Deck 4: Tax Planning and Strategies

Question 1

An IRS-allowed reduction in your income for yourself, your spouse, and any dependents that is subtracted before you compute your taxes is called a(n) ________.

A) itemized exemptions
B) dependency deduction
C) personal deductions
D) personal and dependency exemptions
E) none of the above

Answer 1

personal and dependency exemptions

Question 2

Shawan is a single person with no dependents. She normally receives over $1800 every year for an income tax refund. She is having difficulty paying her monthly bills every month. What tax advice would you give her?

A) She should increase her exemptions on her W-4 form at work.
B) She should pay her estimated taxes every quarter.
C) She needs to find some more tax deductions.
D) She needs to file as Head of Household status

Answer 2

She should increase her exemptions on her W-4 form at work.

Question 3

The impact of taxes are an important consideration in most of the financial decisions that you will make.

Answer 3

True

Question 4

Only people in the higher tax brackets pay taxes on capital gains.

Question 5

A tax system in which tax rates increase as income increases is called a(n) ________ system.

A) progressive tax
B) universal tax
C) regressive tax
D) prorated tax
E) none of the above

Question 6

If you are in a 25 percent tax bracket then every dollar of your adjusted gross income will be taxed at 25 percent.

Question 7

Expenditures that are subtracted in an effort to calculate the lowest possible taxable income are called ________.

A) exemptions
B) deductions
C) capital expenses
D) fixed expenses
E) none of the above

Question 8

Three years ago you purchased a share of CompUTech stock for $4, which you could sell today at the current market price of $150. What would be your capital gain on the sale, ignoring commissions?

A) $4
B) $146
C) $150
D) $154
E) Cannot determine from the information provided.

Question 9

Adjusted gross income is your total gross income adjusted for inflation.

Question 10

For most tax payers, their average tax rate is lower than their marginal tax rate.

Question 11

In 2011 you purchased $1500 of IBM stock and you sold it this year for $1200. Since you lost money on this transaction, there is no valid reason to include this on this year's tax return.

Question 12

If you are an unmarried taxpayer, with at least one child or dependent living with you, your filing status should be

A) single
B) surviving spouse
C) married filing separately
D) head of household
E) none of the above

Question 13

Assets you own, including such items as stocks, bonds, or real estate, are commonly termed ________.

A) capital assets
B) monetary assets
C) current assets
D) intangible assets
E) none of the above

Question 14

Income on which the payment of taxes is postponed until some future date is called ________.

A) tax-delayed
B) tax-deferred
C) tax-postponed
D) tax-tardy
E) none of the above

Question 15

The percentage of the last dollar you earn that goes toward your taxes is your

A) tax deferral rate.
B) base tax rate.
C) average tax rate.
D) marginal tax rate.
E) none of the above

Question 16

The movement into a higher tax bracket as a result of inflation increasing wages is called ________.

A) bracket climbing
B) bracket migration
C) bracket creep
D) bracket shifting
E) none of the above

Question 17

A progressive tax rate is one that decreases as you make more income.

Question 18

Bracket creep refers to an increase in marginal taxes caused by the impact of inflation.

Question 19

In 2005 you purchased a stamp collection for $75 and you sold it this year for $150. Legally, you don't need to pay any taxes on this transaction.

Question 20

Deductions calculated using the federal tax form "Schedule A" which are totaled and then subtracted from taxable income are called ________.

A) itemized deductions
B) standard deductions
C) personal expenditures
D) personal exemptions
E) none of the above

Question 21

Contributing $2,000 into a tax-deferred retirement plan in a 28% tax bracket will save

A) $70.
B) $140.
C) $280.
D) $560.
E) it depends on the exemptions and deductions claimed.

Question 22

Name the categories of filing status.

Question 23

A personal exemption is an approved deduction that you can make on your tax return for each person supported by the income shown on your tax return.

Question 24

The amount of income taxes that you actually pay is based upon your

A) taxable income.
B) adjusted gross income.
C) gross income.
D) taxable income minus exemptions and deductions.

Question 25

The Federal Insurance Contributions Act (FICA) tax deducted from your salary goes to pay for unemployment insurance.

Question 26

Why might someone choose to use itemized deductions instead of taking the standard deduction offered by the IRS?

