Deck 4: Tax Planning and Strategies

Question 1

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.

Answer 1

bracket creep.

Question 2

Currently,the highest tax bracket for taxpayers is 37.5 percent.

Answer 2

False

Question 3

A regressive tax rate is one that increases as you make more income.

Answer 3

False

Question 4

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.

Question 5

Compared to the standard deduction,it is easier to calculate your itemized deductions.

Question 6

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

Question 7

Taxes are collected on a pay-as-you-go basis.

Question 8

Ashlyn is a single person with no dependents.She normally receives over $1,800 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

Question 9

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

Question 10

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

Question 11

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.

Question 12

According the Keown book,most taxes,about 30 percent of individual income taxes,are collected through withholding from wages.

Question 13

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.

Question 14

In 2010 you purchased a share of stock for $125 and you sold it this year for $250.Legally,you don't need to pay any taxes on this transaction.

Question 15

Your deductions as a single person have reduced your taxable income to $38,950,bringing you into the 25 percent tax bracket.As such,your taxes will amount to 25 percent of your taxable income of $38,950.

Question 16

You pay taxes only when you sell stock and realize the gain.

Question 17

In 2013 you purchased $1,800 of IBM stock and you sold it this year for $1,500.Since you lost money on this transaction,there is no valid reason to include this on this year's tax return.

Question 18

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

Question 19

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

Question 20

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

Question 21

Five years ago,you purchased 200 shares of Go-Tech stock for $25 per share.If you sold those shares today at the current market price of $90 per share,what would be your capital gain on the sale,ignoring all commissions?

A)$115
B)$4,290
C)$8,710
D)$13,000

Question 22

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.

Question 23

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 24

Craig Ripley sold his stock in Gandy Corporation for a price less than what he paid for it.Craig will experience

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

Question 25

Which of the following is an income tax filing status?

A)Divorced filing spouse
B)Married filing jointly and surviving spouses
C)Head of divorced household
D)All of the above are income tax filing statuses.

Question 26

You and spouse are filing a joint return.Your current deductions have reduced your taxable income to $88,990,bringing you into the 25 percent tax bracket.The first dollars you earned will be taxed at the ________ tax bracket.

A)10 percent
B)15 percent
C)25 percent
D)33 percent

Question 27

Three years ago you purchased a share of CompUTech stock for $32,which you could sell today at the current market price of $252.What would be your capital gain on the sale,ignoring commissions?

A)$32
B)$220
C)$252
D)$284

Question 28

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 29

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 30

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

A)Yourself
B)Your 26-year-old child,who lives at home and earns $27,000 a year
C)Your spouse,if you're filing a joint return
D)Your 75-year-old grandfather,whom you financially support

Question 31

You and spouse are filing a joint return.Your current deductions have reduced your taxable income to $88,990,bringing you into the 25 percent tax bracket.The last dollars you earned will be taxed at the ________ tax bracket.

A)10 percent
B)15 percent
C)25 percent
D)33 percent

Question 32

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.

Question 33

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

Question 34

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 35

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 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

According the Keown book,most taxes-about ________ of individual income taxes-are collected through withholding from wages.

A)30 percent
B)50 percent
C)70 percent
D)90 percent

Question 38

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.

Question 39

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 40

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)standard exemptions.
C)marital exemptions.
D)personal exemptions.

Question 41

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 42

AGI stands for?

A)Allowed granted income
B)Adjusted gross interest
C)Adjusted gross income
D)Allowed grand interest

Question 43

If you are self-employed,you have to pay both the employer and employee portions of FICA,for a total rate of 20 percent.

Question 44

Name the categories of filing status.

Question 45

Standard deductions need yearlong record-keeping and thorough and accurate documentation.

Question 46

Chase Cutter has a marginal tax rate of 33 percent,a state income tax rate of 3.5 percent,and a city income tax rate of 0.5 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)33 percent
B)36.5 percent
C)39.6 percent
D)44.65 percent

Question 47

Explain the ways income taxes are paid or collected.

Question 48

Social Security is a voluntary insurance program administered by the federal government that provides for you and your family in the event of death,disability,health problems,or retirement.

Question 49

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 50

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

Question 51

If you are self-employed,you have to pay both the employer and the employee portions of FICA for a total of what percent?

A)7)65%
B)6)20%
C)15.3%
D)1)45%

Question 52

Since 1985,tax brackets have changed annually to reflect the increases in the cost of living,otherwise known as?

A)Capital Gains
B)Marginal Brackets
C)Inflation
D)Tax-deferred

Question 53

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 54

Describe the four filing status classifications.

Question 55

The FICA tax is typically deducted from your salary at a rate of ________until your salary reaches a point where it is no longer taxed at the rate of ________ for Social Security.

A)6)20 percent;1.45 percent
B)7)65 percent;6.20 percent
C)15.3 percent;7.65 percent
D)20 percent;10 percent

Question 56

Approximately what percent of individual income taxes are collected through withholding from wages?

A)99%
B)70%
C)50%
D)25%

Question 57

The health care premium credit is available to low-income taxpayers who purchased coverage through the Health Insurance Marketplace.

Question 58

Tax credits reduce your taxes on a dollar-for-dollar basis.

Question 59

Why is tax planning so important?

Question 60

For 2017,the federal tax code allows an estate valued at up to $5.49 million to be transferred tax free to any heir.If the estate is valued at more than $5.49 million,the amount over $5.49 million will be taxed at

A)25 percent.
B)30 percent.
C)40 percent.
D)55 percent.

Question 61

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

Question 62

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 63

Additional items that may reduce the Bosteins' 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.

Question 64

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 65

Income that comes from wages or a business is called

A)investment income.
B)active income.
C)passive income.
D)portfolio income.

Question 66

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 adjusted gross income for tax purposes?

A)$43,150
B)$42,550
C)$42,350
D)$41,950

Question 67

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

Question 68

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 69

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 70

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 71

Which of the following credits would not apply to the Bosteins?

A)Adoption credit
B)Health care premium credit (children's version)
C)Child and dependent care credit
D)Lifetime Learning tax credit

Question 72

A child tax credit reduces the federal income tax you owe by up to $1,000 for each qualifying child under the age of

A)15.
B)17.
C)19.
D)21.

Question 73

Leticia is a single person who makes $45,000 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 401(k)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 74

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)$1,440.00
D)$2,000.00

Question 75

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 76

Danielle 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 77

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 78

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 79

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 80

________ 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