CPF Chapter 3
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
$15,000.
In 2017, taxable income was reduced by ______ for each exemption claimed.
$4,050
The maximum that an individual can contribute to a Roth IRA for the 2017 year is
$5,500.
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
$9,250
Which of the following is NOT a valid form for filing federal income taxes?
1040Z
At the end of the year, Walter received a form that showed his payments from independent contracting. That form is called a
1099
At the end of the year, Yvonne received a form from her bank that reported income from her savings. That form is called a
1099
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?
4868
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?
6 years
All of the following can reduce your taxes today except investing in
A Roth IRA.
Evan is not concerned about immediate tax benefits but instead wants his investment to grow in value on a tax-free basis. Which of these would be the best for him to invest in today?
A Roth IRA.
The tax designed to ensure that those who receive tax breaks also pay their fair share of taxes is called the
AMT
Recent tax credits include all of the following except the
AMT tax credit.
David thinks that his salary and tax rate for next year will be higher than for this year. What step should he take minimize taxes over the period this year and next year?
Accelerate receipt of income.
When calculating federal income taxes, what increases "gross income"?
Alimony received
The tax based on the total tax due divided by taxable income is called the
Average tax rate
Which of the following is NOT a tax credit?
Domestic tax credit
When calculating federal income taxes, "gross income" includes all of the following except
Earned income credit
Adjusted gross income is increased by the itemized or standard deduction.
False
All citizens of the United States are required to file a federal income tax return if their income falls below a certain level.
False
All individuals with taxable income are subject to the AMT calculation.
False
An example of an excise tax is Social Security.
False
Contributions to a Keogh or 401(k) are tax-exempt.
False
Individuals are allowed to give money or items of any value to a person without being subject to estate taxes.
False
Interest paid on a home equity loan is not deductible.
False
One of the most frequent filing errors is signing the return.
False
Tax rate schedules list average tax rates.
False
The average tax rate is the tax paid on the next dollar of taxable income.
False
When Tom calculates his taxable income, he should subtract his tax credits from adjusted gross income.
False
This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels.
Income tax
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?
Keogh plan
Athena wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is NOT a proper itemized deduction?
Miscellaneous expenses less than 2% of AGI
An advantage of investing in a 401(k) plan is the
Possibility of receiving an employer match on your contributions.
The tax that is a major source of revenue for local governments is called a(n)
Real estate property tax.
"Tax Freedom Day" represents how long the average person works to pay her or his taxes each year.
True
A tax credit has a full dollar effect in lowering taxes.
True
Tax rate schedules show marginal tax rates.
True
The IRS has made online filing free for millions of taxpayers through the Free File Alliance.
True
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
A tax credit reduces the taxable income on which the tax liability is computed.
false
Form 4868 allows a taxpayer to obtain a six-month automatic extension on filing and paying federal taxes without penalty.
false
Adjusted gross income is reduced by the itemized or standard deduction.
true
A taxpayer less than 65 years old can only deduct medical and dental expenses greater than 10% of AGI for 2017.
True
Amounts given for tuition payments or medical expenses are not subject to gift taxes.
True
Every taxpayer receives at least the standard deduction, a set amount on which no taxes are paid.
True
For 2017, the seven-rate system for federal income tax ranges from 10% to 39.6%.
True
Social Security is an example of a tax on earnings.
True