FINC298 Chap 003 Practice Quiz

7/27/2019 FINC298 Chap 003 Practice Quiz

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Chapter 03 - Taxes in Your Financial Plan

Chapter 03

Taxes in Your Financial Plan

True / False Questions

1.(p. 76)Tax Freedom Day represents the day that the average person or!s until to pay theirtaxes each year.TRUE

Bloom's: KnowledgeDifficulty: MediumLearning !"ecti#e: $%opic: %a& strategy

".(p. 7)#n example o$ an excise tax is %ocial %ecurity.FALSE

%ocial %ecurity is a tax on earnings.

Bloom's: ompreensionDifficulty: *asyLearning !"ecti#e: $%opic: %a& strategy

3.(p. 7)&ndividuals are alloed to give money or items o$ any value to a person ithout 'eingsu'(ect to taxes.FALSE

The maximum amount that can 'e gi$ted ithout tax implications in "00) is *13+000.+%*:%is,uestioncan!eupdatedusingcurrentta&data.

Bloom's: Knowledge

Difficulty: *asyLearning !"ecti#e: $%opic: %a& strategy

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,.(p. 7)#mounts given $or tuition payments or medical expenses are not su'(ect to gi$t taxes.TRUE

Bloom's: KnowledgeDifficulty: *asyLearning !"ecti#e: $%opic: %a& strategy

.(p. 7-)Determining #d(usted ross &ncome is the $inal step in calculating $ederal incometax.FALSE

#d(usted ross &ncome /#& is a step in the tax calculation+ 'ut it is not the $inal step tocalculate income taxes.

Bloom's: ompreensionDifficulty: MediumLearning !"ecti#e: %opic: /ncome ta&

.(p. 7-)Cash and pri2es on on television game shos are usually su'(ect to 'oth $ederal andstate taxes.TRUE

Bloom's: KnowledgeDifficulty: *asyLearning !"ecti#e: %opic: /ncome ta&es

.(p. 0)The #d(usted ross &ncome is increased 'y the itemi2ed or standard deduction.FALSE

#& is reduced 'y these.

Bloom's: ompreensionDifficulty: MediumLearning !"ecti#e: %opic: /ncome ta&es

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4.(p. $)5hen Tom calculates his taxa'le income+ he should su'tract his tax credits $romad(usted gross income.FALSE

6e should su'tract his tax deductions+ not his tax credits. Tax credits are su'tracted directly$rom the amount o$ taxes oed.

Bloom's: ompreensionDifficulty: 1ardLearning !"ecti#e: %opic: /ncome ta&es

).(p. $)The itemi2ed deduction alloed $or an individual and older is higher than theitemi2ed deduction $or a younger taxpayer.

FALSE

This ould 'e true &F the statement saidstandarddeductioninstead o$ itemi2ed deduction.

Bloom's: KnowledgeDifficulty: MediumLearning !"ecti#e: %opic: /ncome ta&es

10.(p. )5hen 7arissa completes her taxes+ she can include her children+ her hus'and+ and

hersel$ as exemptions.TRUE


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11.(p. 0)Tax ta'les list average tax rates.FALSE

Tax ta'les sho marginaltax rates.


1".(p. 2)The average tax rate is the taxes paid on the next dollar o$ income.FALSE

The marginaltax rate $its this de$inition. The average tax rate is calculated 'y dividing the

total tax due 'y taxa'le income.


13.(p. 2)#ll individuals ith taxa'le income need to complete the #7T calculation.FALSE

The #7T is an alternative tax calculation designed to ensure that those ho receive tax'rea!s also pay their $air share o$ taxes.


1,.(p. 2)# tax credit has a $ull dollar e$$ect in loering taxes.TRUE


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1.(p. 2)# tax credit reduces the taxa'le income on hich the tax lia'ility is computed.FALSE

The de$inition is $or a tax deduction. # tax credit reduces the amount o$ taxes oed dollar $or

dollar.


1.(p. 2)&$ your taxes due are greater than the amount you had ithheld $or the year+ then youshould expect a re$und a$ter you complete your $ederal income taxes.FALSE

&$ taxes ithheld are greater than the amount due+ then you ill receive a re$und.


