Chapter 3
D
40. When calculating federal income taxes, "income" includes all of the following categories except A. Earned income. B. Alimony. C. Investment income. D. Active income. E. Passive income.
D
41. When calculating federal income taxes, what increases "income"? A. Exclusions B. Tax-exempt income C. Tax-deferred income D. Alimony E. Tax deductions
E
42. Income that is never subject to tax is called A. Adjusted gross income. B. Earned income. C. Foreign income. D. Tax-deferred income. E. Tax-exempt income.
D
43. Income that is taxed at a later date is A. Adjusted gross income. B. Earned income. C. Exclusions from income. D. Tax-deferred income. E. Tax-exempt income.
C
49. Individuals can deduct expenses only in excess of 7.5% of adjusted gross income for A. Contributions to charitable organizations. B. Mortgage interest. C. Medical and dental expenses. D. Miscellaneous expenses. E. Taxes.
E
54. When Paul completes his taxes, he can include all of the following as exemptions except A. His 12-year-old son. B. Himself. C. His 22-year-old daughter who is a full-time student. D. His wife. E. His 20-year-old son who is working full-time and living in an apartment.
D
56. In 2011, the U.S. federal tax tables included tax rates of A. 0%, 10%, 20%, 30%, 40%, and 50%. B. 7%, 15%, 30%, 33%, 38%, and 52%. C. 0%, 25%, 50%, and 75%. D. 10%, 15%, 25%, 28%, 33%, and 35%. E. 0%, 5%, 20%, 30%, and 50%.
B
57. The tax based on the total tax due divided by taxable income is called the A. AMT. B. Average tax rate. C. Income tax rate. D. Marginal tax rate. E. Total tax rate.
B
61. Which of the following is NOT a tax credit? A. Adoption tax credit B. Domestic tax credit C. Earned income credit D. Foreign tax credit E. Retirement tax credit
D
62. Recent tax credits include all of the following except the A. Earned income credit. B. Foreign tax credit. C. Adoption tax credit. D. Graduate learning tax credit. E. Retirement tax credit.
C
64. 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 A. 1040. B. 1099. C. W-2. D. W-4. E. Schedule A.
B
65. At the end of the year, Yvonne received a form from her bank that reported income from her savings. That form is called a A. 1040. B. 1099. C. W-2. D. W-4. E. Schedule A.
B
66. At the end of the year, Walter received a form that showed his payments from independent contracting. That form is called a A. 1040. B. 1099. C. W-2. D. W-4. E. Schedule A.
D
74. Individuals can file their federal taxes using all of the following except A. Tax software. B. Mail. C. Electronic filing. D. Fax. E. All of these can be used.
E
75. Tax resources include all of the following except A. IRS publications. B. IRS enrolled agents. C. Accountants. D. Attorneys. E. All of these are tax resources.
C
76. Who is ultimately responsible for supplying accurate and complete information for completing a tax return? A. Professional tax preparer B. IRS enrolled agent C. Taxpayer D. Taxpayer's dependents E. Taxpayer's attorney
D
77. An IRS agent visited Henry's home to verify some information on his tax return. This visit was called a(n) A. Correspondence audit. B. Office audit. C. Home audit. D. Field audit. E. Detailed audit
B
79. If Brenda wants to pay her fair share of taxes, no more and no less, she should practice A. Tax evasion. B. Tax avoidance. C. Tax elimination. D. Tax maximization. E. Tax acceleration.
D
80. 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? A. Accelerate receipt of income. B. Delay deductions. C. Practice tax evasion. D. Accelerate deductions. E. None of these will allow her to minimize her taxes.
C
85. The maximum that an individual can contribute to a Roth IRA each year is A. $1,000. B. $3,000. C. $5,000. D. $10,000. E. $15,500.
B
86. The maximum that an individual can contribute to a Coverdell Education Savings Account each year is A. $1,000. B. $2,000. C. $3,000. D. $5,000. E. $15,500.
D
92. Jason's household consists of himself, his wife, and their 2-year-old daughter. How much can Jason claim for his exemptions? A. $1,000. B. $3,700. C. $7,400. D. $11,100. E. $15,000.
E
97. If Diane was in a 25% tax bracket and received a $1,000 tax credit, by how much would her taxes be reduced? A. $25 B. $50 C. $250 D. $500 E. $1,000
B
98. George Franklin paid taxes of $4,375 on a taxable income of $32,000. What was his average tax rate? A. 10% B. 13.7% C. 15% D. 25% E. 28%
D
30. A worker's primary goal should be to A. Pay his or her taxes using estimates for income and deductions. B. Pay no income taxes. C. Pay the average tax rate for people working in his or her industry. D. Pay his or her fair share of taxes while taking advantage of appropriate tax benefits. E. Pay no taxes of any type.
