Ch.4 Personal Taxation Complete Test Bank 1st Edition

Introduction to Personal Finance, 1e (Grable)

Chapter 4 Personal Taxation

1) Which of the following refers to financial obligations imposed on individuals and businesses by government entities?

A) Taxes.

B) Public service.

C) Loan.

D) Social welfare.

Diff: 1

LO: 4.1, Section 4.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

2) Most working adults, living in the United States, will pay

A) federal income taxes.

B) payroll taxes.

C) sales taxes.

D) All of these answer choices are correct.

Diff: 1

LO: 4.1, Section 4.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

3) Which of the following refers to a tax that is imposed once per year?

A) Federal income taxes.

B) Payroll taxes.

C) Sales taxes.

D) Property taxes.

Diff: 1

LO: 4.1, Section 4.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

4) Which of the following refers to a tax that is paid when purchasing goods and services?

A) Federal income taxes.

B) Payroll taxes.

C) Sales taxes.

D) Property taxes.

Diff: 1

LO: 4.1, Section 4.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

5) Which of the following refers to a tax that is paid throughout the year as income is earned?

A) Payroll taxes.

B) Sales taxes.

C) Property taxes.

D) All of these answer choices are correct.

Diff: 1

LO: 4.1, Section 4.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

6) Which of the following are withholdings?

A) Federal income taxes, only.

B) Payroll taxes, only.

C) Sales taxes, only.

D) Both federal income and payroll taxes.

Diff: 1

LO: 4.1, Section 4.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

7) Which of the following refers to a tax that imposes the same tax rate on all taxpayers subject to the tax?

A) Regressive tax.

B) Flat tax.

C) Progressive tax.

D) Federal income tax.

Diff: 1

LO: 4.1, Section 4.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

8) Which of the following refers to a tax that applies higher tax rates to higher-income households?

A) Regressive tax.

B) Flat tax.

C) Progressive tax.

D) Sales tax.

Diff: 1

LO: 4.1, Section 4.1

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

9) Which of the following refers to tax revenue exceeding annual expenditures?

A) Federal surplus.

B) Federal deficit.

C) U.S. debt.

D) Federal income tax.

Diff: 1

LO: 4.1, Section 4.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

10) Which of the following refers to annual expenditures exceeding tax revenue?

A) Federal surplus.

B) Federal deficit.

C) U.S. debt.

D) Federal income tax.

Diff: 1

LO: 4.1, Section 4.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

11) What was the approximate value of the U.S. debt in 2018?

A) $10 billion.

B) $20 billion.

C) $10 trillion.

D) $20 trillion.

Diff: 1

LO: 4.1, Section 4.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

12) Which government agency is charged with collecting and enforcing tax laws?

A) Consumer Financial Protection Bureau (CFPB).

B) Internal Revenue Service (IRS).

C) Securities and Exchange Commission (SEC).

D) Federal Bureau of Investigation (FBI).

Diff: 1

LO: 4.1, Section 4.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

13) Which of the following creates the federal tax law?

A) The U.S. House of Representatives, only.

B) The U.S. Senate, only.

C) The U.S. House of Representatives and the U.S. Senate.

D) The U.S. Senate and the Internal Revenue Service.

Diff: 1

LO: 4.1, Section 4.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

14) How often should self-employed individuals pay their taxes?

A) Monthly.

B) Quarterly.

C) Annually.

D) When they file their taxes.

Diff: 1

LO: 4.1, Section 4.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

15) Mia buys a shirt for $43. The sales tax rate is 7%. How much is her total cost for the shirt?

A) $40.19.

B) $43.00.

C) $46.01.

D) $50.00.

Diff: 2

LO: 4.1, Section 4.1

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

16) Which of the following refers to information that the taxpayer compiles and reports to the IRS on a standardized form?

A) Tax return.

B) Federal taxes.

C) Withholdings.

D) Tax formula.

Diff: 1

LO: 4.2, Section 4.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

17) Which of the following forms shows the federal income tax formula?

