PFS Chapter 3
At the end of the year, employees receive a ________ form that reports annual earnings and the amounts deducted for taxes from their employers.
W-2
A tax imposed on the value of a person's property at the time of death is called a(n)
Estate tax.
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
Taxpayers over 65 can only deduct expenses that are greater than 7.5% of adjusted gross income for
Medical and dental expenses
Income that is taxed at a later date is
Tax-deferred income
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.
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
Recent tax credits include all of the following except the
AMT tax credit
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
The maximum amount that an individual can give another in a year without being subject to estate taxes is
$14,000.
Using the following table, calculate the taxes for an individual with taxable income of $31,000. 10 % Up to $8600 15 % $8600 − $35,000 25 % $35,000 − $84,600 28 % $84,600 − $175,900 33 % $175,900 − $381,150 35 % Over $381,150
$4220
Peter filed his federal income taxes, but he needs to make a correction to his income. Which form should he use?
1040X
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
George Franklin paid taxes of $3500 on a taxable income of $26,000. What was his average tax rate?
13.46%
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
The tax designed to ensure that those who receive tax breaks also pay their fair share of taxes is called the
AMT
Gross income less Adjustments to Income equals
Adjusted gross 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
Adjustments to income include all of the following except
Charity contributions
Individuals can file their federal taxes using all of the following except
Deliver in person
Fees, tips, and bonuses are forms of
Earned income
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
Earned income credit
When calculating federal income taxes, "gross income" includes all of the following except
Earned income credit.
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?
Miscellaneous expenses that exceed 2% of AGI
Gross (or total) income includes
Passive income
Taxes on earnings that fund old age, survivor, and disability insurance benefits are called
Social Security taxes
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?
Subtract his itemized deductions
If Diane was in a 25% tax bracket and received a $2300.00 tax credit, by how much would her taxes be reduced?
$2300.00
A tax due on the purchase of gasoline is called a(n)
Excise tax.
Which of the following is NOT a tax credit?
Domestic tax credit
When Paul completes his taxes, he can include all of the following as exemptions except
His 20-year-old son who is working full-time and living in an apartment.
The amount levied on the value of property bequeathed by a deceased person is
Inheritance tax
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
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 for 2 years after the death of his spouse?
Qualifying widow or widower
The tax that is a major source of revenue for local governments is called a(n)
Real estate property tax.
Income that is not subject to tax is called
Tax-exempt income
You may be required to make estimated tax payments if
You are an independent contractor