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37. Mr. and Mrs. Davenport, aged 40 and 38, respectively, have three children aged 3, 6, and 13. For 2019, they
have adjusted gross income (AGI) of $65,000 and unreimbursed medical expenses of $6,750. The Davenports’ claim for
itemized deductions for medical expenses is:
a. $0.
b. $250.
c. $3,500.
d. $2,750.
e. $4,500.
38. If you do not wish to itemize deductions, the other deduction you can take is the:
a. pay-as–you–go deduction.
b. bracket deduction.
c. standard deduction.
d. exemption deduction.
e. withholding allowance deduction.
39. Peter’s tax computed per the tax rate schedule amounts to $2,000, and his tax credits amount to $500. His total tax
liability is:
a. $2,500.
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b. $1,500.
c. $3,000.
d. $2,200.
e. $4,000.
40. Based on the given information, what is Max’s portfolio income?
Interest from savings account $1,000
Capital gains realized 5,000
Salary 8,000
a. $13,000
b. $6,000
c. $8,000
d. $16,000
e. $18,000
41. The total amount of income tax you owe in 1 year is your tax:
a. withholding.
b. credit.
c. rate.
d. refund.
e. liability.
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3. Preparing Your Taxes
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44. Mr. and Mrs. McMurray have three children, aged 6, 12, and 18 in 2018. The McMurrays’ tax liability calculated per
the tax schedule is $10,000. The McMurrays’ tax liability is:
a. $8,000.
b. $7,000.
c. $4,000.
d. $6,000.
e. $0.
45. Jamil and Vicki have one child, aged 3. How much will a tax credit reduce their tax liability?
a. $500
b. $1,000
c. $2,000
d. $2,500
e. $3,000
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46. Itemized deductions are listed on:
a. Schedule A of Form 1040.
b. Schedule B of Form 1040.
c. Schedule C of Form 1040.
d. Schedule D of Form 1040.
e. Schedule F of Form 1040.
47. If you are a professional who is likely to receive income that is not subject to withholding, then you are required to:
a. pay an estimated tax.
b. file an amended return.
c. file an extension.
d. deduct a tax credit.
e. calculate itemized deductions.
48. A _____ would most likely have to pay estimated taxes.
a. school teacher
b. manager for an industrial firm
c. self-employed plumber
d. union worker
e. corporate attorney
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51. A tax audit is a(n):
a. Internal Revenue Service (IRS) revision of a previously filed return.
b. Internal Revenue Service (IRS) attempt to verify the accuracy of a return.
c. Internal Revenue Service (IRS) charge of illegal action.
d. U.S. Tax Court action.
e. U.S. Tax Court decision.
52. A taxpayer can file for an automatic extension of _____ months.
a. 2
b. 4
c. 6
d. 9
e. 12
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53. Which of the following statements regarding enrolled agents is true?
a. They are tax professionals who advise only professionals in tax planning.
b. They are taxpayers with relatively common types of income and expenditure.
c. They are federally licensed individual tax practitioners.
d. They are lawyers who specialize in tax planning.
e. They are federal agents who collect taxes from taxpayers.
54. Which of the following private tax preparers are required to pass an exam administered by the Internal Revenue
Service (IRS)?
a. National and local tax services
b. Certified public accountants (CPAs)
c. Enrolled agents (EAs)
d. Tax attorneys
e. Corporate managers
55. You are preparing your own tax return. The least costly source for getting your questions answered would be:
a. the IRS office toll-free number.
b. an enrolled agent.
c. a tax accountant.
d. a tax lawyer.
e. the local post office.
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3. Preparing Your Taxes
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58. Which of the following is an illegal method of reducing your current tax liability?
a. Not reporting the taxable income you receive
b. Investing in a tax-deferred annuity
c. Shifting income to your children
d. Investing money in municipal bonds
e. Putting money in a Roth IRA
59. The highest marginal tax rate is currently:
a. 35.6%.
b. 35%.
c. 37%.
d. 41%.
e. 45%.
60. Payments under the provisions of the Federal Insurance Contributions Act (FICA) are also known as:
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a. income tax.
b. Social Security tax.
c. property tax.
d. capital gains tax.
e. marginal tax.
61. A tax credit could result from:
a. owning a home.
b. adopting a child.
c. charitable contributions.
d. investing in municipal bonds.
e. dental expenses.
62. When an individual gives his or her child an income-producing asset, he or she is:
a. shifting his or her income.
b. maximizing his or her deductions.
c. deferring his or her tax.
d. executing his or her will.
e. reducing his or her taxes by using technology.
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63. Shawn earns $65,000. If the total Social Security tax rate is 15.3%, how much is his Social Security tax? How much
does his employer pay toward Social Security taxes for Shawn? (Show all work and round to the nearest dollar.)
64. From the following information, determine Marcie’s gross income for tax purposes.
Salary $40,000
Interest (checking account) 50
Cash received as birthday gift 900
Dividends (mutual funds) 500
Inheritance received upon father’s death 22,000
Cash received from insurance for accident claim settlement 3,200
Cash dividend from stock 750
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65. From the following information, determine Steve’s gross income for tax purposes.
Salary $32,000
Interest (checking account) 25
Cash received as birthday gift 1,000
Dividends (mutual funds) 5,500
Child-support payments received from ex-wife 24,000
Life insurance benefits received after aunt’s death 50,000
66. Sue and Tim are married taxpayers in the 32% marginal tax bracket. In 2018, they sold common stock shares, which
they held for more than 3 months, for a capital gain of $3,800. They also sold some technology stock for a short-term
capital loss of $9,000. In addition, they sold the home they had lived in for the past 10 years and experienced a $75,000
gain on the house. How much will their net capital gains (or losses) be for 2018? How much will they pay (or save) in
taxes as a result of these transactions?
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67. Jamie has taxable income of $45,000. She is single, and her tax rate is 10% on the first $9,525 of the taxable income,
12% on the amount over $9,525 up to $38,700 of the taxable income, and 22% on the remainder. What are Jamie’s tax
liability, marginal tax rate, and average tax rate? (Show all work. Round dollar amounts to the nearest cent and
percentages to two decimal places.)