A) It is easier to calculate your itemized deductions versus the standard deduction.
B) You may have a lower tax liability if you itemize instead of using the standard deduction.
C) Married taxpayers must use the itemized deductions only.
D) Most Computer Tax software automatically itemizes deductions.
E) both B and C are correct

Question 27

Tax credits reduce your adjusted gross income dollar-for-dollar. To compute the tax savings multiply the tax credit by the marginal tax rate.

Question 28

Why is tax planning so important?

Question 29

Butch Baird sold his stock in Brenner Corporation for a price less than what he paid for it. Butch will experience

A) a capital loss tax.
B) a capital gains tax.
C) a capital gain.
D) a capital loss.
E) bracket creep.

Question 30

You purchased 100 shares of I-Tech stock for $40 per share 3 years ago. If you sold those shares today at the current market price of $150 per share, what would be your capital gain on the sale, ignoring all commissions?

A) $110
B) $3,667
C) $7,333
D) $11,000
E) none of the above

Question 31

Assume that you have a marginal tax rate of 28 percent, a state income tax rate of 4 percent, and have a city income tax rate of 1 percent. The tax for Social Security and Medicare is 7.65 percent. What would be the effective marginal tax rate on your last dollar of earnings?

A) 28 percent
B) 32 percent
C) 33 percent
D) 40.65 percent
E) cannot determine from the information provided.

Question 32

FICA deductions from your paycheck are for which mandatory federal insurance programs?

A) unemployment benefits
B) Social Security
C) Medicare
D) Medicaid
E) both B and C

Question 33

Which of the following is not an income tax filing status?

A) single
B) married filing jointly and surviving spouses
C) head of household
D) married filing separately
E) All of the above are income tax filing statuses.

Question 34

The Lifetime Learning tax credit is designed to help all taxpayers get at least a two-year degree.

Question 35

Explain the ways income taxes are paid or collected.

Question 36

Wilma Rudolph was given a cost of living raise and a merit raise at work this year. Her federal income taxes will be paid at 25% instead of 15%. Wilma has experienced

A) bracket creep.
B) the inflation trap.
C) a capital gain.
D) a higher personal exemption rate.
E) an opportunity to change her filing status.

Question 37

Excise taxes

A) are imposed on specific purchases, such as alcohol and cigarettes.
B) are often aimed at reducing the consumption of the items being taxed.
C) are referred to as "sin taxes" in some cases.
D) All of the above

Question 38

Which of the methods listed below is not used by the IRS as a tax collection mechanism?

A) paycheck withholdings
B) audits held in your home or office
C) quarterly estimated tax payments
D) payments sent with your tax return
E) All of the above are used by the IRS to collect income taxes.

Question 39

Understanding how tax planning affects your personal finances is actually important for most taxpayers, not just the wealthy, because

A) many people don't take advantage of all the deductions and tax credits they are entitled to.
B) many people pay higher taxes or receive smaller refunds than they need to.
C) the average American spends close to one-third of the year earning the money necessary to pay his or her taxes.
D) Only choices A and B
E) All of the above choices

Question 40

Which of the following is not allowed as a personal or dependency exemption?

A) yourself
B) your 25-year-old child, who lives at home and earns $25,000 a year
C) your spouse, if you're filing a joint return
D) your 75-year-old grandfather, whom you financially support
E) both B and D are not allowed

Question 41

Who must file a federal income tax return?

A) everyone with an earned income during the year
B) all heads of household
C) all American citizens
D) individuals whose income meets federal guidelines
E) only those who have to file a state income tax return

Question 42

Income that comes from wages or a business is called ________.

A) investment income
B) active income
C) passive income
D) portfolio income
E) none of the above

Question 43

You and your spouse have earned salary and wages of $41,750. In addition you have municipal bond interest income of $600 and savings account and certificate of deposit interest income of $800. You paid a total of $600 in interest on your student loan. Using only this information, what is your total income for tax purposes?

A) $43,150
B) $42,550
C) $42,350
D) $41,750
E) none of the above

Question 44

Janet and her husband, Bob, are facing a totally new income tax situation this year. She is a corporate accountant and Bob is an engineer. Their gross salaries total $89,000. Janet and Bob graduated from four-year universities six years ago and are still paying off large college loans. She is attending school part-time now to prepare for the CPA exam. The Emmersons incurred considerable expenses in the process of adopting an infant this year, and also have the ongoing expense of daycare. In January of last year they closed on their new home. Although trained as an accountant, Janet's work has not involved income tax preparation. Help them consider the following questions.
Which of the following credits would not apply to the Emmersons?

