Complete Test Bank Chapter 4 Planning Your Tax Strategy

Personal Finance, 13e (Kapoor)

Chapter 4 Planning Your Tax Strategy

1) The principal purpose of taxes is to control economic conditions.

Difficulty: 2 Medium

Topic: Taxation

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

2) State and local governments may impose a personal property tax on the value of automobiles.

Difficulty: 2 Medium

Topic: Real and personal property taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

3) Real estate property taxes are the major source of revenue for local government.

Difficulty: 2 Medium

Topic: Real and personal property taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

4) A general sales tax is also referred to as an excise tax.

Difficulty: 2 Medium

Topic: Sales and excise taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

5) An estate tax is imposed on the value of an individual's property at the time of his or her death.

Difficulty: 1 Easy

Topic: Taxation and estate planning

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

6) An exclusion is earnings not included in gross income.

Difficulty: 1 Easy

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

7) A person's filing status is affected by marital status and dependents.

Difficulty: 1 Easy

Topic: Income tax terminology

Learning Objective: 04-03 Prepare a federal income tax return.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

8) An office audit requires that a person visit an IRS office to clarify some aspect of his or her tax return.

Difficulty: 1 Easy

Topic: Income tax revisions and audits

Learning Objective: 04-04 Identify tax assistance sources.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

9) Tax avoidance refers to the use of illegal actions to reduce one's taxes.

Difficulty: 2 Medium

Topic: Income tax terminology

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

10) Capital gains refer to profits from the sale of stocks, bonds, or real estate.

Difficulty: 1 Easy

Topic: Income tax terminology

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

11) Tax evasion is the use of illegal actions to reduce one's taxes.

Difficulty: 2 Medium

Topic: Income tax terminology

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

12) A drawback of Flexible Spending Accounts is that any account funds must be used to pay for expenses incurred before year's end or the money is lost.

Difficulty: 2 Medium

Topic: Tax planning strategies

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

13) Taxable income is a result of subtracting adjustments to income and standard (or itemized) deductions from gross income.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

14) The Tax Cuts and Jobs Act simplified the basic form used when filing your taxes, so that there is now only one form, Form 1040, to report your income.

Difficulty: 1 Easy

Topic: Income tax terminology

Learning Objective: 04-03 Prepare a federal income tax return.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

15) Taxpayers should beware of tax preparers who offer your refund in advance (refund anticipation loans) and charge interest rates exceeding 300 percent.

Difficulty: 2 Medium

Topic: Taxation

Learning Objective: 04-04 Identify tax assistance sources.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

16) The principal purpose of taxes is to:

A) finance government activities.

B) reduce the chances of inflation.

C) create jobs.

D) discourage use of certain goods and services.

E) decrease competition from foreign companies.

Difficulty: 1 Easy

Topic: Taxation

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

17) Which type of tax is imposed on specific goods and services, such as gasoline and cigarettes, at the time of purchase?

A) Estate

B) Inheritance

C) Excise

D) Gift

E) Value-added

Difficulty: 2 Medium

Topic: Sales and excise taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

18) The ________ property tax is based on the value of land and buildings.

A) personal

B) real estate

C) direct

D) proportional

E) regressive

Difficulty: 2 Medium

Topic: Real and personal property taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

19) What type of tax is imposed on the value of an individual's property at the time of his or her death?

A) Inheritance

B) Excise

C) Gift

D) Personal property

E) Estate

Difficulty: 2 Medium

Topic: Taxation and estate planning

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

20) Taxable income is used to compute the amount of: 

A) exemptions.

B) income tax owed.

C) deductions.

D) capital gains.

E) exclusions.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

21) A taxable investment produced interest earnings of $1,200. A person in a 22 percent tax bracket would have after-tax earnings of:

A) $1,200

B) $936

C) $780

D) $264

E) $22

Explanation: $1,200 × 0.22 = $264 tax owed; $1,200 taxable gross earnings − $264 tax owed = $936 after-tax earnings.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

22) The tax on $2,000 of profit on a capital asset is deferred.  A person in a 24 percent tax bracket will have to pay what amount of taxes when the asset is sold? 