A) Form W-2.

B) Form 1040.

C) Form 1099.

D) Form W-4.

Diff: 1

LO: 4.2, Section 4.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

18) Which of the following refers to your income after deductions?

A) Gross income.

B) Adjusted gross income (AGI).

C) Assessed income.

D) Tax formula.

Diff: 1

LO: 4.2, Section 4.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

19) Which of the following refers to a category of dependents?

A) Qualifying children, only.

B) Qualifying relatives, only.

C) Both qualifying children and qualifying relatives.

D) Head of household.

Diff: 1

LO: 4.2, Section 4.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

20) Which of the following refers to the standard tax form that can be used to file taxes?

A) Form 1040.

B) Form W-2.

C) Form W-9.

D) Form 1099.

Diff: 1

LO: 4.2, Section 4.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

21) Which of the following is a filing status?

A) College student.

B) Qualifying child.

C) Head of household.

D) Qualifying child and qualifying relative.

Diff: 1

LO: 4.2, Section 4.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

22) Your marital status is determined as of what date in regard to your income taxes?

A) January 1.

B) July 1.

C) December 1.

D) December 31.

Diff: 1

LO: 4.2, Section 4.2

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

23) Generally, filing a joint tax return with your spouse results in ________ tax liability compared with filing separately.

A) a lower

B) a higher

C) the same

D) zero

Diff: 1

LO: 4.2, Section 4.2

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

24) What filing status would be appropriate for someone who is unmarried and has no dependent children or relatives?

A) Single.

B) Married filing jointly.

C) Married filing separately.

D) Head of household.

Diff: 1

LO: 4.2, Section 4.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

25) What filing status would be appropriate for someone who is unmarried and is the primary provider of a qualifying dependent?

A) Single.

B) Married filing jointly.

C) Married filing separately.

D) Head of household.

Diff: 1

LO: 4.2, Section 4.2

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

26) Which of the following is NOT a general test for qualifying children?

A) Age.

B) Support.

C) Marital status.

D) Relationship.

Diff: 1

LO: 4.2, Section 4.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

27) Which of the following is included in your gross income?

A) A scholarship for tuition.

B) Scholarships and grants in excess of tuition and books.

C) Municipal bond interest.

D) A scholarship for books.

Diff: 2

LO: 4.2, Section 4.2

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

28) Which of the following is excluded from your gross income?

A) Gifts.

B) Life insurance death benefits.

C) Fringe benefits.

D) All of these answer choices are correct.

Diff: 2

LO: 4.2, Section 4.2

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

29) Which of the following refers to the amount remaining after the standard or itemized deduction?

A) Gross income.

B) AGI.

C) Taxable income.

D) Net income.

Diff: 1

LO: 4.2, Section 4.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

30) Common itemized deductions include which of the following?

A) Qualifying charitable deductions.

B) Unreimbursed employee expenses.

C) State and local taxes.

D) All of these answer choices are correct.

Diff: 1

LO: 4.2, Section 4.2

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

31) Which of the following refers to the rate of change in tax resulting from a change in income or deduction?

A) Marginal tax rate.

B) Federal taxes.

C) Withholdings.

D) Effective tax rate.

Diff: 1

LO: 4.3, Section 4.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

32) Which of the following refers to income derived from work, interest, and self-employment?

A) Capital gain income.

B) Gross income.

C) Ordinary income.

D) AGI.

Diff: 1

LO: 4.3, Section 4.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

33) Which of the following refers to a predefined range of taxable income in which a single tax rate applies?

A) Marginal tax rate.

B) Tax bracket.

C) Withholdings.

D) Effective tax rate.

Diff: 1

LO: 4.3, Section 4.3

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

34) Which of the following measures the average tax an individual pays on their entire income?

A) Marginal tax rate.

B) Federal taxes.

C) Withholdings.

D) Effective tax rate.

Diff: 1

LO: 4.3, Section 4.3

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

35) Which of the following results from selling a capital asset at a gain when the asset was owned for less than a year?