A) American Opportunity tax credit
B) adoption credit
C) child and dependent care credit
D) Lifetime Learning tax credit

Question 45

Latisha is a single person who makes $40,000 per year. This year she paid $2,000 in student loan interest, $1,500 in medical expenses, $7,200 in rent and $4,800 in car loan payments. She contributes $3,600 per year to her 401K plan at work. Give her some tax advice.

A) Single people should always take the standard deduction.
B) People who have medical expenses should always itemize their deductions.
C) Calculate your taxes using both methods to see which provides a greater deduction.
D) You should itemize if you pay interest, since interest of any kind is tax deductible.

Question 46

Janet and her husband, Bob, are facing a totally new income tax situation this year. She is a corporate accountant and Bob is an engineer. Their gross salaries total $89,000. Janet and Bob graduated from four-year universities six years ago and are still paying off large college loans. She is attending school part-time now to prepare for the CPA exam. The Emmersons incurred considerable expenses in the process of adopting an infant this year, and also have the ongoing expense of daycare. In January of last year they closed on their new home. Although trained as an accountant, Janet's work has not involved income tax preparation. Help them consider the following questions.
The Emmersons

A) have no dependents to declare.
B) should calculate their taxes itemizing and taking the standard deduction to see which is greater.
C) should use the married filing separately filing status.
D) None of the above.

Question 47

Daisy is a divorced single parent who is currently paying back a college loan, attending graduate school part-time, and working full-time earning $42,000. She has custody and provides all support for her child. Which of the following adjustments, deductions, or credits might apply to her?

A) adjustment for student loan interest
B) child tax credit
C) child and dependent care credit
D) lifetime learning tax credit
E) all of the above

Question 48

From the list below choose the item that is not a permissible tax deduction.

A) state, local, and real estate taxes
B) home equity loan interest on debt up to $100,000
C) auto, truck, or van loan interest
D) interest on money borrowed to invest, within the IRS limits based on investment income
E) unreimbursed job-related expenses and tax preparation costs within the IRS limits

Question 49

Which of the following statements about portfolio income from investments that are not held in a tax-deferred account, is accurate?

A) It is also called investment income.
B) It is normally in the form of dividends and interest.
C) It must be reported on your tax return.
D) it may be taxed at a lower rate than wages and salaries are.
E) all of the above

Question 50

________ income is from activities in which the taxpayer does not actively participate.

A) Active
B) Portfolio
C) Passive
D) Investment
E) both C and D

Question 51

Janet and her husband, Bob, are facing a totally new income tax situation this year. She is a corporate accountant and Bob is an engineer. Their gross salaries total $89,000. Janet and Bob graduated from four-year universities six years ago and are still paying off large college loans. She is attending school part-time now to prepare for the CPA exam. The Emmersons incurred considerable expenses in the process of adopting an infant this year, and also have the ongoing expense of daycare. In January of last year they closed on their new home. Although trained as an accountant, Janet's work has not involved income tax preparation. Help them consider the following questions.
Additional items that may reduce the Emmersons' tax burden might include

A) the child credit.
B) adjustment for the interest on their college loans.
C) earned income credit.
D) both A and B
E) None of the above because their income is too high.

Question 52

Since their taxes are becoming more complex, Bob and Janet are concerned about making a mistake or getting audited. They should

A) consult IRS Publication 17, Your Federal Income Tax, the IRS toll-free "hotline," or one of the self-help tax publications to learn more about their tax situation.
B) choose an independent tax specialist to prepare their taxes, because there is more consistency in their training and the quality fo their work than that of nationally affiliated specialists.
C) remember that the key to winning an audit is good records to verify the tax form information.
D) Only choices A and C.
E) All of the above choices.

Question 53

You wish to make a charitable contribution of $2,000 to a qualified organization. You are currently in the 28 percent marginal tax bracket. By how much would this contribution lower your tax bill assuming your other itemized deductions exceed the standard deduction?

A) $280.00
B) $560.00
C) $1440.00
D) $2000.00
E) cannot determine from the information provided.

Question 54

The earned income credit serves as a negative income tax and is available to

A) anyone with an earned income as opposed to passive income.
B) low-income taxpayers.
C) only head of household status filers.
D) only senior citizens below the poverty line.