A) $2,000

B) $1,500

C) $760

D) $480

E) $24

Explanation: $2,000 × 0.24 = $480

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

23) When a taxpayer's income increases $1,000 and the taxes owed increases from $7,850 to $8,200, the marginal tax rate is ________ percent.

A) 12

B) 22

C) 24

D) 32

E) 35

Explanation: $8,200 - $7,850 = $350 additional tax; $350 / $1,000 additional income = marginal tax rate = 0.35 = 35%.

Difficulty: 3 Hard

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

24) A taxpayer with a taxable income of $45,328 and a total tax bill of $5,911 would have an average tax rate of ________ percent. 

A) 10

B) 12

C) 13.04

D) 14.67

E) 22

Explanation: $5,911 / $45,328 = 0.1304 = 13.04%.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

25) A person has $5,000 in medical expenses and an adjusted gross income of $33,000. If taxpayers are allowed to deduct the amount of medical expenses that exceed 7.5 percent of adjusted gross income, what would be the amount of the deduction in this situation?

A) $375

B) $2,525

C) $2,475

D) $5,000

E) $3,000

Explanation: $5,000 − ($33,000 × 7.5%) = $2,525.

Difficulty: 3 Hard

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

26) Which of the following would not be included in gross income? 

A) Portfolio income

B) Investment income

C) Exclusions

D) Passive income

E) Earned income

Difficulty: 1 Easy

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

27) Money received by an individual for personal effort is classified as ________ income.

A) passive

B) earned

C) portfolio

D) excluded

E) investment

Difficulty: 1 Easy

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

28) Money received in the form of dividends or interest is classified as ________ income.

A) passive

B) earned

C) excluded

D) capital gain

E) investment

Difficulty: 1 Easy

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

29) Earnings from a limited partnership would be an example of ________ income.

A) passive

B) capital gain

C) portfolio

D) earned

E) excluded

Difficulty: 3 Hard

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

30) Which one of the following is included in gross income?

A) Tax credit

B) Exemption

C) Exclusion

D) Earned income

E) Tax deduction

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

31) Which one of the following would reduce gross income to obtain adjusted gross income? 

A) IRA contributions

B) Mortgage interest

C) Medical expenses

D) Moving expenses

E) Charitable contributions

Difficulty: 3 Hard

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

32) George Washburn had earnings from his salary of $32,000, interest on savings of $200, a contribution to a traditional individual retirement account of $1,200, and dividends from mutual funds of $125. George's adjusted gross income would be:

A) $31,125.

B) $32,000.

C) $33,200.

D) $33,400.

E) $33,525.

Explanation: $32,000 + $200 + $125 - $1,200 = $31,125.

Difficulty: 3 Hard

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

33) An exclusion affects a person's taxes by:

A) not including tax-exempt income in gross income.

B) increasing itemized deductions.

C) decreasing itemized deductions.

D) decreasing the number of exemptions a person can claim.

E) increasing the number of exemptions a person can claim.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

34) Reductions from gross income for such items as individual retirement account contributions and alimony payments will result in:

A) adjusted gross income.

B) taxable income.

C) earned income.

D) passive income.

E) total exclusions.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

35) Tax-deferred retirement plans are a type of:

A) exemption.

B) itemized deduction.

C) passive income.

D) tax shelter.

E) tax credit.

Difficulty: 2 Medium

Topic: Tax planning strategies; Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

36) Which one of the following items is a set amount of income on which no taxes are paid?

A) Medical expenses

B) Standard deduction

C) Deferred income

D) Withholding

E) Capital gains

Difficulty: 3 Hard

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

37) An expense that would be included in the itemized deductions of a taxpayer is:

A) personal postage expenses.

B) life insurance premiums.

C) real estate property taxes.

