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Finance Flashcards

Personal Finance Chapter 3 SG

Tax Freedom Day represents the day that the average person works until to pay their taxes each year. (T/F) True
An example of an excise tax is Social Security. (T/F) False
Individuals are allowed to give money or items of any value to a person without being subject to taxes. (T/F) False
Amounts given for tuition payments or medical expenses are not subject to gift taxes. (T/F) True
Determining Adjusted Gross Income is the final step in calculating federal income tax. (T/F) False
Cash and prizes won on television game shows are usually subject to both federal and state taxes. (T/F) True
The Adjusted Gross Income is increased by the itemized or standard deduction. (T/F) False
When Tom calculates his taxable income, he should subtract his tax credits from adjusted gross income. (T/F) False
The itemized deduction allowed for an individual 65 and older is higher than the itemized deduction for a younger taxpayer. (T/F) False
When Marissa completes her taxes, she can include her children, her husband, and herself as exemptions. (T/F) True
Tax tables list average tax rates. (T/F) False
The average tax rate is the taxes paid on the next dollar of income. (T/F) False
All individuals with taxable income need to complete the AMT calculation. (T/F) False
A tax credit has a full dollar effect in lowering taxes. (T/F) True
A tax credit reduces the taxable income on which the tax liability is computed. (T/F) False
If your taxes due are greater than the amount you had withheld for the year, then you should expect a refund after you complete your federal income taxes. (T/F) False
Individuals who have high income reported on Form 1099 may be required to pay estimated tax payments. (T/F) True
Federal income tax returns must be filed by April 1 of each year. (T/F) False
Form 4868 allows a taxpayer to obtain a six-month extension on filing and paying federal taxes without penalty. (T/F) False
All citizens of the United States are required to file a federal income tax return if their income falls below a certain level. (T/F) False
Most states do not require state income taxes (T/F) False
Tax software can save taxpayers 25 hours or more when preparing Form 1040. (T/F) False
The IRS has made online filing free for millions of taxpayers through the Free File Alliance. (T/F) True
Tom needs to complete his taxes. He should be able to find a tax preparation service to complete his tax forms for as little as $15. (T/F) False
A common filing error is signing the return. (T/F) False
Some tax disputes have been escalated to the U.S. Supreme Court. (T/F) True
One of the best tax shelters is owning a car (T/F) False
Interest paid on a home equity loan is not deductible. (T/F) False
Contributions to a Keogh or 401(k) are tax-exempt. (T/F) False
A worker’s primary goal should be to:A. Pay his or her taxes using estimates for income and deductionsB. Pay no income taxesC. Pay the average tax rate for people working in his or her industryD. Pay his or her fair share of taxes while taking advantage of appropriate tax benefitsE. Pay no taxes of any type D. Pay his or her fair share of taxes while taking advantage of appropriate tax benefits
Which of the following is NOT a tax that most people pay? A. Federal taxes on earningsB. Federal taxes on possessionsC. Federal taxes on wealthD. Local taxes on propertyE. State taxes on purchases B. Federal taxes on possessions
A tax due on the purchase of gasoline is called a(n) A. Estate taxB. Excise taxC. Income taxD. Real estate taxE. Inheritance tax B. Excise tax
A tax imposed on the value of a person’s property at the time of death is called a(n) A. Estate taxB. Excise taxC. Income taxD. Real estate taxE. Sales tax A. Estate tax
This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels. A. Estate taxB. Excise taxC. Income taxD. Real estate taxE. Sales tax C. Income tax
The tax that is a major source of revenue for local governments is called a(n) A. Estate taxB. Excise taxC. Income taxD. Real estate taxE. Sales tax D. Real estate tax
Payroll deductions for federal government retirement benefits (such as old-age, survivor, and disability) are called A. Estate taxesB. Excise taxesC. Social Security taxesD. Real estate taxesE. Sales taxes C. Social Security taxes
The amount owed on property received from a deceased person is A. Estate taxB. Excise taxC. Social Security taxD. Real estate taxE. Sales tax A. Estate tax
The maximum amount (in 2009) that an individual can give another in a year without being subject to federal taxes is: A. All gifts are taxableB. $10,000C. $13,000D. $15,000E. No gifts are taxable C. $13,000
You may be required to make estimated tax payments if: A. You receive a paycheck with taxes withheldB. You do not have interest incomeC. You are marriedD. You own your own businessE. None of the above are correct D. You own your own business
When calculating federal income taxes, what increases “income”? A. ExclusionsB. Tax-exempt incomeC. Tax-deferred incomeD. AlimonyE. Tax deductions D. Alimony
Income that is never subject to tax is called A. Adjusted gross incomeB. Earned incomeC. Foreign incomeD. Tax-deferred incomeE. Tax-exempt income E. Tax-exempt income
Income that is taxed at a later date is A. Adjusted gross incomeB. Earned incomeC. Exclusions from incomeD. Tax-deferred incomeE. Tax-exempt income D. Tax-deferred income
Gross income after certain reductions have been made is A. Adjusted gross incomeB. Earned incomeC. Exclusions from incomeD. Tax-deferred incomeE. Tax-exempt income A. Adjusted gross income
Fees, tips, and bonuses are forms of A. Adjusted gross incomeB. Earned incomeC. Exclusions from incomeD. Tax-deferred incomeE. Tax-exempt income B. Earned income
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? A. Add his tax-exempt incomeB. Subtract his itemized deductionsC. Add his tax creditsD. Subtract his tax-exempt incomeE. Add his tax exemptions B. Subtract his itemized deductions
Adjustments to income include all except A. Alimony paymentsB. Contributions to a Keogh retirement planC. Traditional IRA contributionsD. Roth IRA contributionsE. Penalties for early withdrawal of savings D. Roth IRA contributions