1.(p. 3)&ndividuals ho have high income reported on Form 10)) may 'e re8uired to payestimated tax payments.TRUE


14.(p. 3)Federal income tax returns must 'e $iled 'y #pril 1 o$ each year.FALSE

Forms must 'e $iled 'y #pril 1.


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1).(p. 3)Form ,44 allos a taxpayer to o'tain a six-month extension on $iling and paying$ederal taxes ithout penalty.FALSE

The extension does not delay the payment lia'ility.


"0.(p. 6)#ll citi2ens o$ the 9nited %tates are re8uired to $ile a $ederal income tax return i$their income $alls 'elo a certain level.FALSE

Citi2ens hose income is a!o#ea certain level are re8uired to $ile.

Bloom's: KnowledgeDifficulty: *asyLearning !"ecti#e: 4%opic: 5iling income ta&es

"1.(p. -)7ost states do not re8uire state income taxes.FALSE

:nly seven states do not have a state income tax.


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"".(p. -$)Tax so$tare can save taxpayers " hours or more hen preparing Form 10,0.FALSE

Tax so$tare can save 10 or more hours.

Bloom's: KnowledgeDifficulty: MediumLearning !"ecti#e: 4%opic: 5iling income ta&es

"3.(p. -$)The &;% has made online $iling $ree $or millions o$ taxpayers through the Free File#lliance.TRUE


",.(p. -4)Tom needs to complete his taxes. 6e should 'e a'le to $ind a tax preparation serviceto complete his tax $orms $or as little as *1.FALSE

Fees typically range $rom *,0 $or a tax preparation service.

Bloom's: ompreensionDifficulty: *asyLearning !"ecti#e: 4%opic: 5iling income ta&es

".(p. -2)# common $iling error is signing the return.FALSE

# common error is


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".(p. -3)%ome tax disputes have 'een escalated to the 9.%. %upreme Court.TRUE


".(p. -7):ne o$ the 'est tax shelters is oning a car.FALSE

:ne o$ the 'est shelters is oning a ome.

Bloom's: KnowledgeDifficulty: *asyLearning !"ecti#e: 2%opic: %a& planning strategy

"4.(p. -7)&nterest paid on a home e8uity loan is not deducti'le.FALSE

6ome e8uity interest /on loans up to *100+000 are deducti'le.

Bloom's: KnowledgeDifficulty: *asyLearning !"ecti#e: 2%opic: %a& planning strategy

").(p. -)Contri'utions to a =eogh or ,01/! are tax-exempt.FALSE

These are tax-de$erred contri'utions.

Bloom's: KnowledgeDifficulty: MediumLearning !"ecti#e: 2%opic: %a& planning strategy

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Multiple Choice Questions

30.(p. 76)# or!er>s primary goal should 'e to#.Pay his or her taxes using estimates $or income and deductions?.Pay no income taxesC.Pay the average tax rate $or people or!ing in his or her industry!Pay his or her $air share o$ taxes hile ta!ing advantage o$ appropriate tax '[email protected] no taxes o$ any type

Bloom's: ompreensionDifficulty: *asyLearning !"ecti#e: $%opic: %a& strategy

31.(p. 77)5hich o$ the $olloing is


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33.(p. 7)# tax imposed on the value o$ a person>s property at the time o$ death is called a/nA!@state tax?.@xcise taxC.&ncome tax

D.;eal estate tax@.%ales tax

Bloom's: ompreensionDifficulty: MediumLearning !"ecti#e: $%opic: %a& strategy

3,.(p. 7)This tax is a ma(or $inancial planning $actor $or most people 'ecause it is sometimesimposed at the $ederal+ state+ and local levels.

#.@state tax?.@xcise taxC!&ncome taxD.;eal estate tax@.%ales tax

Bloom's: ompreensionDifficulty: 1ardLearning !"ecti#e: $%opic: %a& strategy

3.(p. 7)The tax that is a ma(or source o$ revenue $or local governments is called a/n#.@state tax?.@xcise taxC.&ncome tax!;eal estate tax@.%ales tax

Bloom's: ompreensionDifficulty: Medium

Learning !"ecti#e: $%opic: %a& strategy

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3.(p. 7)Payroll deductions $or $ederal government retirement 'ene$its /such as old-age+survivor+ and disa'ility are called#.@state taxes?.@xcise taxes

C!%ocial %ecurity taxesD.;eal estate taxes@.%ales taxes


3.(p. 7)The amount oed on property received $rom a deceased person is

A!@state tax?.@xcise taxC.%ocial %ecurity taxD.;eal estate tax@.%ales tax


34.(p. 7)The maximum amount /in "00) that an individual can give another in a year ithout'eing su'(ect to $ederal taxes is#.#ll gi$ts are taxa'le?.*10+000C!*13+000D.*1+000@.