D) retirement plan contributions.

E) annual interest paid on credit cards.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

38) ________ are expenses that a taxpayer is allowed to deduct from adjusted gross income.

A) Exemptions

B) Exclusions

C) Itemized deductions

D) Tax credits

E) Passive income

Difficulty: 2 Medium

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

39) For tax years prior to 2018, a deduction from adjusted gross income for yourself, your spouse, and qualified dependents was termed: 

A) the standard deduction.

B) a tax credit.

C) an itemized deduction.

D) an exclusion.

E) an exemption.

Difficulty: 2 Medium

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

40) Michele Walsh is considering an additional charitable contribution of $1,500 to a tax-deductible charity, bringing her total itemized deductions to $16,000. If Michele is in a 24 percent tax bracket, how much will this $1,500 contribution reduce her taxes?

A) $0

B) $360

C) $1,500

D) $1,600

E) $3,840

Explanation: 1,500 × .24 = 360.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

41) A tax ________ is an amount subtracted directly from the amount of taxes owed.

A) credit

B) reduction

C) deduction

D) exclusion

E) shelter

Difficulty: 2 Medium

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

42) A tax credit of $100 for a person in a 24 percent tax bracket would reduce a person's taxes owed by:

A) $10

B) $28

C) $76

D) $100

E) $24

Difficulty: 3 Hard

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

43) The pay-as-you-go system requires: 

A) paying the total amount of taxes owed on May 15.

B) filing quarterly tax returns.

C) having federal income tax deducted from your paychecks.

D) earning tax credits for various deductions.

E) filing the 1040 EZ form.

Difficulty: 1 Easy

Topic: Income tax payments and penalties

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

44) Estimated quarterly tax payments must be made by people who:

A) are employed in a foreign country.

B) receive regular payroll checks.

C) work for the government.

D) do not have taxes withheld from their paychecks.

E) itemize deductions.

Difficulty: 2 Medium

Topic: Income tax payments and penalties

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

45) A taxpayer whose spouse recently died and who has a dependent is most likely to use the ________ filing status.

A) single

B) married filing joint return

C) married filing separate return

D) head of household

E) qualifying widow or widower

Difficulty: 1 Easy

Topic: Income tax preparation and computations

Learning Objective: 04-03 Prepare a federal income tax return.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

46) The "head of household" filing status is for someone who is:

A) recently divorced.

B) recently widowed.

C) unmarried and has a dependent child.

D) married but only one spouse has income.

E) married and each spouse makes about the same income.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-03 Prepare a federal income tax return.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

47) For 2018, which form would a married individual with less than $100,000 in taxable income use to file his federal income tax return?

A) Form 1040X

B) IRS Publication

C) Form 1040

D) Schedule A

E) Schedule E

Difficulty: 2 Medium

Topic: Income tax forms

Learning Objective: 04-03 Prepare a federal income tax return.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

48) In 2018, the Form 1040 is not appropriate for someone who:

A) is single with no children.

B) makes less than $50,000 with no interest or dividends.

C) had no taxable income and no tax withheld.

D) has a complex tax situation.

E) has a simple tax situation.

Difficulty: 3 Hard

Topic: Income tax forms

Learning Objective: 04-03 Prepare a federal income tax return.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

49) Which one of the following people is least likely to have to file a federal income tax return?

A) A U.S. citizen who is a resident of Puerto Rico.

B) A U.S. citizen earning $8,000 where taxes were withheld.

C) A single person earning less than $5,000.

D) A single person over age 65 earning $20,000.

E) A 28-year old single college student earning more than $16,000.

Difficulty: 3 Hard

Topic: Income tax filing requirements

Learning Objective: 04-03 Prepare a federal income tax return.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

50) Itemized deductions are recorded on:

A) W-2 form.

B) Schedule A.

C) Schedule B.

D) Form 2106.

E) Form 1040B.