A) Long-term capital gains.

B) Short-term capital gains.

C) Withholdings.

D) Ordinary income.

Diff: 1

LO: 4.3, Section 4.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

36) Which of the following results from selling a capital asset at a gain when the asset was owned for more than a year?

A) Long-term capital gains.

B) Short-term capital gains.

C) Withholdings.

D) Ordinary income.

Diff: 1

LO: 4.3, Section 4.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

37) How many tax brackets existed in 2018?

A) Five.

B) Six.

C) Seven.

D) Eight.

Diff: 1

LO: 4.3, Section 4.3

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

38) If you want to know at what tax rate one more dollar of your income would be taxed, you would look at your

A) marginal tax rate.

B) tax bracket.

C) withholdings.

D) effective tax rate.

Diff: 1

LO: 4.3, Section 4.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

39) Long-term capital gains are most commonly taxed at what rates?

A) 0% or 10%.

B) 0% or 15%.

C) 15% or 25%.

D) 15% or 35%.

Diff: 1

LO: 4.3, Section 4.3

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

40) When engaging in tax planning, knowing your ________ is very helpful.

A) marginal tax rate

B) tax bracket

C) withholdings

D) effective tax rate

Diff: 1

LO: 4.3, Section 4.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

41) Which of the following do you need to know in order to calculate your marginal tax rate?

A) The new tax liability after the change in income.

B) The old tax liability before the change in income.

C) The change in income.

D) All of these answer choices are correct.

Diff: 1

LO: 4.3, Section 4.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

42) What happens to the tax brackets if your filing status changes from single to married?

A) The same tax rates apply, but the tax brackets are larger so that more of your income is taxed at higher tax rates.

B) The same tax rates apply, but the tax brackets are smaller so that more of your income is taxed at lower tax rates.

C) The same tax rates apply, but the tax brackets are larger so that more of your income is taxed at lower tax rates.

D) A different tax rate applies.

Diff: 1

LO: 4.3, Section 4.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

43) Which of the following refers to a tax on dependent children with more than $2,100 (in 2018) of unearned income?

A) Marginal tax rate.

B) Kiddie tax.

C) Effective tax rate.

D) Capital gains.

Diff: 1

LO: 4.3, Section 4.3

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

44) If you could have all of your income taxed at the lower capital gains tax rates, you would be able to accumulate after-tax wealth

A) slower.

B) faster.

C) at the same rate.

D) All of these answer choices are correct.

Diff: 1

LO: 4.3, Section 4.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

45) How are short-term capital gains taxed?

A) 0%.

B) 15%.

C) 25%.

D) Same rate as ordinary income.

Diff: 1

LO: 4.3, Section 4.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

46) Which of the following is a result of when refundable tax credits exceed an individual's total tax?

A) Marginal tax rate.

B) Federal taxes.

C) Effective tax rate.

D) Negative effective tax rate.

Diff: 1

LO: 4.4, Section 4.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

47) A(n) ________ represents a dollar-for-dollar reduction in an assessed tax liability.

A) tax credit

B) exemption

C) deduction

D) negative effective tax rate

Diff: 1

LO: 4.4, Section 4.4

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

48) Which of the following refers to a tax credit that can reduce an individual's assessed tax below zero?

A) Refundable tax credit.

B) Nonrefundable tax credit.

C) Deduction.

D) Negative effective tax rate.

Diff: 1

LO: 4.4, Section 4.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

49) Which of the following refers to a tax credit that can reduce an individual's assessed tax to zero but cannot make it negative?

A) Refundable tax credit.

B) Nonrefundable tax credit.

C) Deduction.

D) Negative effective tax rate.

Diff: 1

LO: 4.4, Section 4.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

50) An example of a fully refundable tax credit is

A) the Lifetime Learning Credit.

B) the Earned Income Tax Credit.

C) the Retirement Savings Contribution Credit.

D) the Child Tax Credit.

Diff: 2

LO: 4.4, Section 4.4

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

51) Which of the following is a partly refundable tax credit?

