earn about the same amount of money each year. What filing status would be best for them?

Married, filing a joint return

Mary is a first year student and enrolled at Heartland Community College and has a tuition cost of $2,150 for 2020. She is a single independent tax filer. Assume she is in the 12% tax bracket and her income qualifies her to get the maximum from either credit. Should she claim the Tuition and Fees deduction, American Opportunity Credit, or the Lifetime Learning Credit? Provide support for your choice. (3 points)

Mary should claim the American Opportunity Credit since it will allow her to subtract $2,500 from the amount of total taxes she owes. The American Opportunity Credit is better than the Tuition and Fees deduction because the deduction reduces her gross income by $2,000 but only saves her $240 (2000 * 0.12) while the American Opportunity Credit gives her the additional $2,500 tax credit. The American Opportunity Credit is better than the Lifetime Learning Credit because the American Opportunity Credit saves her an additional $500 over the $2,000 Lifetime Learning Credit Maximum.

At the end of the year, Xavier received a form from his employer that reported annual earnings and the amounts deducted for taxes. That form is called a

W-2.

Wendy Brooks prepares her own income tax return each year. A tax preparer would charge her $245 for this service. Over a period of 9 years, how much does Wendy gain from preparing her own tax return? Assume she can earn 2 percent on her savings. Use Exhibit 1-B. (Round FVA factor to 3 decimal places and final answer to 2 decimal places.)

$2,389.98

Assume the standard deduction for a single person is $6,350. Daniel Simmons arrived at the following tax information:

$48,030

Connie thinks that her salary and tax rate for next year will be lower than for this year. What step should she take to minimize her taxes in the current year?

Accelerate deductions.

What would be the average tax rate for a person who paid taxes of $5,647.87 on a taxable income of $44,860? (Enter your answer as a percent rounded to 2 decimal places.)

Average tax rate =Total taxes / Taxable income =$5,647.87 / $44,860 =0.1259, or 12.59%

Fees, tips, and bonuses are forms of

Earned income.

A tax due on the purchase of gasoline is called a(n)

Excise tax.

Noor Patel has had a busy year! She decided to take a cross-country adventure. Along the way, she won a new car on "The Price Is Right" (valued at $14,200) and won $400 on a scratch-off lottery ticket (the first time she ever played). She also signed up for a credit card to start the trip and was given a sign-up bonus of $150. How much will she have to include in her federal taxable income?

Federal taxable income =Prizes + Lottery winnings + Credit card sign-up bonus =$14,200 + $400 + $150 =$14,750

If $4,325 was withheld during the year and taxes owed were $4,123, would the person owe an additional amount or receive a refund? What is the amount? (Enter the amount as a positive value.)

Tax due (refund)=Total tax − Tax withheld =$4,123 − $4,325 =−$202

Based on the following data, would Beth and Roger Simmons receive a refund or owe additional taxes.

The result is refund of $3,218.50