Difficulty: 2 Medium

Topic: Income tax forms

Learning Objective: 04-03 Prepare a federal income tax return.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

51) A person who owes total federal income taxes of $3,450 but had total withholdings of $3,125 would:

A) receive a refund of $3,125.

B) make a payment of $3,450.

C) make a payment of $325.

D) receive a refund of $3,450.

E) receive a refund of $325.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-03 Prepare a federal income tax return.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

52) Kelly Vernon wants her tax return prepared by a government-approved tax expert. Which of the following tax preparers should Kelly use?

A) CPA

B) Enrolled agent

C) Nationally-certified tax preparer

D) Tax attorney

E) Local tax preparer

Difficulty: 2 Medium

Topic: Taxation

Learning Objective: 04-04 Identify tax assistance sources.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

53) Which type of audit is the simplest and most common for taxpayers?

A) A field audit

B) An office audit

C) A research audit

D) A correspondence audit

E) A documentation audit

Difficulty: 2 Medium

Topic: Income tax revisions and audits

Learning Objective: 04-04 Identify tax assistance sources.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

54) Which one of these terms is defined as the use of legitimate methods to reduce one's taxes?

A) Tax evasion

B) Tax avoidance

C) Tax exemption

D) Tax deferral

E) Tax deduction

Difficulty: 2 Medium

Topic: Income tax terminology

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

55) Union dues, tax preparation fees, and other miscellaneous expenses are: 

A) partially deductible.

B) fully deductible.

C) deductible for self-employed individuals only.

D) deductible for people in certain income categories.

E) not deductible in 2018.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

56) Which one of the following is most likely to qualify as an itemized deduction? 

A) Interest on a credit card or charge account

B) Charitable contributions

C) Losses reimbursed by insurance

D) Life insurance premiums

E) Traffic violation fee

Difficulty: 2 Medium

Topic: Income tax preparation and computations; Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

57) The interest is deductible on your tax return for which of the following?

A) Home equity loan

B) Auto loan

C) Credit card

D) Life insurance policy cash value loan

E) Personal cash loan from a credit union

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

58) Which one of these investments produces tax-exempt income?

A) Real estate

B) Corporate stock

C) Retirement plan

D) Municipal bond

E) Corporate bond

Difficulty: 3 Hard

Topic: Taxation and investments

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

59) Capital gains refer to:

A) tax-exempt investments.

B) portfolio income

C) profits from the sale of a capital asset.

D) earnings from investments such as dividends or interest.

E) earnings from passive activities.

Difficulty: 3 Hard

Topic: Income tax terminology; Taxation and investments

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

60) A short-term capital gain is profit earned on an investment that is:

A) made involving small companies.

B) not taxed as ordinary income.

C) held for less than a year.

D) in foreign companies.

E) made only from real estate.

Difficulty: 2 Medium

Topic: Income tax terminology; Taxation and investments

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

61) Which one of these statements correctly applies to a Roth IRA?

A) Earnings on the account are tax-free after five years.

B) Annual contributions may exceed $7,000.

C) Deposits must be in federally-insured accounts.

D) Funds are only to be used for educational expenses.

E) Only self-employed workers can contribute to a Roth IRA.

Difficulty: 2 Medium

Topic: Taxation and retirement accounts

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

62) An itemized deduction of $800 with a 33 percent tax rate would reduce a person's taxes by:

A) $800.

B) $33.

C) $200.

D) $536.

E) $264.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

63) An IRA, Keogh plan, and 401(k) plan are examples of: 

A) tax-exempt retirement plans.

B) tax-deferred retirement plans.

C) capital gains.

D) self-employment insurance programs.

E) job-related expenses that are tax deductible.

Difficulty: 2 Medium

Topic: Taxation and retirement accounts

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

64) John Williams goes into a local department store and purchases a new suit. He pays $48 in taxes on this purchase. What type of tax is this most likely to be?

A) General sales tax

B) Excise tax

C) Personal property tax

D) Income tax

E) Estate tax

Difficulty: 2 Medium

Topic: Sales and excise taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

65) The state of Oklahoma imposes a tax of $.17 per gallon on gasoline. What type of tax is this most likely to be?

