Personal Finance Exam 1 Chapter 4

TF: To reduce future estate taxes, the Potters should consider shifting assets to family members in lower tax brackets by establishing trusts and giving gifts true
review chapter 4 question 2
TF: compared to the standard deduction, it is easier to calculate your itemized deductions false
TF: your deductions as a single person have reduced your taxable income to 38,950, bringing you into the 25% tax bracket… as such, your taxes will amount to 25% of your taxable income of 38,950 false
TF: you pay taxes only when you sell stock and realize the gain true
TF: in 2013, you purchased 1800$ of IBM stock and you sold it this year for 1500$. Since you lost money on this transaction, there is no valid reason to include this on this year’s tax return false
TF: for most tax payers, their average tax rate is lower than their marginal tax rate true
assets you own, including such items as stocks, bonds, or real estate, are commonly termed capital assets
expenditures that are subtracted in an effort to calculate the lowest possible taxable income are called deductions
according to the tax policy center, approximately __ of american households did not pay any federal income taxes in the 2013 tax year 43%
contributing 2000$ into a tax deferred retirement plan in a 28% tax bracket will save $560
the amount of income taxes that you actually pay is based upon your taxable income
Why might someone choose to use itemized deductions instead of taking the standard deduction offered by the IRS? You may have a lower tax liability if you itemize instead of using the standard deduction
understanding how tax planning affects your personal finances is actually important for most tax payers, not just the wealthy, because many don’t take advantage of all of the deductions and tax credits they are entitled to, many people pay higher taxes or receive smaller refunds than they need to, and the average american spends close to 1/3 of the year earning the money necessary to pay their taxes
Chase Cutter has a marginal tax rate of 33​ percent, a state income tax rate of 3.5​ percent, and a city income tax rate of 0.5 percent. The tax for Social Security and Medicare is 7.65 percent. What would be the effective marginal tax rate on your last dollar of​ earnings? 44.65%
TF: social security is a voluntary insurance program administered by the fed govt that provides for you and your family in the event of death, disability, health problems or retirement false
TF: the federal insurance contributions act (FICA) tax deducted from your salary goes to pay for unemployment insurance false- where does it go?
TF:if you are self-employed, you have to pay both the employer and the employee portions of FICA, for a total rate of 20% false
FICA deductions from your paycheck are for what mandatory federal insurance programs? social security and medicare
for 2014, the federal tax code allows an estate valued up to $5.34 million to be transferred tax free to any heir. If the estate is valued at more than 5.34 million, the amount over 5.34 million will be taxed at 40 %
TF: A personal exemption is an approved deduction that you can make on your tax return for each person supported by the income shown on your tax return true
what statements about portfolio income from investments that are not held in a tax-deferred account is accurate? It is also called investment income.It is normally in the form of dividends and interest.It must be reported on your tax return.It may be taxed at a lower rate than wages and salaries are.
who must file a federal income tax return individuals whose income meets federal guidelines
what are permissible itemized tax deductions casualty and theft losses, medical and dental expenses, gifts to charity, and home mortgage interest, unreimbursed job related expenses and tax prep costs within the IRS limits, state/local/real estate taxes, home equity loan interest on debt upto 100k, and interest on money borrowed to invest within IRS limits based on investment income
Danielle is a divorced single parent who is currently paying back a college​ loan, attending graduate school partminus​time, and working fullminustime earning​ $42,000. She has custody and provides all support for her child. Which of the following​ adjustments, deductions, or credits might apply to​ her? child tax credit, adjustment for student loan interest, lifetime learning tax credit and child and dependent care credit
You wish to make a charitable contribution of​ $2,000 to a qualified organization. You are currently in the 28 percent marginal tax bracket. By how much would this contribution lower your tax bill assuming your other itemized deductions exceed the standard​ deduction? $560
You and your spouse have earned salary and wages of​ $41,750. In addition you have municipal bond interest income of​ $600 and savings account and certificate of deposit interest income of​ $800. You paid a total of​ $600 in interest on your student loan. Using only this​ information, what is your adjusted gross income for tax​ purposes? 41,950
Leticia is a single person who makes​ $45,000 per year. This year she paid​ $2,000 in student loan​ interest, $1,500 in medical​ expenses, $7,200 in rent and​ $4,800 in car loan payments. She contributes​ $3,600 per year to her​ 401(k) plan at work. Give her some tax advice. calculate your taxes using both methods
Karen and Jeffrey BosteinsKaren and her​ husband, Jeffrey, are facing a new income tax situation this year. She is a corporate accountant and Jeffrey is an engineer. Their gross salaries total​ $89,000. Both graduated from fourminusyear universities five years ago and are still paying off large student loans. She is now attending school partminustime to prepare for the CPA exam. The Bosteins incurred considerable expenses in the process of adopting an infant this​ year, and they have the ongoing expense of daycare. In January of last year they closed on their new home. Although trained as an​ accountant, Karen’s work has not involved income tax preparation. Help them consider the following questions.With a growing​ family, Karen and Jeffrey know they should start investing more to provide for a secure future. Which of the following issues should they consider as they​ plan? Contributions to taxminusdeferred retirement accounts avoid taxes in the current year and grow taxminusfree until the time of withdrawal.Municipal bond earnings are exempt from federal income tax.Interest paid on money borrowed to invest is an itemized deduction.Qualified dividends and capital gains are taxed at a lower rate than ordinary income.

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