Chapter 4 & 5, Review Quiz, Quiz, Key Terms, etc.

Mike Hansen has adjusted gross income of $28,000. During the year, Mike decided he needed a larger home. He purchased a home on a golf course in the same town as his first home. Mike incurred $7,500 in moving expenses. How much of this can he deduct from adjusted gross income?

$0

The Federal Deposit Insurance Corporation insures deposits up to $250,000 per person per financial institution. Suzanne has $200,000 in an individual account and $424,000 in a joint account with her husband, Ted. How much of Suzanne's money is not covered by FDIC insurance?

$162,000

____________ are amounts subtracted from adjusted gross income to arrive at taxable income. There is either a standard amount or itemized amounts in certain categories such as medical, charitable contributions and others.

Deductions

Your adjusted gross income is $34,500. You have $12,000 in medical expenses for the year. What would be your itemized deduction for your medical expenses?

$9,412.50

Two types of education savings plans are the Coverdell Education Savings Account and the:

529 plan

A $200 savings account that earns $13 interest in a year has a yield of _______ percent.

6.5

Which one of the following states does not have a general sales tax?

Alaska

A(n) _____________ is a computer terminal where you can withdraw case, make deposits, check your balance conduct other other financial services.

Automated Teller machine

The ____________ is total taxes owed divided by taxable income.

Average tax rate

A(n) ____________ is a savings account that requires the money be left in for a stated period of time which will earn a started rate of interest.

Certificate of Deposit

Elaine's Embroidery Emporium which is run out of Elaine's home is visited by an IRS agent who wants to verify the office expenses Elaine claims are valid. What type of IRS audit is this?

Field audit

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

Municipal Bonds

Types of CDs

Rising rate or bump up CDs Liquid CDs zero coupon CDs indexed CDs collable CDs

Filing Status

Single - never married, divorced or legally separated individuals with no dependents Married, filing joint return - combines the income of a husband and a wife Married, filing separate returns - each spouse is responsible for his or her own tax. Under certain conditions, a married couple can benefit from this filing status. Head of Household - an unmarried individual or a surviving spouse who maintains a household for a child or a dependent relative

Which state does not have an income tax?

Texas

Which of the following is not likely to be an allowable deduction (either in whole or part) for federal income taxes?

The $2.50 a day in tolls that you pay to drive to and from your office at work every day.

When you receive an audit notice you have the right to request more time to prepare for the audit. True or false?

True

automatic teller machine (ATM)

a computer terminal used to conduct banking transactions; also called a cash machine

exemption

a deduction from adjusted gross income for yourself, your spouse, and qualified dependents

Tax audit

a detailed examination of your tax return by the IRS

mutual savings bank

a financial institution that is owned by depositors and specializes in savings accounts and mortgage loans

commercial bank

a financial institution that offers a full range of financial services to individuals, businesses, and government agencies

savings and loan association

a financial institution that traditionally specialized in savings accounts and mortgage loans

Trust

a legal agreement that provides for the management and control of assets by one party for the benefit of another

Something similar to a cashier's check that can be purchased at a financial institution, a post office or a store is:

a money order

debit card

a plastic access card used in computerized banking transactions; also called a cash card

compounding

a process that calculates interest based on previously earned interest

share account

a regular savings account at a credit union

A CD that may have a higher interest rate at various intervals is:

a rising or bump-up CD

Money market account

a savings account offered by banks, savings and loan associations and credit unions that requires a minimum balanced and has earnings based on market interest rates

money marker fund

a savings investment plan offered by investment companies, with earnings based on investments in various short term financial instruments

certificate of deposit (CD)

a savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specific interest rate

standard deduction

a set amount of which no taxes are paid

estate tax

a tax imposed on the value of a person' property at the time of his/her death

inheritance tax

a tax levied on the value of property bequeathed by a deceased person

credit union

a user-owned, nonprofit, cooperative financial institution that is organized for the benefit of its members

asset management account

an all-in-one account that includes savings, checking, borrowing, investing, and other financial services for a single fee; also called a cash management account

exclusion

an amount not included in gross income

tax credit

an amount subtracted directly from the amount of taxes owed

tax deduction

an amount subtracted from adjusted gross income to arrive at taxable income

overdraft protection

an automatic loan made to checking account customers to cover the amount of checks written in excess of the available balance in the checking account

Qualifying widow/er

an individual whose spouse died within the past 2 years and who has a dependent; this status is limited to 2 years after the death of a spouse

share draft account

an interest bearing checking account at a credit union

tax shelter

an investment that provides immediate tax benefits and a reasonable expectation of a future financial return

Comparison of earnings for different savings plans can best be accomplished using the:

annual percentage yield

income shifting

attempt to reduce the taxable income of parents by shifting the ownership of investments to children in lower tax brackets

David Wynn gets a personal loan from his credit union for $1,000. David will make monthly payments $85.15 over the next year to repay the loan. What type of financial service is David using?

borrowing service

Which of the following is inflation? a. it is the annual yield you earn on a savings plan b. it is the fact that you may earn interest on interest c. it is the fact that your purchasing power may change as price levels change and must be considered when comparing savings plans d. it is the fact that you can withdraw your money on short notice without loss of principal e. none of the above is inflation

c. it is the fact that your purchasing power may change price levels change and must be considered when comparing savings plans