A) Real estate tax

B) Excise tax

C) Personal property tax

D) Income tax

E) Estate tax

Difficulty: 2 Medium

Topic: Sales and excise taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

66) Tim Bridges owns a fishing boat. His state imposes an annual 3.25 percent tax on the current value of this boat. What type of tax is this most likely to be? 

A) General sales tax

B) Excise tax

C) Personal property tax

D) Income tax

E) Estate tax

Difficulty: 2 Medium

Topic: Real and personal property taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

67) Drew Davis earns $4,500 per month from his job at Cisco Systems; $900 is withheld from this amount each month for taxes. What type of tax is this most likely to be?

A) General sales tax

B) Excise tax

C) Personal property tax

D) Income tax

E) Estate tax

Difficulty: 1 Easy

Topic: Taxation; Income tax payments and penalties

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

68) Elizabeth Gleason just died. At the time of her death the total value of her assets was $150,000. The federal government collected $7,500 in taxes based on this value. What type of tax is this most likely to be?

A) General sales tax

B) Excise tax

C) Personal property tax

D) Income tax

E) Estate tax

Difficulty: 2 Medium

Topic: Taxation and estate planning

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

69) Mr. and Mrs. Keating want to give their son Dudley a total of $30,000. They each write him a check for $15,000 so they won't have to pay any gift tax. This is an example of: 

A) fraud.

B) tax evasion.

C) tax exclusion.

D) tax avoidance.

E) tax deferred income.

Difficulty: 3 Hard

Topic: Tax planning strategies

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

70) Kim Lee is single and earns $32,000 in taxable income. He uses the following tax rate schedule to calculate the taxes he owes.

Calculate the dollar amount of estimated taxes that Kim owes.

A) $3,200.00

B) $3,649.50

C) $3,840.00

D) $7,040.00

E) $7,680.00

Explanation: [$9,525 × 0.10] + [($32,000 - $9,525) × 0.12] = $3,649.50

Difficulty: 3 Hard

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

71) Joan Sanchez is single and earns $40,000 in taxable income. She uses the following tax rate schedule to calculate the taxes she owes.

What is Joan's marginal tax rate?

A) 10%

B) 12%

C) 22%

D) 24%

E) between 10% and 12%

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

72) Al Barkley is single and earns $40,000 in taxable income. He uses the following tax rate schedule to calculate the taxes he owes.

What is Al's average tax rate?

A) 11.85%

B) 18.27%

C) 21.35%

D) 23.87%

E) 25.00%

Explanation: [$9,525 × 0.10] + [($38,700 - $9,525) × 0.12] + [($40,000 - $38,700) × .22] = $4,739.50; $4,739.50/$40,000 = 0.1185 = 11.85%.

Difficulty: 3 Hard

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

73) Alex Bates goes on The Price Is Right and earns $525,000 in winnings. What type of income is this? 

A) Earned income

B) Investment income

C) Passive income

D) Other income

E) Deferred income

Difficulty: 2 Medium

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

74) Randal Snyder is 55 years old, and has adjusted gross income of $40,000. He has medical expenses for the year ending 2018 of $7,000. How much of these expenses can he include as an itemized deduction? 

A) $0

B) $3,000

C) $4,000

D) $6,000

E) $7,000

Explanation: $40,000 × 0.075 = $3,000; $7,000 − $3,000 = $4,000.

Difficulty: 3 Hard

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

75) Haley Thomas has adjusted gross income of $40,000. She paid $4,700 in property taxes during the year. How much of the tax can she include as an itemized deduction?

A) $4,700

B) $4,000

C) $3,000

D) $700

E) $0

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

76) Mike Hansen has adjusted gross income of $82,000. During the year, Mike decided he needed a larger home. He purchased a home on a golf course in the same town as his first home. Mike incurred $6,000 in moving expenses. How much of this can he include as an itemized deduction?