Question 55

Which of the following would offset your tax liability in a direct dollar for dollar manner and may actually increase your tax refund beyond the amount paid during the tax year?

A) tax exemption
B) tax deduction
C) tax credit
D) tax adjustment
E) none of the above

Question 56

Your dependent is claimed as an approved exemption on ________ tax return.

A) your
B) his or her own
C) the return they choose themselves
D) all of the above
E) none of the above

Question 57

Which factors affect your choice between claiming itemized deductions and the standard deduction?

A) home ownership, as mortgage interest may exceed the standard deduction
B) more deductible expenses this year than last year, as a result of unforeseen circumstances or planned "bunching" of deductions
C) ease and simplicity of filing
D) year long recordkeeping to thoroughly and accurately document itemized deductions
E) all of the above

Question 58

Your base income tax liability can be determined by

A) using the alternative minimum tax worksheet, aimed at preventing the wealthy from paying little or no taxes.
B) using the IRS tax tables provided in the instruction booklet.
C) using the IRS rate schedules for taxable incomes greater than $100,000.
D) all of the above
E) none of the above

Question 59

Which of the following are permissible itemized tax deductions?

A) medical and dental expenses
B) casualty and theft losses
C) home mortgage interest
D) gifts to charity
E) All of the above.

Question 60

Janet and her husband, Bob, are facing a totally new income tax situation this year. She is a corporate accountant and Bob is an engineer. Their gross salaries total $89,000. Janet and Bob graduated from four-year universities six years ago and are still paying off large college loans. She is attending school part-time now to prepare for the CPA exam. The Emmersons incurred considerable expenses in the process of adopting an infant this year, and also have the ongoing expense of daycare. In January of last year they closed on their new home. Although trained as an accountant, Janet's work has not involved income tax preparation. Help them consider the following questions.
With a growing family, Janet and Bob know they should start investing more to provide for a secure future. Which of the following issues should they consider as they plan?

A) Interest paid on money borrowed to invest is an itemized deduction
B) Contributions to tax-deferred retirement accounts avoid taxes in the current year and grow tax-free until the time of withdrawal
C) Qualified dividends and capital gains are taxed at a lower rate than ordinary income
D) Municipal bond earnings are exempt from federal income tax
E) all of the above

Question 61

For many years Andy paid someone else to file his income tax return. After taking a personal finance course at his local college, Andy feels he is ready to tackle it on his own for tax year 2012. Andy is single with an income of $35,000 and has no dependents. He has little interest income from savings, does not have a personal IRA, and plans to itemize deductions. Andy owns a home and travels a lot with his job. He pays some of his own work-related expenses because his employer does not pay for all of them. His only personal investments include 1,000 shares of stock he inherited from his uncle, which he does not intend to sell for many years because the blue-chip company has a strong history of dividend income and share price appreciation. However, he does contribute monthly to his 401(k) plan at work.
To help Andy with his tax planning, he should carefully track and maintain records for all of the following expenses during the tax year except ________.

A) all expenses for prescribed health care needs that are not covered by insurance
B) all job related expenses, especially those that are and are not reimbursed by his employer
C) state and local income taxes, real estate taxes, and personal property taxes
D) price appreciation, or increases from January 1 to December 31, for the 1000 shares of stock he owns
E) all of the above

Question 62

Bang Nguyen recently graduated from college and started working in a good job. He has a little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2011. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2011. He is just completing his tax return for 2011. Based on the information below, answer the following questions.

Based on Bang's completed tax return, what advice would you give him to lower his tax liability for 2012?

A) He should definitely take the computer classes in 2012.
B) He should sell his stock.
C) He should increase his contribution to his 401K plan at work.
D) He should get a roommate and claim him as a dependent.
E) Both A and C are good advice.

Question 63

Name and describe the four general categories that reduce your taxable income, therefore reducing your tax liability.

Question 64

Katarina and Richard are a busy young couple with a son, Caleb, who is 6 and twin daughters, Stacy and Casey, who are actively exploring the world as four-year-olds. Before the twins were born, Katarina and Richard bought their first home with plenty of indoor and outdoor space for a growing young family. The Bajorshiks are concerned about their 2011 tax issues, but they are also committed to planning for the future of their family. Next year Richard should be able to pay off the remaining balance of his law school student loans. Contributing to Richard's Roth IRA is an annual priority. The following information reflects tax year 2011.
Gross income $98,712
Student loan interest $1,965
Katarina's traditional IRA $1,500
Total itemized deductions $14,987
Standard deduction for 2011 $11,600
Personal exemption amount $3,700
Marginal tax bracket 25%
What is the Bajorshiks' adjusted gross income?