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3).(p. 7)You may 'e re8uired to ma!e estimated tax payments i$#.You receive a paychec! ith taxes ithheld?.You do not have interest incomeC.You are married

!You on your on 'usiness@.


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,".(p. 7-)&ncome that is never su'(ect to tax is called#.#d(usted gross income?.@arned incomeC.Foreign income

D.Tax-de$erred incomeE!Tax-exempt income


,3.(p. 7-)&ncome that is taxed at a later date is#.#d(usted gross income

?.@arned incomeC.@xclusions $rom income!Tax-de$erred [email protected] income


,,.(p. 0)ross income a$ter certain reductions have 'een made isA!#d(usted gross income?.@arned incomeC.@xclusions $rom incomeD.Tax-de$erred [email protected] income


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,.(p. 7-)Fees+ tips+ and 'onuses are $orms o$#.#d(usted gross income"!@arned incomeC.@xclusions $rom income

D.Tax-de$erred [email protected] income


,.(p. 7-)Total income /gross includes#.@xclusions $rom income

?.Tax deductionsC.Tax-de$erred income!Passive [email protected] income

Bloom's: ompreensionDifficulty: 1ardLearning !"ecti#e: %opic: /ncome ta&

,.(p. $)Eoseph needs to complete his income taxes $or the year. 6e has already calculated hisad(usted gross income. 5hat does he need to do nextA#.#dd his tax-exempt income"!%u'tract his itemi2ed deductionsC.#dd his tax creditsD.%u'tract his tax-exempt income@.#dd his tax exemptions

Bloom's: ompreensionDifficulty: 1ard

Learning !"ecti#e: %opic: /ncome ta&

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,4.(p. 0)#d(ustments to income include all e&cept#.#limony payments?.Contri'utions to a =eogh retirement planC.Traditional &;# contri'utions

!;oth &;# contri'[email protected] $or early ithdraal o$ savings

Bloom's: ompreensionDifficulty: 1ardLearning !"ecti#e: %opic: /ncome ta&

,).(p. $)&ndividuals can deduct expenses only in excess o$ . percent o$ ad(usted grossincome $or

#.Contri'utions to charita'le organi2ations?.7ortgage interestC!7edical and dental expensesD.7iscellaneous [email protected]


0.(p. $)#thena ants to determine i$ she should itemi2e her deductions. %he has identi$iedseveral possi'le deductions. 5hich o$ the $olloing is


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1.(p. $)%hannon is or!ing on her $ederal income tax $orm and ants to determine i$ sheshould itemi2e her deductions. %he has identi$ied several possi'le deductions. 5hich o$ the$olloing is an accepta'le deductionA#.*10+000 gi$t to her cousin

?.Credit card interestC.7edical and dental expenses less than . o$ #&!7iscellaneous expenses in excess o$ " o$ #&@.7oving expenses $or a ne (o' that is at least " miles $rom her old home

Bloom's: KnowledgeDifficulty: 1ardLearning !"ecti#e: %opic: /ncome ta&es

".(p. )6o long should you generally !eep tax recordsA#.9ntil you $ile your returns"!3 yearsC. yearsD.10 [email protected] years


3.(p. )Fred has 'een completing his on tax returns $or years. The &;% has recentlycontacted him ith 8uestions a'out some o$ his prior returns. 6o many years 'ac! is heresponsi'le $or providing documentationA#.9ntil he $iles his returns?.3 yearsC! yearsD.10 [email protected] years


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,.(p. )5hen Paul completes his taxes+ he can include all o$ the $olloing as exemptionse&cept#.6is 1" year old son?.6imsel$

C.6is "" year old daughter ho is a $ull-time studentD.6is i$eE!6is "0 year old son ho is or!ing $ull-time and living in an apartment

Children must 'e under 1) or $ull-time students under the age o$ ",.

