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Chapter 3—Preparing Your Taxes
71. You are more likely to have your tax return audited if you have large deductions for meals, travel, and entertainment.
a.
True
b.
False
72. The tax year corresponds to the April 15 filing deadline, with a new tax year beginning April 16th.
a.
True
b.
False
73. The alternative minimum tax calculation includes in taxable income certain types of deductions otherwise
allowed, such as state and local income and property taxes.
a.
True
b.
False
74. The federal government gets the majority of its revenue from the ____ tax.
Chapter 3—Preparing Your Taxes
a.
sales
b.
property
c.
excise
d.
income
e.
estate
75. The federal income tax is
a.
integrative.
b.
regressive.
c.
progressive.
d.
flat rate.
e.
none of the above.
76. A progressive tax system is one in which higher-income people pay ____ than lower-income people.
a.
a higher dollar amount in taxes
b.
tax at a higher rate
c.
a lower dollar amount in taxes
d.
tax at a lower rate
e.
tax at the same rate
Chapter 3—Preparing Your Taxes
77. Henry is married to Lillian, and they have two dependent children. Henry can legally file using which of the following
filing statuses?
a.
Single
b.
Married filing jointly
c.
Head of household
d.
Qualifying widow
e.
Any of the above
78. Pete and Pam are married with four dependent children. Pete and Pam can legally file using which of the following
filing statuses?
a.
married filing separately
b.
married filing jointly
c.
head of household
d.
a or b
e.
a, b, or c
79. Mandi and Thomas were married and had one child, age 7. Mandi died in 2013 leaving Thomas a single parent. In
2014, the most favorable filing status for Thomas would be
a.
single.
b.
married filing separately.
c.
head of household.
d.
qualifying widow(er).
e.
any of the above.
Chapter 3—Preparing Your Taxes
80. Molly and Jason were married. Their only "dependent" was Spot, their black standard poodle. Jason died in 2013.
Assuming she does not remarry, in 2014 the only legal filing status for Molly would be
a.
single.
b.
married filing separately.
c.
head of household.
d.
qualifying widow(er).
e.
any of the above.
81. For tax purposes, head of household refers to
a.
the person with the larger income when a couple is filing a joint return.
b.
a single individual with dependents.
c.
a single individual who owns a home.
d.
the spouse who has the only income for a couple filing a joint return.
e.
a widow(er) with no dependents but with debts from death of spouse three years earlier.
82. Your take-home pay is what you are left with after subtracting withholdings from your
a.
gross earnings.
b.
net earnings.
c.
taxable income.
Chapter 3—Preparing Your Taxes
d.
adjusted gross income.
e.
tax exempt income.
83. ____ income is gross income less tax deductions and payments for insurance and retirement savings.
a.
Take-home
b.
EBIT
c.
Adjusted gross
d.
Taxable
e.
Tax-exempt
84. Your income tax withholding is dependent on
a.
income level and deductions.
b.
deductions and age.
c.
income level and number of withholding allowances.
d.
number of withholding allowances and deductions.
e.
number of withholding allowances and dependents.
85. The standard deduction is a blanket deduction that depends on the taxpayers
Chapter 3—Preparing Your Taxes
a.
filing status
b.
age
c.
vision
d.
all of the above.
86. In 2014, the total social security tax was
a.
2.9%.
b.
6.2%.
c.
7.65%.
d.
12.4%.
e.
15.3%.
87. Which of the following is not one of the three basic categories for individual income?
a.
active income
b.
passive income
c.
gross income
d.
portfolio income
Chapter 3—Preparing Your Taxes
88. Ben and Jack both earned $60,000 this year. Ben (age 30) is married with two children, and Jack (age 61) is single
with no dependents. Which of the following is true regarding the amount of Social Security taxes they will 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 age 60.
89. ____ income is subject to federal taxes.
a.
Gross
b.
Adjusted gross
c.
Net
d.
Take-home
e.
Taxable
90. You would typically not include ____ in your gross income.
a.
wages and salaries
b.
life insurance death benefit payments
c.
interest and dividends
d.
pension income
e.
gambling winnings
Chapter 3—Preparing Your Taxes
91. ____ would be considered taxable income.
a.
An inheritance from your grandmother's estate
b.
A gift from your aunt
c.
Child support payments
d.
Alimony received
e.
A tuition scholarship
92. ____ would not be considered taxable income.
a.
Child support payments
b.
Proceeds from an employer retirement plan
c.
Dividend income
d.
a and b
e.
a, b, and c
93. A capital gain is the result of
a.
selling an asset for less than its purchase price.
b.
holding an asset that has appreciated.
c.
selling an asset at the same price of purchase.
d.
selling an asset for more than its purchase price.
e.
none of these.
Chapter 3—Preparing Your Taxes
94. The tax rate on capital gains for most people is
a.
the same as on regular income.
b.
dependent on the time the asset was owned.
c.
dependent on the amount of profit earned.
d.
higher than the rate on regular income.
e.
none of these.
95. Tom sold mutual fund shares he had owned 3 years so that he could use the proceeds to return to college. Tom is in
the 15% marginal tax bracket and his capital gains from this sale were $11,000. How much tax would Tom owe on those
gains?
a.
$11,000
b.
$3,080
c.
$1,650
d.
$1,100
e.
$0
96. Diana sold mutual fund shares she had owned 4 years so that she could use the proceeds to travel across Europe with
her son. Diana is in the 35% marginal tax bracket and her capital gains from this sale were $30,000. How much tax would
Diana owe on those gains?
a.
