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Chapter 3—Preparing Your Taxes
1. The federal personal income tax is a progressive tax.
a.
True
b.
False
2. The federal personal income tax is a flat tax.
a.
True
b.
False
3. Tax avoidance is legal, tax evasion is illegal.
a.
True
b.
False
4. One's marginal tax rate is typically lower than one's average tax rate.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
5. One's average tax rate is typically lower than one's marginal tax rate.
a.
True
b.
False
6. If you have any earned income, you are required to file a tax return.
a.
True
b.
False
7. The main objective of tax planning is to maximize the amount of money you keep by minimizing the amount of taxes
you pay.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
8. If you are eligible to receive a tax refund, you will have to file a tax return to get the refund.
a.
True
b.
False
9. Income tax refunds are automatically sent to those who qualify for refunds no later than April 15.
a.
True
b.
False
10. As a single taxpayer with no dependents, one is generally eligible to file as "head of household."
a.
True
b.
False
11. Russ and Lois got married December 30. Although they were single for most of the year, they can legally file as
married taxpayers in the year of the wedding.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
12. Dwayne and Gayle were divorced September 29, have not remarried, and have no dependents. Their filing status for
the year will each be "married" since they were married for more than half of the year.
a.
True
b.
False
13. If you are married, you can legally file a single tax return.
a.
True
b.
False
14. A spouse and spouse is the only couple combination that can file a joint return.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
15. The tax brackets (rates) and payments for married couples filing separately are now typically close to the same as for
joint filers.
a.
True
b.
False
16. The Internal Revenue Service is responsible for making changes to the federal income tax codes.
a.
True
b.
False
17. Congress considers tax law changes throughout the year.
a.
True
b.
False
18. Social security taxes are deducted from all wages and salaries earned in a year.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
19. Social security taxes are paid on earned income but not on investment income.
a.
True
b.
False
20. There is no limit on the amount of social security tax withheld annually.
a.
True
b.
False
21. The Medicare portion of the FICA tax is paid on 100% of earnings.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
22. Your marital status will affect the amount of social security you must pay in a year.
a.
True
b.
False
23. Child support received is included in gross income.
a.
True
b.
False
24. Alimony received is included in gross income for the receiver and deducted from gross income for the payer.
a.
True
b.
False
25. Gifts received from family and friends are included in gross income.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
26. Gross income minus tax exempt income equals adjusted gross income.
a.
True
b.
False
27. Dividends received from the stock you own will be taxable income.
a.
True
b.
False
28. Qualified dividends are taxed at the same rates as long-term capital gains.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
29. Portfolio-related expenses can be written off against passive income.
a.
True
b.
False
30. A short-term capital gain would be taxed at the same rate as your salary.
a.
True
b.
False
31. A long-term capital gain is taxed at the same rate as ordinary income.
a.
True
b.
False
32. The sale of your home will rarely result in a taxable capital gain.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
33. An investment must be owned over one year in order to qualify for long-term capital gains treatment.
a.
True
b.
False
34. An investment must be owned over two years in order to qualify for long-term capital gains treatment.
a.
True
b.
False
35. To receive the most favorable capital gains treatment, a taxpayer must own and occupy a home for at least two of the
five years prior to its sale.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
36. Adjustments to income will decrease your taxable income.
a.
True
b.
False
37. Itemized deductions could include certain taxes, medical expenditures, and home mortgage interest.
a.
True
b.
False
38. You should itemize deductions when total itemized deductions exceed the standard deduction.
a.
True
b.
False
39. You should itemize deductions when total itemized deductions are less than the standard deduction.
a.
True
Chapter 3—Preparing Your Taxes
b.
False
40. Mortgage interest and paid home property taxes are both itemized deduction items.
a.
True
b.
False
41. State income taxes and real estate taxes are both itemized deduction items.
a.
True
b.
False
42. A tax deduction is more valuable than a tax credit.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
43. Federal income taxes paid can be deducted the following year.
a.
True
b.
False
44. Personal exemptions are deductions from AGI based on the number of persons supported by the taxpayer's income.
a.
True
b.
False
45. The personal exemption for a student can be taken both by the parent and by the child.
a.
True
b.
False
46. When a child qualifies as a dependent on her parent's return, the child cannot take a personal exemption for herself.
a.
True
Chapter 3—Preparing Your Taxes
b.
False
47. The alternative minimum tax is designed to ensure that individuals with many deductions and tax-shelter investments
are paying their fair share of taxes.
a.
True
b.
False
48. Tax credits are dollar-for-dollar reductions in taxes due.
a.
True
b.
False
49. Estimated tax payments must be made by those who do not have taxes deducted from their earnings.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
50. A person with a significant amount of investment income would have a high probability of needing to make estimated
tax payments.
a.
True
b.
False
51. All taxpayers have an equal probability of having their tax returns audited.
a.
True
b.
False
52. You have up to three years after mailing your tax return to file an amended tax return (1040X).
a.
True
b.
False
Chapter 3—Preparing Your Taxes
53. If your AGI is less than $100,000 and you do not itemize deductions, the IRS will compute your taxes for you.
a.
True
b.
False
54. 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 on the return.
a.
True
b.
False
55. Marginal tax and average tax rate refer to the same thing.
a.
True
b.
False
56. If you earn less than $15,000, you probably pay more in social security taxes than in federal income taxes.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
57. Opening a traditional IRA would allow you to defer taxes on the earnings.
a.
True
b.
False
58. Opening a traditional IRA would allow you to take advantage of tax-free earnings.
a.
True
b.
False
59. Tax-deferred income is better than tax-free income.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
60. Municipal bond investments typically provide tax-free interest income.
a.
True
b.
False
61. Most any wage earner can open an IRA and contribute up to $7,500 of tax-deferred income each year to the account.
a.
True
b.
False
62. Tax avoidance is a legal means to minimize tax liabilities.
a.
True
b.
False
63. Tax evasion is a legal means to avoid tax liabilities.
a.
True
b.
False
Chapter 3—Preparing Your Taxes
64. Persons who work for more than one employer in any year will owe more social security taxes than if all their income
was earned from a single employer.
a.
True
b.
False
65. A taxpayer claiming himself and one dependent had personal exemptions in 2014 amounting to $7,900.
a.
True
b.
False
66. The regular income tax filing deadline is April 1 of each year.
a.
True
b.
False
67. By filing a tax extension, one does not have to pay his income tax liability until October 15.
a.
True
b.
False
68. Income shifting refers to the process of transferring income from the taxpayer to the IRS.
a.
True
b.
False
69. The standard deduction in 2014 for a single filer was $6,500 and for married persons filing jointly was $13,000.
a.
True
b.
False
70. Most major software providers have free online versions for preparing federal taxes for all taxpayers.
a.
True
b.
False