Bloom's: ompreensionDifficulty: *asyLearning !"ecti#e: %opic: /ncome ta&es

.(p. )&n "004+ taxa'le income as reduced 'y GGGGGG $or each exemption claimed.#.*1+000?.*"+00C!*3+00D.*+000@.*10+000

+ote:%is,uestioncan!eupdatedwitannualcangestotee&emptions.


.(p. 4)&n "004+ $ederal tax ta'les included tax rates o$#.0+ 10+ "0+ 30+ ,0+ 0?.+ 1+ 30+ 33+ 34+ "C.0+ "+ 0+ !10+ 1+ "+ "4+ 33+ [email protected]+ + "0+ 30+ 0

Bloom's: KnowledgeDifficulty: 1ardLearning !"ecti#e: %opic: /ncome ta&es

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.(p. 2)The taxes 'ased on the total tax due divided 'y taxa'le income is called#.#7T"!#verage tax rateC.&ncome tax rate

D.7arginal tax [email protected] tax rate


4.(p. 2)The tax designed to ensure that those ho receive tax 'rea!s also pay their $air shareo$ taxes is called

A!#7T?.#verage tax rateC.&ncome tax rateD.7arginal tax [email protected] tax rate


).(p. 2)The tax due on the next dollar o$ income is re$erred to as the#.#7T?.#verage tax rateC.&ncome tax rate!7arginal tax [email protected] tax rate

Bloom's: KnowledgeDifficulty: Medium

Learning !"ecti#e: %opic: /ncome ta&es

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0.(p. 2)Tanya is a single lo-income or!ing parent and Fred is a single high-incomeor!ing parent. ?ecause o$ her status+ Tanya+ 'ut not Fred+ may 'e eligi'le $or the#.#lternative minimum tax"!@arned-income credit

C.&temi2ed deduction creditD.%tudent [email protected] credit




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3.(p. 2)#t the end o$ the year+ employees receive a GGGG $orm that reports annual earningsand the amounts deducted $or taxes $rom their employer.#.10,0?.10))

C!5-"D.5-,@.%chedule #


,.(p. 2)#t the end o$ the year+ Havier received a $orm $rom his employer that reports annual

earnings and the amounts deducted $or taxes. That $orm is called a GGGGG#.10,0?.10))C!5-"D.5-,@.%chedule #


.(p. 3)#t the end o$ the year+ Yvonne received a $orm $rom her 'an! that reports income$rom her savings. That $orm is called GGGGG#.10,0"!10))C.5-"D.5-,@.%chedule #


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.(p. 3)#t the end o$ the year+ 5alter received a $orm that shoed his payments $romindependent contracting. That $orm is called GGGGG#.10,0"!10))

C.5-"D.5-,@.%chedule #


.(p. 3)Penny !nos that she needs to $ile her taxes+ 'ut is una'le to do so 'y #pril 1. 5hat

$orm does she need to complete to o'tain an automatic six-month extensionA#.10,0?.10))C!,44D.5-"@.5-,


4.(p. 6)


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).(p. 6)?o' as married to %andy and they have a 1" year old son. %andy passed aay lastyear. ?o' needs to complete his $ederal income taxes $or the year. 5hat $iling status could heuse 'ecause o$ his marital statusA#.%ingle

?.7arried+ $iling (oint returnC.6ead o$ household!Iuali$ying ido or [email protected]+ 'ut $iling individually

Bloom's: ompreensionDifficulty: MediumLearning !"ecti#e: 4%opic: 5iling income ta&es



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".(p. 6)#manda and Eac! are or!ing on their taxes and need to determine hich $orm to$ile. They had ages+ interest+ and dividends. &n addition they 'ought a house this past yearand are thin!ing o$ itemi2ing their deductions. 5hich $orm should he useA#.10,0 @J

?.10,0#C!10,0D.10,[email protected],0J


3.(p. -)The ma(or sections o$ Form 10,0 include all e&cept#.Filing status and exemptions?.#d(ustments to income /#&C.Tax creditsD.%ignatureE!#ll are sections o$ Form 10,0


,.(p. -0)&ndividuals can $ile their $ederal taxes using#.Tax so$tare?.@-$ileC.@lectronic $ilingD.TelephoneE!#ll o$ the a'ove

Bloom's: Knowledge

Difficulty: *asyLearning !"ecti#e: 4%opic: 5iling income ta&es

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.(p. -4)Tax resources include all e&cept#.&;% pu'lications?.@nrolled agentsC.#ccountants

D.#ttorneysE!#ll o$ the a'ove are tax resources.