A) $8,200

B) $6,150

C) $6,000

D) $1,000

E) $0

Difficulty: 3 Hard

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

77) Mary Garcia is a U.S. citizen that worked in Mexico for part of the year and earned $50,000 while she was there. This foreign earned income will not be included in her gross income for the year. This represents a tax:

A) deduction.

B) exclusion.

C) exemption.

D) credit.

E) refund.

Difficulty: 2 Medium

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

78) Elaine's Embroidery Emporium which is run out of Elaine's home is visited by an IRS agent who wants to verify the office expenses Elaine claims are valid. What type of IRS audit is this?

A) Correspondence audit

B) Office audit

C) Field audit

D) Detailed audit

E) Research audit

Difficulty: 2 Medium

Topic: Income tax revisions and audits

Learning Objective: 04-04 Identify tax assistance sources.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

79) A ________ allows a taxpayer to put pre-tax dollars into an employer-sponsored program to cover medical expenses or child care costs.

A) tax credit

B) tax deduction

C) flexible spending account

D) tax deferred investment

E) tax-exempt investment

Difficulty: 2 Medium

Topic: Tax planning strategies

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

80) Which one of the following is a tax-deferred retirement plan sponsored by an employer? 

A) Roth IRA

B) Education savings account

C) Keogh plan

D) 401(k) plan

E) 529 plan

Difficulty: 2 Medium

Topic: Taxation and retirement accounts

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

81) Which one of the following is a retirement plan that allows a $5,500 annual contribution with tax-free earnings after five years?

A) Roth IRA

B) Education Savings Account

C) Keogh Plan

D) 401(k) Plan

E) 529 Plan

Difficulty: 2 Medium

Topic: Taxation and retirement accounts

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

82) The interest paid on which type of loan is not tax deductible?

A) Home equity loan interest for home improvements

B) Credit card interest

C) Mortgage interest to buy a home

D) Mortgage interest to build a home

E) Investment interest up to the amount of investment income

Difficulty: 3 Hard

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

83) Approximately what percent of tax filers are audited each year?

A) 1%

B) 3%

C) 5%

D) 10%

E) 15%

Difficulty: 2 Medium

Topic: Income tax revisions and audits

Learning Objective: 04-04 Identify tax assistance sources.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

84) Ms. Nelson is a single mom with three children who live at home. She earned less than $40,000 in 2018. What is the maximum amount of earned income tax credit that she may qualify for?

A) $2,798

B) $3,242

C) $6,431

D) $0

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

85) Taxpayers with high incomes and high amounts of certain deductions may be subject to an additional tax referred to as the ________ tax.

A) deferred

B) bonus

C) excess

D) capital gains

E) alternative minimum

Difficulty: 2 Medium

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

86) Examples of tax credits do not include a/an ________ tax credit.

A) energy-savings

B) adoption

C) elderly and disabled

D) credit card

E) savers

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

87) Thomas Franklin claimed an additional $3,000 in deductions he knowingly knew he did not qualify for so he could reduce his tax bill. This is referred to as tax:

A) avoidance.

B) acceleration.

C) evasion.

D) delaying.

E) deferment.

Difficulty: 2 Medium

Topic: Income tax terminology

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

88) Michael closed on his new home December 31, 2018 instead of January 1, 2019. As a result, Michael:

A) accelerated tax deductions in 2018.

B) accelerated tax deductions in 2019.

C) increased his adjusted gross income in 2018.

D) delayed the receipt of income in 2018.

E) delayed the receipt of income in 2019.

Difficulty: 3 Hard

Topic: Tax planning strategies

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

89) Mary Watson bought 20 shares of stock two years ago. She recently sold her stock making a profit of $1,400. Long-term capital gain rates are 15% for her income level. She is in the 22% tax bracket. Her tax on this investment is:

A) $98.

B) $210.

C) $308.

D) $392.

E) $0.

