3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 1
1. Russ and Lois were married on December 30. Even though they were single for most of the year, they can legally file
as married filing jointly taxpayers in the year of the wedding.
a. True
b. False
2. Dwayne and Gayle were divorced on September 29. They have not remarried since and have no dependents. Their
filing status for the year will be married filing separately since they were married for more than half of the year.
a. True
b. False
3. If you are legally separated from your spouse by a separation decree, you can legally file as a single taxpayer.
a. True
b. False
3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 2
4. Gross income minus tax-exempt income equals adjusted gross income.
a. True
b. False
5. Adjustments to gross income will decrease your taxable income.
a. True
b. False
6. Qualified dividends are taxed at the highest capital gain rates.
a. True
b. False
3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 3
7. The alternative minimum tax (AMT) is applicable to taxpayers with moderate levels of income only.
a. True
b. False
8. Tax credits are dollar-for-dollar reductions in taxable income.
a. True
b. False
9. All taxpayers have an equal probability of having their tax returns audited.
a. True
b. False
3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 4
10. A tax audit is an examination by local government officials to identify people who do not pay enough taxes.
a. True
b. False
11. A married couple filing a joint return has Ms. Cindy Cook, a CPA, complete their return. The IRS will hold only Ms.
Cook responsible for any errors in the filed return.
a. True
b. False
3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 5
TOPICS: Income taxes
Personal tax planning
DATE CREATED: 7/25/2018 9:49 AM
DATE MODIFIED: 12/11/2018 5:41 PM
12. Tax preparers must be licensed by either the state or the federal government.
a. True
b. False
13. Tax avoidance is legal, whereas tax evasion is illegal.
a. True
b. False
14. Income shifting refers to the process of transferring income from the taxpayer to the IRS.
a. True
b. False
3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 6
15. The federal government receives a majority of its revenue from _____ tax.
a. sales
b. property
c. excise
d. income
e. estate
16. A progressive tax structure is one in which:
a. tax rates are directly proportional to inflation rates.
b. the larger the amount of taxable income, the higher the rate at which it is taxed.
c. tax rates are inversely related to inflation rates.
d. everyone pays the same income tax rate.
e. no exemptions or deductions are available.
3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 7
17. Henry is married to Lillian, and they have two dependent children. Both of them want to file their own tax returns,
reporting only his or her own income, deductions, and exemptions. The filing status of Henry and Lillian is:
a. single taxpayer.
b. married filing jointly.
c. head of household.
d. qualifying widow.
e. married filing separately.
18. Pete and Pam are married with four dependent children. Which of the following filing statuses can Pete and Pam use if
they want to legally file one tax return?
a. Married filing separately
b. Married filing jointly
c. Head of household
d. Single
e. Qualifying widow or widower with dependent child
19. Mandi and Thomas were married and had a child aged 7 in 2018. Mandi died in 2018, leaving Thomas a single parent.
The most favorable filing status for Thomas in 2019 will be:
a. single.
b. married filing separately.
c. head of household.
3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 8
d. qualifying widower.
e. married filing jointly.
20. Molly and Jason were married. Their only dependent was Spot, their black standard poodle. Jason died in 2018.
Assuming Molly does not remarry, the only legal filing status for Molly in 2019 will be:
a. single.
b. married filing separately.
c. head of household.
d. qualifying widow.
e. married filing jointly.
21. Your take-home pay is what you are left with after subtracting withholdings from your:
a. gross earnings.
b. net earnings.
c. taxable income.
d. adjusted gross income.
e. tax-exempt income.
3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 9
22. Your income tax withholding is dependent on:
a. your age and educational qualification.
b. the number of deductions claimed by your spouse.
c. your income level and the number of withholding allowances you have claimed.
d. the number of standard deductions you have claimed.
e. the number of withholding allowances allowed by your employer.
23. In 2018, the total FICA tax rate was:
a. 6.0%.
b. 6.75%.
c. 7.25%.
d. 13.4%.
e. 15.3%.
3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 10
24. Ben and Jack both earned $60,000 this year. Ben (age 30) is married with two children, and Jack (age 68) is single
with no dependents. Which of the following is true regarding the amount of Social Security taxes they will have to pay?
a. They will pay the same amount of Social Security taxes.
b. Ben will pay less Social Security taxes because he is married.
c. Ben will pay less Social Security taxes because he has children.
d. Jack will pay less Social Security taxes because he is single.
e. Jack will pay less Social Security taxes because he is over the age of 65.
25. Mark is not married and has dependent parents. He pays more than half of the cost of keeping a home for himself and
his parents. His tax filing status is:
a. single taxpayer.
b. married filing jointly.
c. married filing separately.
d. head of household.
e. qualifying widow.
26. Which of the following statements regarding the tax levied under the Federal Insurance Contributions Act (FICA) is
true?
a. It is also known as property tax.
b. It is paid equally by employer and employee.
c. It is not applicable to self-employed persons.
3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 11
d. It is applicable to all federal employees.
e. It is used to provide insurance against theft.
27. Which of the following is subject to federal income tax?
a. The tax credit earnings on a Roth IRA
b. Municipal bond interest
c. Child-support payments
d. Tips received
e. Personal exemptions
28. You would typically include _____ in your gross income.
a. child-support payments
b. life insurance death benefit payments
c. municipal bond interest
d. income from pensions
e. personal exemptions
3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 12
29. _____ would be considered a part of your taxable income.
a. Your (individual retirement account) IRA contributions
b. A gift from your aunt
c. Your child-support payments
d. A gain from the sale of your assets
e. Your tuition scholarship
30. A capital gain is the result of:
a. selling an asset for less than its purchase price.
b. holding an asset that has depreciated.
c. selling an asset at its purchase price.
d. selling an asset for more than its purchase price.
e. buying a new asset at a rate lower than the market rate of the asset.
3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 13
31. Tom sold mutual fund shares, which he had owned for 3 years, so that he could use the proceeds to return to college.
Tom is in the 12% marginal tax bracket, and his capital gain from the sale was $12,000. How much tax does Tom owe on
the gain?
a. $12,000
b. $3,080
c. $1,440
d. $1,200
e. $0
32. Melinda sold mutual fund shares, which she had owned for 5 years, so that she could use the proceeds to travel with
her sister. Melinda is in the 32% ordinary tax bracket, and her capital gains from the sale were $40,000. Melinda’s tax
liability on the gain is:
a. $10,500.
b. $8,400.
c. $6,000.
d. $4,500.
e. $1,500.
3. Preparing Your Taxes
Copyright Cengage Learning. Powered by Cognero.
Page 14
33. Sarah is a homeowner and a single taxpayer. She has owned and occupied the house as a principal residence for the
last 8 years. In the current taxable year, she receives a promotion. She sells her home and moves to another area. The
capital gain on the sale of the principal residence will:
a. be taxable as ordinary income.
b. be taxable at a rate of 25%.
c. be taxable at the appropriate short-term capital gains rate.
d. be taxable excluding the first $250,000 of the gain.
e. not be taxable because the relocation is a job-related move.
34. Murray (age 68, single) sold his home owned for 35 years so that he could relocate to a place that is closer to where
his grandchildren live. He realized a $400,000 capital gain on the home. Murray’s tax liability on the capital gain is
computed on:
a. $400,000.
b. $300,000.
c. $250,000.
d. $150,000.
e. $0.
3. Preparing Your Taxes