.(p. -4)5ho is ultimately responsi'le $or supplying accurate and complete in$ormation $orthe completing o$ a tax returnA

#.Pro$essional tax preparer?.&;% enrolled agentC!TaxpayerD.Taxpayer>s [email protected]>s attorney

Bloom's: ompreensionDifficulty: *asyLearning !"ecti#e: 4%opic: 5iling income ta&es

.(p. -3)#n &;% agent visited 6enry>s home to veri$y some in$ormation on his tax return. Thisvisit as called a/n#.Correspondence audit?.:$$ice auditC.6ome audit!Field [email protected] audit

Bloom's: ompreension

Difficulty: MediumLearning !"ecti#e: 4%opic: 5iling income ta&es

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4.(p. -2)#nnie as re8uired to clari$y or document minor 8uestions o$ her tax $orm 'y mail.%he participated in a/nA!Correspondence audit?.:$$ice audit

C.6ome auditD.Field [email protected] audit


).(p. -6)&$ ?renda ants to pay her $air share o$ taxes+ no more and no less+ she should

practice#.Tax evasion"!Tax avoidanceC.Tax eliminationD.Tax [email protected] acceleration

Bloom's: KnowledgeDifficulty: 1ardLearning !"ecti#e: 2%opic: %a& planning strategies

40.(p. -6)Connie thin!s that her salary and tax rate $or next year ill 'e loer than $or thisyear. 5hat step should she ta!e to minimi2e her taxes in the current yearA#.#ccelerate receipt o$ income.?.Delay deductions.C.Practice tax evasion.!#ccelerate deductions.@.


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41.(p. -6)David thin!s that his salary and tax rate $or next year ill 'e higher than $or this year.5hat step should he ta!e to minimi2e his taxesA#.Delay receipt o$ income.?.Delay $iling taxes.

C!#ccelerate receipt o$ income.D.#ccelerate deductions.@.


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4,.(p. ---)@van ants to minimi2e his $uture taxes. 5hich o$ these ould 'e the 'est $or himto invest in todayA#.7unicipal 'onds?.Tax-de$erred annuity

C.%ection ") savings planD.,01/! planE!;oth &;#

Bloom's: ompreensionDifficulty: 1ardLearning !"ecti#e: 2%opic: %a& planning strategy

4.(p. ---)The maximum than an individual can contri'ute to a ;oth &;# each year is

#.*1+000?.*3+000C!*+000D.*10+000@.*1+00

+%*:%e%e&tsowsa48000annualcontri!utionwilltis!eupdatedtotecurrent380009/fnot8tenteanswerneedsto!ecangedtoB.

Bloom's: Knowledge

Difficulty: MediumLearning !"ecti#e: 2%opic: %a& planning strategy

4.(p. --)The maximum that an individual can contri'ute to an education &;# each year is#.*1+000"!*"+000C.*3+000D.*+000@.*1+00

Bloom's: KnowledgeDifficulty: MediumLearning !"ecti#e: 2%opic: %a& planning strategy

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4.(p. --)The maximum than an individual can contri'ute to a =eogh Plan each year is#.*"+000?.10 o$ annual incomeC.*+000

D.*1+00E!" o$ annual income+ up to a maximum o$ *30+000

Bloom's: KnowledgeDifficulty: 1ardLearning !"ecti#e: 2%opic: %a& planning strategy

44.(p. --)Bauren ons her on 'usiness and is thin!ing a'out saving $or retirement. %he antsto invest up to " o$ her annual income. 5hich plan should she useA

#.;oth &;#?.,01/!C!=eogh planD.F%#@.Traditional &;#

Bloom's: ompreensionDifficulty: MediumLearning !"ecti#e: 2%opic: %a& planning strategy

4).(p. --)#n advantage o$ investing in a ,01/! plan is the#.#'ility to invest up to " o$ your annual income?.:pportunity to save *+000 per yearC!Possi'ility o$ receiving an employer match on your contri'utionsD.#'ility to pay taxes on distri'utions@.#'ility to roll &;# contri'utions into a ,01/!