A) $98,712
B) $97,212
C) $96,747
D) $95,247
E) $83,462

Question 65

For many years Andy paid someone else to file his income tax return. After taking a personal finance course at his local college, Andy feels he is ready to tackle it on his own for tax year 2012. Andy is single with an income of $35,000 and has no dependents. He has little interest income from savings, does not have a personal IRA, and plans to itemize deductions. Andy owns a home and travels a lot with his job. He pays some of his own work-related expenses because his employer does not pay for all of them. His only personal investments include 1,000 shares of stock he inherited from his uncle, which he does not intend to sell for many years because the blue-chip company has a strong history of dividend income and share price appreciation. However, he does contribute monthly to his 401(k) plan at work.
Which of the following tax planning strategies could Andy consider to reduce his future tax bills?

A) Carefully track and maintain records for all itemized deduction categories to insure he is maximizing his itemized deductions.
B) Establish a home equity credit line to finance other consumer credit, such as an auto purchase.
C) Contribute as much as possible to a tax-deferred retirement account, such as his 401(k).
D) Invest in municipal bonds to receive tax-exempt income.
E) All of the above would be strategies available to Andy to reduce his future taxes.

Question 66

Katarina and Richard are a busy young couple with a son, Caleb, who is 6 and twin daughters, Stacy and Casey, who are actively exploring the world as four-year-olds. Before the twins were born, Katarina and Richard bought their first home with plenty of indoor and outdoor space for a growing young family. The Bajorshiks are concerned about their 2011 tax issues, but they are also committed to planning for the future of their family. Next year Richard should be able to pay off the remaining balance of his law school student loans. Contributing to Richard's Roth IRA is an annual priority. The following information reflects tax year 2011.
Gross income $98,712
Student loan interest $1,965
Katarina's traditional IRA $1,500
Total itemized deductions $14,987
Standard deduction for 2011 $11,600
Personal exemption amount $3,700
Marginal tax bracket 25%
Approximately how much will the Bajorshiks save in 2011 income tax payments as a result of Richard's student loan interest?

A) $1,965.00
B) $196.50
C) $491.25
D) $1,473.75
E) $0

Question 67

Although Richard and Katarina are a happily married couple, they joke that they could not possibly remarry for at least two years following the year of the death of the other spouse because

A) the surviving spouse would lose the tax advantage of married filing jointly status, assuming at least one child was still a dependent and the surviving spouse was paying more than half the cost of keeping up the home.
B) the surviving spouse would lose the exemption amount for the deceased spouse.
C) the surviving spouse would have to file as head of household.
D) neither spouse has sufficient life insurance to provide for the family.

Question 68

Bang Nguyen recently graduated from college and started working in a good job. He has a little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2011. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2011. He is just completing his tax return for 2011. Based on the information below, answer the following questions.

What is Bang's adjusted gross income for 2011?

A) $38,750
B) $29,900
C) $35,250
D) $37,375

Question 69

Bang Nguyen recently graduated from college and started working in a good job. He has a little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2011. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2011. He is just completing his tax return for 2011. Based on the information below, answer the following questions.

What is Bang's taxable income for 2011?

A) $37,375
B) $29,900
C) $35,250
D) $27,875

Question 70

Bang Nguyen recently graduated from college and started working in a good job. He has a little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2011. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2011. He is just completing his tax return for 2011. Based on the information below, answer the following questions.

What will Bang's total tax liability be for 2011?

A) $4,278.75
B) $3,756.25
C) $2,852.50
D) $7,131.25

Question 71

Explain how to calculate your taxable income, and how to determine the need for a tax payment or refund.

Question 72

Name the sources of tax-free income.

Question 73

Katarina worked as an ER nurse, and knows that demand for the job is high. However, prior to returning to work, when the twins enter kindergarten, she will need to take classes on the latest technological advancements. Which of the following tax planning strategies should the Bajorshiks consider as they plan their financial future?

A) When Katrina returns to school, they should track school-related expenses and determine eligibility for the Lifetime Learning credit.
B) While the children are under age 13, the Bajorshiks should track childcare expenses and determine eligibility for the child and dependent care credit.
C) Both A and B are legitimate tax planning strategies that the couple should consider.
D) Neither A nor B is a tax planning strategy that is relevant to this couple's situation.

Question 74

Bang Nguyen recently graduated from college and started working in a good job. He has a little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2011. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2011. He is just completing his tax return for 2011. Based on the information below, answer the following questions.

What is Bang's marginal tax rate for his current level of taxable income?

A) 10%
B) 15%
C) 12.5%
D) 25%

Question 75

Bang Nguyen recently graduated from college and started working in a good job. He has a little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2011. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2011. He is just completing his tax return for 2011. Based on the information below, answer the following questions.

What is Bang's gross income for 2011?

A) $35,250
B) $29,900
C) $38,750
D) not enough information to determine

Question 76

For many years Andy paid someone else to file his income tax return. After taking a personal finance course at his local college, Andy feels he is ready to tackle it on his own for tax year 2012. Andy is single with an income of $35,000 and has no dependents. He has little interest income from savings, does not have a personal IRA, and plans to itemize deductions. Andy owns a home and travels a lot with his job. He pays some of his own work-related expenses because his employer does not pay for all of them. His only personal investments include 1,000 shares of stock he inherited from his uncle, which he does not intend to sell for many years because the blue-chip company has a strong history of dividend income and share price appreciation. However, he does contribute monthly to his 401(k) plan at work.
Andy can qualify for all of the following except the ________.

A) mortgage interest payments deduction
B) deduction for unreimbursed job-related expenses that are in excess of 2 percent of AGI
C) Lifetime Learning Credit
D) real estate property taxes deduction
E) Andy can qualify for all of the above to reduce his tax liability

Question 77

Katarina and Richard are a busy young couple with a son, Caleb, who is 6 and twin daughters, Stacy and Casey, who are actively exploring the world as four-year-olds. Before the twins were born, Katarina and Richard bought their first home with plenty of indoor and outdoor space for a growing young family. The Bajorshiks are concerned about their 2011 tax issues, but they are also committed to planning for the future of their family. Next year Richard should be able to pay off the remaining balance of his law school student loans. Contributing to Richard's Roth IRA is an annual priority. The following information reflects tax year 2011.
Gross income $98,712
Student loan interest $1,965
Katarina's traditional IRA $1,500
Total itemized deductions $14,987
Standard deduction for 2011 $11,600
Personal exemption amount $3,700
Marginal tax bracket 25%
Richard and Katarina's filing status should be ________.

A) head of household
B) married filing jointly
C) married filing separately
D) single
E) surviving spouse

Question 78

Bang Nguyen recently graduated from college and started working in a good job. He has a little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2011. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2011. He is just completing his tax return for 2011. Based on the information below, answer the following questions.

Bang's average tax rate for 2011 is closest to which of the following?

A) 10%
B) 15%
C) 12.5%
D) 25%

Question 79

Katarina and Richard are a busy young couple with a son, Caleb, who is 6 and twin daughters, Stacy and Casey, who are actively exploring the world as four-year-olds. Before the twins were born, Katarina and Richard bought their first home with plenty of indoor and outdoor space for a growing young family. The Bajorshiks are concerned about their 2011 tax issues, but they are also committed to planning for the future of their family. Next year Richard should be able to pay off the remaining balance of his law school student loans. Contributing to Richard's Roth IRA is an annual priority. The following information reflects tax year 2011.
Gross income $98,712
Student loan interest $1,965
Katarina's traditional IRA $1,500
Total itemized deductions $14,987
Standard deduction for 2011 $11,600
Personal exemption amount $3,700
Marginal tax bracket 25%
What is Richard and Katarina's taxable income?

A) $65,147
B) $51,860
C) $77,210
D) $76,760
E) $98,712

Question 80

If the Bajorshiks' income does not exceed the phase-out level of $110,000 in 2011, by how much will the child tax credit reduce their tax liability? (Assume that the child tax credit will be the same amount in 2010 as in 2011.)

A) Their tax liability will be reduced by $750.
B) Their tax liability will be reduced by $2,000.
C) Their tax liability will be reduced by $2,100.
D) Their tax liability will be reduced by $3,000.