A) Lifetime Learning Credit.

B) American Opportunity Credit.

C) Retirement Savings Contribution Credit.

D) Earned Income Tax Credit.

Diff: 2

LO: 4.4, Section 4.4

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

52) Which of the following refers to a tax credit that is partly refundable and is available to whoever claims the students as a dependent on their tax return?

A) Lifetime Learning Credit.

B) American Opportunity Credit.

C) Retirement Savings Contribution Credit.

D) Child Tax Credit.

Diff: 2

LO: 4.4, Section 4.4

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

53) Jen is in graduate school. Unfortunately, she does not qualify for the American Opportunity Credit. As an alternative, Jen can claim the

A) Lifetime Learning Credit.

B) Earned Income Tax Credit.

C) Retirement Savings Contribution Credit.

D) Child Tax Credit.

Diff: 1

LO: 4.4, Section 4.4

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

54) Which of the following refers to a tax credit that is refundable and designed to reward work and boost the income of low-income workers?

A) Lifetime Learning Credit.

B) Earned Income Tax Credit.

C) Retirement Savings Contribution Credit.

D) Child Tax Credit.

Diff: 1

LO: 4.4, Section 4.4

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

55) Negative effective tax rates are most prevalent in which population?

A) High-income households.

B) Middle-income households.

C) Single taxpayer households.

D) Low-income working households with dependent children.

Diff: 1

LO: 4.4, Section 4.4

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

56) What percent of all working households owe no federal income taxes?

A) 10%.

B) 20%.

C) 30%.

D) 40%.

Diff: 1

LO: 4.4, Section 4.4

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

57) Which of the following is more valuable for the taxpayer?

A) $1,000 tax credit.

B) $1,000 tax deduction.

C) A tax credit and a tax deduction are the same value.

D) Kiddie tax credit.

Diff: 2

LO: 4.4, Section 4.4

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

58) If you had too much in taxes taken out of your paycheck, what might you qualify for?

A) A tax credit.

B) A tax deduction.

C) A refund.

D) A loan.

Diff: 1

LO: 4.4, Section 4.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

59) How does increasing your number of allowances affect your paycheck?

A) It will decrease the amount of taxes automatically withheld.

B) It will increase the amount of taxes automatically withheld.

C) It will more than double the amount of taxes automatically withheld.

D) No change in your paycheck.

Diff: 1

LO: 4.4, Section 4.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

60) How does decreasing your number of allowances affect your paycheck?

A) It will decrease the amount of taxes automatically withheld.

B) It will increase the amount of taxes automatically withheld.

C) It will more than double the amount of taxes automatically withheld.

D) No change in your paycheck.

Diff: 1

LO: 4.4, Section 4.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

61) Which of the following describes a self-employed individual?

A) Paid only when working.

B) Pay for all of their expenses related to work.

C) Make quarterly estimated tax payments.

D) All of these answer choices are correct.

Diff: 1

LO: 4.5, Section 4.5

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

62) Which of the following refers to a statement that an employee receives at the end of the year to summarize earned income?

A) W-2.

B) 1099.

C) 1040.

D) W-9.

Diff: 1

LO: 4.5, Section 4.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

63) Which of the following refers to a statement that a self-employed individual receives at the end of the year to summarize earned income?

A) W-2.

B) 1099.

C) 1040.

D) W-9.

Diff: 1

LO: 4.5, Section 4.5

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

64) Which of the following describes an employee?

A) Paid an hourly wage for a guaranteed number of hours each week.

B) May incur some expenses in carrying out job duties.

C) Taxes are withheld from the paycheck.

D) All of these answer choices are correct.

Diff: 1

LO: 4.5, Section 4.5

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

65) Which of the following refers to the national health insurance program for individuals 65 years and older?

A) Medicaid.

B) Social Security.

C) Medicare.

D) Federal Insurance Contributions Act (FICA).

Diff: 1

LO: 4.5, Section 4.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

66) What is the total tax rate for Old Age, Survivors, and Disability Insurance?

A) 6.2%.

B) 8.4%.

C) 10.2%.

D) 12.4%.

Diff: 1

LO: 4.5, Section 4.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

67) What is the total tax rate for Medicare?

A) 1.45%.

B) 2.9%.

C) 6.2%.

D) 12.4%.

Diff: 1

LO: 4.5, Section 4.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

68) Which of the following refers to the total amount of money received from the self-employment activity less the expenses incurred to generate that income?

A) Net earnings.

B) Total income.

C) Annual income.

D) Annual salary.

Diff: 1

LO: 4.5, Section 4.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

69) Which of the following refers to the form that self-employment income and related expenses are more often reported on?

A) W-9.

B) Schedule C.

C) 1099.

D) W-2.

Diff: 1

LO: 4.5, Section 4.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

70) From an employer's perspective, which of the following is an advantage of classifying workers as self-employed contractors?

A) It lowers the overall amount of taxes the employer must pay.

B) It increases the amount of taxes workers must pay.

C) It lowers the overall amount of taxes the employer must pay, and it increases the amount of taxes workers must pay.

D) None of these answer choices are correct.

Diff: 1

LO: 4.5, Section 4.5

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

71) Which of the following might a self-employed individual deduct when calculating AGI?

A) Some of the costs of their home.

B) Miles driven for business.

C) Supplies for business.

D) All of these answer choices are correct.

Diff: 1

LO: 4.5, Section 4.5

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

72) Which of the following refers to a form that employers or workers can file with the IRS if there is a question about how the worker should be classified?

A) W-9.

B) Schedule C.

C) 1099.

D) SS-8.

Diff: 1

LO: 4.5, Section 4.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

73) The Medicare tax is formally known as what?

A) FICA.

B) Health insurance.

C) Medicaid.

D) 1099.

Diff: 1

LO: 4.5, Section 4.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

74) At what amount does the tax base cap for Social Security tax?

A) $107,200.

B) $117,200.

C) $128,400.

D) There is no cap.

Diff: 1

LO: 4.5, Section 4.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

75) Which of the following refers to the legal, systematic structuring of transactions to minimize taxes?

A) Tax avoidance.

B) Tax loopholes.

C) Tax evasion.

D) Tax advantage.

Diff: 1

LO: 4.6, Section 4.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

76) Which of the following refers to the legal strategies to reduce the amount of taxes owed?

A) Tax avoidance.

B) Tax loopholes.

C) Tax evasion.

D) Tax advantage.

Diff: 1

LO: 4.6, Section 4.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

77) Which of the following refers to the fraudulent structuring of transactions for the sole purpose of tax avoidance, that is, without any other business or economic purpose?

A) Tax avoidance.

B) Tax loopholes.

C) Tax evasion.

D) Tax advantage.

Diff: 1

LO: 4.6, Section 4.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

78) Which of the following occurs each time you convert one asset into a different one for a gain?

A) Tax avoidance.

B) Tax loopholes.

C) Realized income.

D) Recognized income.

Diff: 1

LO: 4.6, Section 4.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

79) Which of the following occurs when realized income is reported and taxed?

A) Tax avoidance.

B) Tax loopholes.

C) Realized income.

D) Recognized income.

Diff: 1

LO: 4.6, Section 4.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

80) Which of the following is an example of realized income?

A) Converting your human capital into a paycheck.

B) Converting a coin collection into cash by selling it.

C) Converting good grades in school into a scholarship that pays your tuition and fees.

D) All of these answer choices are correct.

Diff: 1

LO: 4.6, Section 4.6

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

81) What type of strategies allows you to realize income without having to recognize the income for taxes?

A) Tax avoidance.

B) Tax loopholes.

C) Tax evasion.

D) Tax advantage.

Diff: 1

LO: 4.6, Section 4.6

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

82) Which of the following is an example of a tax avoidance strategy?

A) Tax deductions.

B) Tax exemptions.

C) Tax exempt sources of income.

D) All of these answer choices are correct.

Diff: 1

LO: 4.6, Section 4.6

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

83) Employee benefits provide a way to

A) not realize income.

B) not recognize income.

C) practice tax evasion.

D) All of these answer choices are correct.

Diff: 1

LO: 4.6, Section 4.6

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

84) Which of the following is a retirement savings account that you contribute money to and then use to purchase investments?

A) Roth IRA.

B) Tax exemption.

C) Municipal bond.

D) 529 savings plan.

Diff: 1

LO: 4.6, Section 4.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

85) Which of the following refers to a tax strategy of letting assets appreciate in value over a long period before realizing the gains?

A) Tax deduction.

B) Tax exemption.

C) Tax-deferred growth.

D) Tax credit.

Diff: 1

LO: 4.6, Section 4.6

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

86) The standard mileage rate deduction can be used for miles associated with which of the following?

A) Business.

B) Medical.

C) Charitable activities.

D) All of these answer choices are correct.

Diff: 1

LO: 4.6, Section 4.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

87) Jorge drove 2,000 miles for business, and the business-related mileage rate is $0.535. How much is his mileage deduction?

A) $500.

B) $1,000.

C) $1,070.

D) It's not deductible.

Diff: 2

LO: 4.6, Section 4.6

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

88) Mia drove 3,000 miles for medical appointments, and the medical-related mileage rate is $0.17. How much is her mileage deduction?

A) $500.

B) $510.

C) $1,000.

D) It's not deductible.

Diff: 2

LO: 4.6, Section 4.6

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

89) Max drove 3,500 miles for charity, and the charitable-related mileage rate is $0.14. How much is his mileage deduction?

A) $500.

B) $490.

C) $250.

D) It's not deductible.

Diff: 2

LO: 4.6, Section 4.6

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

90) Stephanie is 60 years old and is in the 30% tax bracket. Fifteen years ago, she established a Roth IRA that now has a balance of $62,180. She would like to buy a new car and is considering using the funds from her Roth IRA. If she withdraws $20,000 from her account, she will

A) not have to pay taxes on her withdrawal.

B) pay $6,000 in taxes.

C) have to pay payroll taxes.

D) have to pay a 10% penalty on her withdrawal.

Diff: 2

LO: 4.6, Section 4.6

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

91) Which of the following best describes taxable income?

A) The amount remaining after deducting both standard deduction and itemized deduction.

B) The amount remaining after the standard deduction or itemized deduction.

C) The amount remaining after deducting payroll taxes.

D) The amount remaining after paying Social Security and Medicare taxes.

Diff: 1

LO: 4.2, Section 4.2

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

92) The kiddie tax applies to

A) children under the age of 18 with earned income above $2,000 (2018).

B) children under the age of 18 with earned income above $2,100 (2018).

C) dependent children with unearned income above $2,100 (2018).

D) all dependent children until the year they reach age 25.

Diff: 2

LO: 4.3, Section 4.3

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

93) Short-term capital gains

A) receive the same capital gains treatment as long-term capital gains.

B) are not taxed since it is viewed as a return of capital.

C) are taxed as ordinary income.

D) are taxed at 15% or 20%.

Diff: 1

LO: 4.3, Section 4.3

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

94) Which of the following applies to capital losses?

A) Capital losses occur when you sell investments for a gain.

B) Capital losses can be used to offset similar gains for tax purposes.

C) Capital losses cannot be used to reduce your tax base.

D) Capital losses only apply to taxpayers with dependent children.

Diff: 1

LO: 4.3, Section 4.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

95) Last year, Penny earned $2,000 from her summer job working as an intern for a marketing firm; she also received a gift of $1,500 from her grandmother for her birthday and received $300 in scholarship funds that was in addition to another scholarship that completely covered her tuition and books. What is Penny's gross income?

A) $2,000.

B) $3,500.

C) $2,300.

D) $3,800.

Diff: 2

LO: 4.2, Section 4.2

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

96) Odell is single and has an adjusted gross income of $90,000. Last year, he made $12,000 in student loan payments of which $10,940 went to the principal and $1,060 went to interest. With regard to his student loan, Odell will

A) be able to claim a deduction for $12,000.

B) be able to claim a deduction for $10,940.

C) be able to claim a deduction for $1,060.

D) not be able to claim a deduction for his student loan interest.

Diff: 2

LO: 4.2, Section 4.2

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

97) After being married for 15 years, John and Shirley decided to get a divorce. After a long court battle, the judge ruled that they share custody of their five-year-old daughter Debbie. Last year, Debbie lived with her Dad for eight months and spent the remaining four months with her mother. John and Shirley provide equal financial support for Debbie. Who will be able to claim Debbie as a qualifying dependent?

A) Both John and Shirley will be able to claim Debbie as a dependent since they provide equal financial support.

B) John will be able to claim Debbie as a dependent because he provides equal financial support and Debbie lives with him for more than half the year.

C) Shirley will be able to claim Debbie as the dependent since this is a right reserved only for mothers.

D) Neither John nor Shirley will be able to claim Debbie as a dependent since they are no longer able to file as married filing jointly.

Diff: 2

LO: 4.2, Section 4.2

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

98) Chris and Winsome are married and filed their taxes as married filing jointly. While filing their taxes, they determined that their total itemized deduction is $20,000. Chris and Winsome should

A) claim their itemized deduction for $20,000.

B) take the standard deduction since it is greater than their itemized deduction.

C) change their filing status to head of household so they can get a $36,000 deduction.

D) claim both their itemized and standard deduction.

Diff: 2

LO: 4.2, Section 4.2

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

99) Keith and Wanda opened a brokerage account for their child Peter when he was five. Peter, now 12, earned dividend and interest income of $5,000 in 2018. Which of the following applies?

A) Peter will have to pay capital gains taxes on his dividend and interest income.

B) Keith and Wanda will be subject to kiddie taxes based on Peter's interest and dividend income.

C) Since Peter is 12, any interest or dividend income he receives will be tax-free.

D) Interest earned in a brokerage account is tax-free. Hence, Keith and Wanda do not have to worry about paying taxes.

Diff: 2

LO: 4.3, Section 4.3

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

100) Three years ago, Kenesha purchased $2,000 worth of stock in a major U.S. corporation. Today, Kenesha decides to sell all her shares for $15,000. Kenesha will be subject to

A) long-term capital gains of $15,000.

B) long-term capital gains of $13,000.

C) short-term capital gains of $15,000.

D) short-term capital gains of $13,000.

Diff: 2

LO: 4.3, Section 4.3

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

101) Lorna, 32 and single, is a full-time student who works as a tennis instructor earning $1,500 per month. After taking a personal finance class, she decides to open and make contributions to a Roth IRA. In 2018, she contributed $4,000 to her Roth IRA. Which of the following best describes Lorna's situation?

A) Lorna is eligible to receive a retirement savings contribution credit of $4,000 for contributing to her Roth IRA.

B) Lorna is eligible to receive a nonrefundable retirement savings credit of $1,000 since she contributed more than $2,000 to her Roth IRA and has an annual income of $18,000.

C) Lorna is eligible to receive a refundable retirement savings credit of $1,000 since she contributed more than $2,000 to her Roth IRA and has an annual income of $18,000.

D) Lorna is not eligible to receive the retirement savings credit because she is a full-time student.

Diff: 2

LO: 4.4, Section 4.4

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

102) Tanesha is employed by McDowell's Burger. She earns $198,000 per year. What is Tanesha's total payroll deduction?

A) $128,000.00

B) $15,300.80

C) $10,831.80

D) $5,500.80

Diff: 3

LO: 4.5, Section 4.5

Bloom: S

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

103) Peta-kay is self-employed and has net earnings of $2,000. How much will Peta-Kay owe in self-employment tax?

A) $306.00.

B) $282.59.

C) $153.71.

D) $0.

Diff: 3

LO: 4.5, Section 4.5

Bloom: S

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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