Bloom's: ompreensionDifficulty: Medium

Learning !"ecti#e: 2%opic: %a& planning strategy

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)0.(p. 7-)Eanet is completing her $ederal income taxes $or the year and has identi$ied theamounts listed 'elo. 6o much can she right$ully deductA

#& *,0+000

7edical and dental expenses *00%tate income taxes *00

7ortgage interest *+00

Charita'le contri'utions *0

#.*1+40?.*+00C.*+"0!*+0@.*4+30

Deductions include %tate income tax K 7ortgage interest K Charita'le contri'utions L *00 K*+00 K *0 L *+0.7edical and dental expenses are not deducti'le 'ecause they are less than . o$ her #&.

Bloom's: pplicationDifficulty: MediumLearning !"ecti#e: %opic: /ncome ta&es

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)1.(p. 7-)%am and Diane are completing their $ederal income taxes $or the year and haveidenti$ied the amounts listed 'elo. 6o much can they right$ully deductA

#& *)0+000

7edical and dental expenses *10+000%tate income taxes *,+00

7ortgage interest *10+00

Charita'le contri'utions *"+000

#.*13+0"!*"0+"0C.*""+00D.*"+000@.*"+000

Deductions include 7edical M dental in excess o$ . o$ #& K %tate income tax K7ortgage interest K Charita'le contri'utions L /*10+000 - N*)0+000 O .0 K *,+00 K*10+00 K *"+000 L *"0+"0.

Bloom's: pplicationDifficulty: 1ardLearning !"ecti#e: %opic: /ncome ta&es

)".(p. )Eason>s household consists o$ himsel$+ his i$e+ and their "-year old daughter. 6o

much can Eason claim $or his exemptionsA#.*1+000?.*3+00C.*+000!*10+00@.*1+000

Three exemptions can 'e claimed Eason+ his spouse+ his dependent. @ach exemption asorth *3+00 in "004. There$ore+ total exemptions claimed L *3+00 O 3 L *10+00.+ote:%is,uestioncan!eupdatedwitannualcangestotee&emptions.


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)3.(p. 4)9sing the ta'le 'elo+ calculate the taxes $or an individual ith taxa'le income o$*"0+000.

#.*40".0"!*"+)4.C.*3+000D.*,+,41."

@.*"0+000

Taxes L 10 O *4+0" K 1 O /*"0+000 - *4+0" L *40".0 K *1+)." L *"+)4.


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),.(p. 4)9sing the ta'le 'elo+ calculate the taxes $or an individual ith taxa'le income o$*30+000.

#.*40".0?.*3+4.C!*,+0)4.D.*,+00

@.*,+,41."

Taxes L 10 O *4+0" K 1 O /*30+000 - *4+0" L *40".0 K *3+")." L *,+0)4.


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).(p. 4)9sing the ta'le 'elo+ calculate the taxes $or an individual ith taxa'le income o$*0+000.

#.*,+,41.""!*4+4,3.C.*1"+00D.*1+"3.

@.*1+0."

Taxes L 10 O *4+0" K 1 O /*3"+0 - *4+0" K " O /*0+000 - *3"+0 L *40".0 K*34. K *,+3".0 L *4+4,3.


).(p. 2)&$ Eac! as in a "4 tax 'rac!et and received a *"+000 tax deduction+ ho muchould his taxes 'e reducedA#.*"4?.*C!*0D.*1+,,0@.*"+000

Taxes ould 'e reduced 'y /Tax deduction O /Tax rate L *"+000 O "4 L *0.


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).(p. 2)&$ Diane as in a "4 tax 'rac!et and received a *"+000 tax credit+ ho much ouldher taxes 'e reducedA#.*"4?.*

C.*0D.*1+,,0E!*"+000

Taxes ould 'e reduced 'y the $ull amount o$ the tax credit+ *"+000.


)4.(p. 2)eorge Fran!lin paid taxes o$ *,+,00 on a taxa'le income o$ *,"+000. 5hat as hisaverage tax rateA#.10"!10.C.1D."[email protected].

#verage taxes L Taxes paidQTaxa'le income L *,+,00Q*,"+000 L .10,4 L 10.,4 or 10.


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FINC298 Chap 003 Practice Quiz