Individuals can deduct expenses only in excess of 7.5 percent of adjusted gross income for A. Contributions to charitable organizationsB. Mortgage interestC. Medical and dental expensesD. Miscellaneous expensesE. Taxes C. Medical and dental expenses
How long should you generally keep tax records? A. Until you file your returnsB. 3 yearsC. 5 yearsD. 10 yearsE. 15 years B. 3 years
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? A. Until he files his returnsB. 3 yearsC. 6 yearsD. 10 yearsE. 15 years C. 6 years
When Paul completes his taxes, he can include all of the following as exemptions except A. His 12 year old sonB. HimselfC. His 22 year old daughter who is a full-time studentD. His wifeE. His 20 year old son who is working full-time and living in an apartment E. His 20 year old son who is working full-time and living in an apartment
In 2008, taxable income was reduced by ______ for each exemption claimed. A. $1,000B. $2,500C. $3,500D. $5,000E. $10,000 C. $3,500
The taxes based on the total tax due divided by taxable income is called A. AMTB. Average tax rateC. Income tax rateD. Marginal tax rateE. Total tax rate B. Average tax rate
At the end of the year, employees receive a ____ form that reports annual earnings and the amounts deducted for taxes from their employer. A. 1040B. 1099C. W-2D. W-4E. Schedule A C. W-2
At the end of the year, Xavier received a form from his employer that reports annual earnings and the amounts deducted for taxes. That form is called a _____ A. 1040B. 1099C. W-2D. W-4E. Schedule A C. W-2
At the end of the year, Yvonne received a form from her bank that reports income from her savings. That form is called _____ A. 1040B. 1099C. W-2D. W-4E. Schedule A B. 1099
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 Nancy? A. SingleB. Married, filing joint returnC. Head of householdD. Qualifying widow or widowerE. Married, but filing individually B. Married, filing joint return
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 because of his marital status? A. SingleB. Married, filing joint returnC. Head of householdD. Qualifying widow or widowerE. Married, but filing individually D. Qualifying widow or widower
Amanda and Jack are working on their taxes and need to determine which form to file. They had wages, interest, and dividends. In addition they bought a house this past year and are thinking of itemizing their deductions. Which form should he use? A. 1040 EZB. 1040AC. 1040 D. 1040XE. 1040Z C. 1040 (Because of interests and dividends)
Individuals can file their federal taxes using A. Tax softwareB. E-fileC. Electronic filingD. TelephoneE. All of the above E. All of the above
Tax resources include all except A. IRS publicationsB. Enrolled agentsC. AccountantsD. AttorneysE. All of the above are tax resources. E. All of the above are tax resources.
Who is ultimately responsible for supplying accurate and complete information for the completing of a tax return? A. Professional tax preparerB. IRS enrolled agentC. TaxpayerD. Taxpayer’s dependentsE. Taxpayer’s attorney C. Taxpayer
An IRS agent visited Henry’s home to verify some information on his tax return. This visit was called a(n) A. Correspondence auditB. Office auditC. Home auditD. Field auditE. Detailed audit D. Field audit
Annie was required to clarify or document minor questions of her tax form by mail. She participated in a(n) A. Correspondence auditB. Office auditC. Home auditD. Field auditE. Detailed audit A. Correspondence audit
If Brenda wants to pay her fair share of taxes, no more and no less, she should practice A. Tax evasionB. Tax avoidanceC. Tax eliminationD. Tax maximizationE. Tax acceleration B. Tax avoidance
Which of the following is NOT an action that can reduce your taxes? A. Owning a home.B. Taking out a consumer loan.C. Paying certain work expenses.D. Depositing money into a Flexible Spending Account (FSA).E. Investing in municipal bonds. B. Taking out a consumer loan.
An advantage of investing in a 401(k) plan is the A. Ability to invest up to 25% of your annual incomeB. Opportunity to save $5,000 per yearC. Possibility of receiving an employer match on your contributionsD. Ability to pay taxes on distributionsE. Ability to roll IRA contributions into a 401(k) C. Possibility of receiving an employer match on your contributions
Identify and provide examples for four types of taxes that most people pay. Purchases-Sales taxes, excise taxes Income Tax-Social Security, Medicare, Federal, State Property Taxes -Real estate, Personal property tax. Wealth-Estate taxes, inheritance taxes
Describe the calculation for Adjusted Gross Income 1st: Add all income together2nd: Subtract appropriate adjustments
What is the difference between tax-exempt income and tax-deferred income? Tax-exempt: Not subject to taxes EVERTax deferred: Income that will be taxed at a later date
What are the five filing status categories for federal income taxes? Married filing jointlyMarried filing separateSingleWidow/WidowerHead of the household
Identify at least five sections of Form 1040. Personal InformationIncomeAdjustments to incomeTax computation Tax creditsTax paymentsRefund Signature
Stephen is planning to file taxes this year. He is married with two dependents. His household salary is relatively low. How should he file his tax forms? Why is that method appropriate for him? He could go online and use a tax software. Do it on paper. He might qualify for filing free online. (Free File Alliance)
Stephanie is planning to file taxes this year. She is married with two dependents and is considering using a tax preparation service. What are three factors she should consider before hiring a particular service? She should consider: How much it will costThe experience within that personThe availability Credible, good reputation Represent you if audited?Is it their main business?
When you receive an audit notice, you have certain rights. What are some (3) suggestions to follow with an audit? -Contact the person who prepared your taxes-Don’t be defensive-Be to the meeting on time-Keep your answers brief and only answer questions asked-Bring all your documents

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