Explanation: $1,400 × 0.22 = $210

Difficulty: 3 Hard

Topic: Income tax preparation and computations

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

90) In recent years, how many states have not had a general sales tax?

A) 1

B) 4

C) 3

D) 5

E) 2

Difficulty: 3 Hard

Topic: Sales and excise taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

91) Which of the following good or service is subject to an excise tax?

A) Gasoline

B) Tires

C) Cigarettes

D) Air travel

E) All of these

Difficulty: 2 Medium

Topic: Sales and excise taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

92) Two types of education savings plans are the Coverdell Education Savings Account and the:

A) 401(k).

B) 529 plan.

C) Keogh plan.

D) Traditional IRA.

E) Roth IRA.

Difficulty: 2 Medium

Topic: Taxation and education

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

93) What kind of audit requires that a taxpayer visit an IRS office to clarify some aspect of his or her tax return?

A) Office audit

B) Correspondence audit

C) Field audit

D) Taxpayer compliance measurement program audit

E) Random audit

Difficulty: 1 Easy

Topic: Income tax revisions and audits

Learning Objective: 04-04 Identify tax assistance sources.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

94) Money received in the form of dividends or interest is commonly called:

A) earned income.

B) investment income.

C) passive income.

D) tax-deferred income.

E) tax-exempt income.

Difficulty: 2 Medium

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

95) A tax on the value of automobiles, boats, or furniture is referred to as:

A) inheritance tax.

B) estate tax.

C) personal property tax.

D) excise tax.

E) general sales tax.

Difficulty: 2 Medium

Topic: Real and personal property taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

96) Factors that affect a person's filing status include marital status and:

A) employment status.

B) age.

C) occupation.

D) dependents.

E) place of residence.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-03 Prepare a federal income tax return.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

97) Which of the following is a major source of revenue for local governments?

A) Real estate property tax

B) Excise tax

C) Estate tax

D) Inheritance tax

E) Social Security tax

Difficulty: 2 Medium

Topic: Real and personal property taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

98) An excise tax is imposed by the federal and state governments on all of the following specific goods, except:

A) clothing.

B) gasoline.

C) cigarettes.

D) tires.

E) air travel.

Difficulty: 2 Medium

Topic: Sales and excise taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

99) To minimize taxes owed, you should do the following if you expect to have a higher tax rate next year:

A) Accelerate deductions into the current year

B) Delay the receipt of income until next year

C) Delay deductions until next year

D) Get a loan for the additional taxes

E) Quit work at the end of the current year

Difficulty: 3 Hard

Topic: Tax planning strategies

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

100) To minimize taxes owed, you should do the following if you expect to have a higher tax rate next year:

A) Accelerate the receipt of income into the current year.

B) Delay the receipt of income until next year.

C) Accelerate deductions into the current year.

D) Get a loan for the additional taxes

E) Quit work at the end of the current year

Difficulty: 3 Hard

Topic: Tax planning strategies

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

101) Effective personal tax strategies include:

A) take advantage of tax credits for which you qualify.

B) consider tax-exempt investments, such as municipal bonds.

C) search out all possible itemized deductions.

D) maximize contributions to tax-deferred retirement programs.

E) All of these

Difficulty: 2 Medium

Topic: Tax planning strategies

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

102) Most people pay the following taxes:

A) taxes on purchases.

B) taxes on property.

C) taxes on wealth.

D) taxes on earnings.

E) All of these

Difficulty: 2 Medium

Topic: Taxation; Financial planning process

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

103) Personal property taxes may tax the value of:

A) automobiles.

B) boats.

C) farm equipment.

D) All of these

E) None of these

Difficulty: 2 Medium

Topic: Real and personal property taxes

Learning Objective: 04-01 Describe the importance of taxes for personal financial planning.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

104) Earned income is money received from:

A) dividends.

B) interest.

C) wages.

D) rent from investments.

E) real estate investments.

Difficulty: 1 Easy

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

105) Which statement is true regarding a tax credit?