Which of the following types of financial institutions provide Federal Deposit Insurance (FDIC) coverage?

commercial banks, credit unions, and savings and loans

The interest paid on which type of loan is not tax deductible?

credit card

Which of the following is a drawback of a money market mutual fund? a. low rate of return b. penalty for early withdrawal c. high minimum balance d. not insured e. all of the above

d. not insured

alternative minimum tax

designed to ensure that those who receive tax breaks also pay their fair share of taxes

What is the term used to refer to the rate financial institutions are charged to borrow funds from Federal Reserve Banks?

discount rate

medical/dental expenses

doctor's fees, prescription medications, hospital expenses, hearing aids, eyeglasses, etc.

Money received by an individual for personal effort is classified as ______________ income.

earned

itemized deductions

expenses that can be deducted from adjusted gross income, such as medical expenses, real estate property taxes, home mortgage interest, charitable contributions, casualty losses, and certain work related expenses

casualty and theft losses

financial losses resulting from natural disasters, accidents or unlawful acts

adjusted gross income

gross income reduced be certain adjustments, such as contributions to an individual retirement account (IRA) and alimony payments

passive income

income resulting from business activities in which you do not actively participate

tax-exempt income

income that is not subject to tax

tax-deferred income

income that will be taxed at a later date

Money received in the form of dividends or interest is classified as ____________ income.

investment

real estate property tax

major source of revenue for local governments; based on the value of land and buildings

A trust has the purpose of:

managing the assets of a person

earned income

money received for a personal effort such as wages, salary, commission, fees, tips, or bonuses

investment income

money received in the form of dividends, interest, or rent from investments

field audit

more complex; an IRS agent visits your home, business or office of your accountant to have access to your records; can also be done to verify whether an individual has an office in the home claimed

interest

mortgage interest, home equity loan interest, and investment interest expenses up to an amount equal to investment income

contributions

of cash or property to qualified charitable organizations

A tax on the value of automobiles, boats, or furniture is referred to as:

personal property taxes

Capital gains refer to:

profits from the sale of an investment asset

capital gains

profits from the sale of capital asset such as stocks, bonds, or real estate

The ______________ property tax is based on the value of land and buildings at some point in time.

real estate

An expense that would be included in the itemized deductions of a taxpayer is:

real estate property taxes

This type of savings plan is usually considered to be very liquid:

regular savings account

office audit

requires you to visit an IRS office to clarify some aspect of your tax return; takes an hour or two

The storage of funds for future use is a purpose of ____________ services.

savings

Nate Rogers deposited $5,000 in a 3-year bank CD which pays six percent interest. What type of financial service is Nate using?

savings service

home equity loans

second mortgages

correspondence audit

simplest and most common type of audit; mail inquiry; 30 days to submit

taxes

state and local income tax, real estate property taxes and state/local personal property tax

job related and other miscellaneous expenses

such as un-reimbursed job travel, union dues, requires continuing education

Excise tax

tax imposed on specific goods and services, such as gasoline, cigarettes, alcoholic beverages, tires and air travel

personal property taxes

taxes issued by state or local governments on the value of automobiles, boats, furniture, and farm equipment

taxable income

the net amount of income after allowable deductions on which income tax is computed

rate of return

the percentage of increase in the value of savings as a result of interest earned; also called yeild

annual percentage yield (APY)

the percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365 day period

marginal tax rate

the rate used to calculate tax on the last (and next) dollar of taxable income

tax evasion

the use of illegal actions to reduce one's taxes

tax avoidance

the use of legitimate methods to reduce one's taxes

average tax rate

total tax due dividend by taxable income

flexible spending accounts

type of health savings account; allows you to reduce your taxable income when paying for medical expenses/child care costs

The "head of household" filing status is for people who are:

unmarried and have dependent children

moving expenses

when a change in residence is associated with a new job that is at least 50 miles farther from your former home than your old main job location

The Expedited Funds Availability Act requires that funds be available to depositors:

within 2 days for local checks

Your selection of a savings plan is not influenced by the rate or return on the plan. True or false?

False

The average cost of cashing a check at a check-cashing outlet is 2-3% of the value of the check. True or false?

True

Approximately what percent of tax filers are audited each year?

1%

Which of the following statements regarding debit and credit card liability is correct?

A debit card carries more risk of loss to the cardholder

An excise tax is a tax on your wealth. True or false?

False

Retirement and Education Plans

Individual Retirement Plans (IRAs) - Traditional and Roth IRAs Coverdell Education Savings Account 529 Plan Keough Plan 401(K) Plan

You own 1000 shares of Abbot Laboratories and they paid you a dividend of $.94 per share last year. This money is part of:

Investment income

A credit card is a plastic card used in computerized banking transactions. True or False?

True

Every citizen or resident of the U.S. must file a federal income tax form if their income is above a certain amount based on their filing status. True or false?

True

Pawnshops make loans based on the value of tangible possessions such as jewelry or other valuable items. True or false?

True