B
32. A tax due on the purchase of gasoline is called a(n) A. Estate tax. B. Excise tax. C. Income tax. D. Real estate tax. E. Inheritance tax.
A
33. A tax imposed on the value of a person's property at the time of death is called a(n) A. Estate tax. B. Excise tax. C. Income tax. D. Real estate tax. E. Sales tax.
C
55. In 2011, taxable income was reduced by ______ for each exemption claimed. A. $1,000 B. $2,500 C. $3,700 D. $5,000 E. $10,000
C
67. Penny knows that she needs to file her federal income taxes, but she is unable to do so by April 15. What form does she need to complete to obtain an automatic six-month extension? A. 1040 B. 1099 C. 4868 D. W-2 E. W-4
E
70. Which of the following is NOT a valid form for filing federal income taxes? A. 1040EZ B. 1040A C. 1040 D. 1040X E. 1040Z
E
83. All of the following can reduce your taxes today except investing in A. Municipal bonds. B. A tax-deferred annuity. C. A Section 529 savings plan. D. A 401(k) plan. E. A Roth IRA.
D
39. You may be required to make estimated tax payments if A. You receive a paycheck with taxes withheld. B. You do not have interest income. C. You are married. D. You own a business. E. All of these are correct.
A
78. Annie was required to clarify or document minor questions about her tax form by mail. She participated in a(n) A. Correspondence audit. B. Office audit. C. Home audit. D. Field audit. E. Detailed audit
E
87. The maximum that an individual can contribute to a Keogh plan each year is A. $2,000. B. 10% of annual income. C. $5,000. D. $15,500. E. 25% of annual income, up to a maximum of $49,000.
C
88. Lauren owns her business and is thinking about saving for retirement. She wants to invest up to 25% of her annual income. Which plan should she use? A. Roth IRA B. 401(k) C. Keogh plan D. FSA E. Traditional IRA
B
31. Which of the following is NOT a tax that most people pay? A. Federal taxes on earnings B. Federal taxes on possessions C. Federal taxes on wealth D. Local taxes on property E. State taxes on purchases
C
72. Amanda and Jack are working on their taxes and need to determine which form to file. They had wages, interest, and dividends. In addition, they bought a house this past year and are thinking of itemizing their deductions. Which form should they use? A. 1040EZ B. 1040A C. 1040 D. 1040X E. 1040Z
C
81. David thinks that his salary and tax rate for next year will be higher than for this year. What step should he take to minimize his taxes in the current year? A. Delay receipt of income. B. Delay filing taxes. C. Accelerate receipt of income. D. Accelerate deductions. E. None of these will allow him to minimize his taxes.
B
82. Which of the following is NOT an action that can reduce your taxes? A. Owning a home. B. Taking out a consumer loan. C. Paying certain work expenses such as union dues. D. Depositing money into a flexible spending account (FSA). E. Investing in municipal bonds.
C
94. Using the following table, calculate the taxes for an individual with taxable income of $30,000.(tax table is on pdf. file) A. $850 B. $2,125 C. $4,075 D. $4,500 E. $6,025
C
34. This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels. A. Estate tax B. Excise tax C. Income tax D. Real estate tax E. Sales tax
D
35. The tax that is a major source of revenue for local governments is called a(n) A. Estate tax. B. Excise tax. C. Income tax. D. Real estate tax. E. Sales tax
C
36. Payroll deductions for federal government retirement benefits (such as old age, survivor, and disability insurance) are called A. Estate taxes. B. Excise taxes. C. Social Security taxes. D. Real estate taxes. E. Sales taxes.
A
37. The amount levied on the value of property bequeathed by a deceased person is A. Inheritance tax. B. Excise tax. C. Social Security tax. D. Real estate tax. E. Sales tax.
C
38. The maximum amount (in 2010) that an individual can give another in a year without being subject to federal taxes is A. All gifts are taxable. B. $10,000. C. $13,000. D. $15,000. E. No gifts are taxable.
A
44. Gross income after certain reductions have been made is A. Adjusted gross income. B. Earned income. C. Exclusions from income. D. Tax-deferred income. E. Tax-exempt income.
B
45. Fees, tips, and bonuses are forms of A. Adjusted gross income. B. Earned income. C. Exclusions from income. D. Tax-deferred income. E. Tax-exempt income.
D
46. Total income (gross) includes A. Exclusions from income. B. Tax deductions. C. Tax-deferred income. D. Passive income. E. Tax-exempt income
B
47. Joseph needs to complete his income taxes for the year. He has already calculated his adjusted gross income. What does he need to do next? A. Add his tax-exempt income. B. Subtract his itemized deductions. C. Add his tax credits. D. Subtract his tax-exempt income. E. Add his tax exemptions.
D
48. Adjustments to income include all of the following except A. Alimony payments. B. Contributions to a Keogh retirement plan. C. Traditional IRA contributions. D. Charity contributions. E. Penalties for early withdrawal of savings.
D
50. Athena wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is NOT a proper deduction? A. Contributions to charitable organizations B. Mortgage interest C. Medical and dental expenses in excess of 7.5% of AGI D. Miscellaneous expenses less than 2% of AGI E. State income taxes
D
51. Shannon is working on her federal income tax form and wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is an acceptable deduction? A. $10,000 gift to her cousin B. Credit card interest C. Medical and dental expenses less than 7.5% of AGI D. Miscellaneous expenses in excess of 2% of AGI E. Moving expenses for a new job that is 25 miles from her old home
B
52. How long are you required to keep tax documentation? A. Until you file your returns. B. 3 years. C. 5 years. D. 10 years. E. 15 years.
C
53. Fred has been completing his own tax returns for years. The IRS has recently contacted him with questions about some of his prior returns. How many years back is he responsible for providing documentation? A. Until he files his returns. B. 3 years. C. 6 years. D. 10 years. E. 15 years.
A
58. The tax designed to ensure that those who receive tax breaks also pay their fair share of taxes is called the A. AMT. B. Average tax rate. C. Income tax rate. D. Marginal tax rate. E. Total tax rate.
D
59. The tax due on the next dollar of income is referred to as the A. AMT. B. Average tax rate. C. Income tax rate. D. Marginal tax rate. E. Total tax rate.
B
60. Tanya is a single low-income working parent, and Fred is a single high-income working parent. Because of her status, Tanya, but not Fred, may be eligible for the A. Alternative minimum tax. B. Earned income credit. C. Itemized deduction credit. D. Student deduction. E. Withholding credit.
C
63. At the end of the year, employees receive a ____ form that reports annual earnings and the amounts deducted for taxes from their employers. A. 1040 B. 1099 C. W-2 D. W-4 E. Schedule A
B
68. 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? A. Single B. Married, filing a joint return C. Head of household D. Qualifying widow or widower E. Married, but filing individually
D
69. Bob was married to Sandy, and they have a 12-year-old son. Sandy passed away last year. Bob needs to complete his federal income taxes for the year. What filing status could he use because of his marital status? A. Single B. Married, filing a joint return C. Head of household D. Qualifying widow or widower E. Married, but filing individually
D
71. Peter filed his federal income taxes, but he needs to make a correction to his income. Which form should he use? A. 1040EZ B. 1040A C. 1040 D. 1040X E. 1040Z
E
73. The major sections of Form 1040 include all of the following except A. Filing status and exemptions. B. Adjustments to income (AGI). C. Tax credits. D. Signature. E. All of these are major sections of Form 1040
E
84. Evan is not concerned about immediate tax benefits but instead wants to minimize his future taxes. Which of these would be the best for him to invest in today? A. Municipal bonds B. A tax-deferred annuity C. A Section 529 savings plan D. A 401(k) plan E. A Roth IRA
C
89. An advantage of investing in a 401(k) plan is the A. Ability to invest up to 25% of your annual income. B. Opportunity to save $5,000 per year. C. Possibility of receiving an employer match on your contributions. D. Ability to pay taxes on distributions. E. Ability to roll IRA contributions into a 401(k).
D
90. Janet is completing her federal income taxes for the year and has identified the amounts listed here. How much can she rightfully deduct? • AGI: $42,000 • Medical and dental expenses: $1,100 • State income taxes: $1,000 • Mortgage interest: $7,000 • Charitable contributions: $1,250 A. $3,350 B. $7,000 C. $8,250 D. $9,250 E. $10,350
B
91. Sam and Diane are completing their federal income taxes for the year and have identified the amounts listed here. How much can they rightfully deduct? • AGI: $80,000 • Medical and dental expenses: $9,000 • State income taxes: $3,500 • Mortgage interest: $9,500 • Charitable contributions: $1,000 A. $14,000. B. $17,000. C. $20,000. D. $23,000. E. $57,000.
B
93. Using the following table, calculate the taxes for an individual with taxable income of $20,800. (tax table is on pdf. file) A. $850. B. $2,695. C. $5,175. D. $6,025. E. $20,800
B
95. Using the following table, calculate the taxes for an individual with taxable income of $45,000.(tax table is on pdf. file) A. $6,025 B. $7,375 C. $8,625 D. $20,900 E. $45,000.
C
96. If Jack was in a 25% tax bracket and received a $1,000 tax deduction, by how much would his taxes be reduced? A. $25 B. $50 C. $250 D. $500 E. $1,000