A) A tax credit is the same as a tax deduction.

B) A tax credit reduces the amount of taxes owed.

C) Medical expenses is an example of a tax credit.

D) A tax credit reduces taxable income.

E) A charitable contribution is an example of a tax credit.

Difficulty: 2 Medium

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

106) The standard deduction is a set amount on which no taxes are paid.  For 2018, single people receive a standard deduction of:

A) $24,000

B) $22,000

C) $15,000

D) $12,000

E) $0

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

107) One of the most frequently overlooked tax deductions is:

A) student loan interest paid by parents.

B) real estate taxes.

C) federal income tax you paid last spring.

D) tax preparation fees.

E) state income taxes.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

108) Although you should generally keep tax records for 3 years from the date you file your return, you may be held responsible for providing back documentation up to:

A) 3 years

B) 4 years

C) 5 years

D) 6 years

E) 10 years

Difficulty: 2 Medium

Topic: Taxation

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

109) The Tax Cuts and Jobs Act allows owners of a sole proprietor or partnership to deduct up to ________ percent of the income earned by the business from their individual return to arrive at taxable income beginning in 2018.

A) 0

B) 5

C) 10

D) 15

E) 20

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

110) The Affordable Care Act of 2010, or Obamacare, required taxpayers to pay a tax penalty if they were not able to confirm that they had health care coverage. This penalty has been eliminated by the Tax Cuts and Jobs Act for tax years starting in:

A) 2017

B) 2018

C) 2019

D) 2020

E) 2021

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

111) ________ may involve an official-looking (but phony) letter or e-mail sent to a taxpayer to trick them into disclosing personal information and bank account numbers by stating that the taxpayer is entitled to a tax refund from the IRS.

A) Phishing

B) Office audits

C) Field audits

D) Correspondence audits

E) Tax solicitations

Difficulty: 2 Medium

Topic: Taxation

Learning Objective: 04-04 Identify tax assistance sources.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

112) Cameron Nelson wants to complete his own federal income tax return. He has several questions about the tax form to use and what items should be reported as income. What sources of assistance would you recommend for Cameron?

The IRS offers taxpayer assistance in several ways: publications, Interactive tax assistant (ITA), Web site, toll-free hot line, IRS2Go App, videos, and walk-in service at local IRS offices. In addition, other publications are available at bookstores and libraries to assist taxpayers. Finally, he can utilize tax software to prepare tax returns or obtain assistance with tax problems through VITA.

Difficulty: 3 Hard

Topic: Tax information sources

Learning Objective: 04-04 Identify tax assistance sources.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

113) What is the difference between tax-exempt income and tax-deferred income?

Difficulty: 2 Medium

Topic: Income tax terminology

Learning Objective: 04-02 Calculate taxable income and the amount owed for federal income tax.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

114) What are the advantages of a 401(K)?

Difficulty: 3 Hard

Topic: Taxation and retirement accounts

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

115) Explain the difference between a short-term capital gain and a long-term capital gain.

Difficulty: 2 Medium

Topic: Income tax terminology; Taxation and investments

Learning Objective: 04-05 Select appropriate tax strategies for various financial and personal situations.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

116) What sources are available for professional tax assistance?

∙ Tax services range from local, one-person operations to national firms with thousands of offices, such as H&R Block.

∙ Enrolled agents—government-approved tax experts—prepare returns and provide tax advice. You may contact the National Association of Enrolled Agents at 1-800-424-4339 for information about enrolled agents in your area.

∙ Many accountants offer tax assistance along with other business services. A certified public accountant (CPA) with special training in taxes can help with tax planning and the preparation of your annual tax return.

∙ Attorneys usually do not complete tax returns; however, you can use an attorney's services when you are involved in a tax-related transaction or when you have a difference of opinion with the IRS.

Difficulty: 2 Medium

Topic: Tax information sources

Learning Objective: 04-04 Identify tax assistance sources.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual