PFIN: Chapter 3. Preparing Your Taxes

Your employer calculates how much to withhold from you paycheck for federal income taxes according to the information you filled out on your ________ form.

W-4

Income is divided into three categories for federal income tax purposes. Dividends that you receive from your mutual fund would be considered ________ income.

portfolio

If you file an amended return you should:

fill out form 1040X.

Creating a trust, custodial account, or making an outright gift of income-producing property to relatives in a lower tax bracket is called ________.

income shifting

Which of the following are allowable as adjustments to gross income?

All of these are allowable adjustments.

Waldo is married and has 4 young children. How many exemptions can he claim on his federal income tax return, provided he files jointly with his wife?

6

All of the following statements describe Social Security except:

All of the above are correct.

Your reportable taxable income determines the amount of income subject to state income taxes.

False

Assume you had a bad year in the stock market with capital gains of $10,000 and capital losses of $25,000. How much can you write off on this year's tax return?

$13,000

The vast majority of taxpayers fall into which three federal tax brackets?

10%, 15%, 25%

Self-employed people pay ________% of their Social Security taxes, while workers who are employees pay ________%.

100 ; 50

For a given tax year, Sara had gross income of $50,000, taxable income of $40,000, and owed taxes of $7,800. Her average tax rate was ________.

19.5%

Taxpayers who itemize their deductions are allowed to take the standard deduction as well.

False

Estimated taxes must be paid in four installments on April 15, July 15, October 15 and January 15 of the same year. True or false?

False

If you file an extension, you get more time to pay your taxes.

False

If you qualify for a tax credit, you should first subtract the amount of the credit from your taxable income and then calculate the amount of taxes you owe.

False

If you've decided to use a professional tax preparer, you no longer have primary responsibility for the accuracy of your return.

False

Long-term capital gains are always taxed at 25%

False

Maggie is 20 years old and a student at Big State University. She has a part time job and is completing her tax return in order to get back her refund. Even though her parents claimed her as an exemption on their tax return, Maggie can also claim herself as an exemption on her own tax return.

False

Margie's accountant told her that her income put her in the 25% bracket. That means Margie must pay 25% of her total gross income in taxes.

False

Most homeowners will have to pay capital gains taxes when they sell their homes.

False

Self-employed people can wait until April 15 of the following year to pay all the taxes that were due for a given year.

False

Hector's wife passed away 5 years ago. He has not remarried and is raising the couple's 8 year-old daughter. On his federal income tax return, which filing status should he choose?

Head of household

In 2011, Michael had earned income of $40,000, $5,000 in capital gains from stock transactions and $8,000 in capital losses from the sale of his boat. How much could he write-off in capital losses?

Nothing

A typical American family pays approximately how much in taxes?

One third of its gross income

________ significantly increases your chance of being audited by the IRS.

Owning a small business and filing Schedule C

Another name for the Social Security tax is FICA or Federal Insurance Contributions Act.

True

Effective tax planning involves using legal strategies for tax avoidance.

True

Taxable income equals gross income less:

adjustments to gross income (tax deductible expenses and retirement plan contributions) less whichever is larger, itemized deductions or the standard deduction, less total personal exemptions.

Tax planning involves the use of various investment vehicles, retirement programs and estate distribution procedures to ________.

avoid taxes

All of the following types of income must be included in gross income and hence be subject to federal income taxes EXCEPT for

child-support payments received.