$10,500
b.
$8,400
Chapter 3—Preparing Your Taxes
c.
$6,000
d.
$4,500
e.
$1,500
97. You have owned and lived in your home for 8 years. Now you have received an excellent promotion, but you will
have to sell your home and move to another community. You expect to realize a capital gain of $100,000 on the home's
sale. The capital gain will
a.
be taxable as ordinary income.
b.
be taxable at the 15% tax bracket.
c.
be taxable at the appropriate long-term capital gains rate.
d.
not be taxable because the home was your principal residence.
e.
not be taxable because this is a job-related move.
98. Murray (age 68, single) just sold his home of 35 years so that he could relocate nearer to his grandchildren. He
realized a $400,000 capital gain on the home. On how much of this gain will Murray have to pay taxes?
a.
$400,000
b.
$300,000
c.
$250,000
d.
$150,000
e.
$0
Chapter 3—Preparing Your Taxes
99. Maria and Ed just sold their home of 20 years so that they could purchase a smaller home. They realized a $400,000
capital gain on the home. On how much of this gain will Maria and Ed have to pay taxes?
a.
$400,000
b.
$300,000
c.
$250,000
d.
$100,000
e.
$0
100. Which of the following can be adjustment(s) to gross income on the 1040 form?
a.
Health insurance premiums paid by self-employed individuals
b.
Alimony paid
c.
Moving expenses
d.
a and b only
e.
a, b, and c
101. Which of the following cannot be adjustment(s) to gross income on the 1040 form?
a.
Health insurance premiums paid by self-employed individuals
b.
Alimony paid
c.
Moving expenses
d.
Traditional IRA contributions
e.
Child care deductions
Chapter 3—Preparing Your Taxes
102. Mike and Mandy are considering contributing $5,000 to their favorite tax-deductible charity. This contribution will
bring their total itemized deductions to $20,000. Assuming they are in the 28% marginal tax bracket, how much will they
save in taxes by contributing this $5,000 to charity? (Hint: Consider the amount of the standard deduction.)
a.
$0
b.
$784
c.
$1,400
d.
$2,000
e.
$5,000
103. Pat and Joy are considering contributing $5,000 to their church. This contribution will bring their total itemized
deductions to $10,000. Assuming they are in the 15% marginal tax bracket, how much will they save in taxes by
contributing this $5,000 to their church?
a.
$0
b.
$150
c.
$300
d.
$500
e.
$1,000
104. For those under the age of 65, medical and dental expenses may be included as itemized deductions
a.
when they exceed 5% of adjusted gross income.
b.
up to a maximum of $7,500 per individual per tax year.
Chapter 3—Preparing Your Taxes
c.
only if they do not exceed 7% of gross income.
d.
only in the amount in excess of 10% of adjusted gross income.
e.
under all circumstances.
105. Mr. and Mrs. Gonzalez have three children ages 3, 6, and 13. Their financial matters for 2014 are as follows:
Adjusted gross income
$75,000
Unreimbursed medical expenses
6,000
How much would the Gonzalezes' medical expenses contribute to their total itemized deductions?
a.
$0
b.
$450
c.
$1,500
d.
$3,000
e.
$6,000
106. Mr. and Mrs. Cho are under age 65 and have had several medical problems. Their financial matters for 2014 are as
follows:
Adjusted gross income
$55,000
Unreimbursed medical expenses
14,500
How much would the medical expenses contribute to their total itemized deductions?
a.
$0
b.
$4,875
c.
$7,500
d.
$9,000
e.
$14,500
Chapter 3—Preparing Your Taxes
107. Barney Smith has only one itemized deduction item, the $4,400 he gave to his church. His standard deduction this
year is $6,200, and he is in the 15% marginal tax bracket. How much will his contribution to the church save Barney in
taxes this year?
a.
$4,400
b.
$3,000
c.
$660
d.
$450
e.
$0
108. Itemized nonbusiness expenses do not include
a.
charitable contributions.
b.
state income taxes.
c.
residential mortgage interest.
d.
medical expenses.
e.
life insurance premiums.
109. If you do not wish to itemize deductions, you can use the
a.
pay-as-you-go amount.
Chapter 3—Preparing Your Taxes
b.
bracket deduction.
c.
standard deduction.
d.
exemption.
e.
withholding allowance.
110. Mike is a 19-year-old college student who earned $10,000 and spent it all on his support during the year. His parents
may claim him as a tax dependent as long as
a.
they contribute more than half of his support for the year.
b.
he is under 21.
c.
he makes under $12,000.
d.
he lives at home.
e.
all these things are true.
111. Jackson is a 25-year-old college student whose parents contribute to his support. His parents may claim him as a tax
dependent in 2014 as long as
a.
they contribute more than half of his support for the year.
b.
he is under 30.
c.
he makes under $5,000.
d.
a and c.
e.
a, b, and c.
Chapter 3—Preparing Your Taxes
112. For 2014, each personal exemption reduced taxable income by
a.
$2,800.
b.
$3,000.
c.
$3,700.
d.
$3,950.
e.
$4,000.
113. Tax credits reduce your
a.
tax liability.
b.
adjusted gross income.
c.
tax refund.
d.
tax withholding.
e.
taxable income.
114. You have no employer provided pension plan; your IRA contributions are treated as
a.
an adjustment to gross income.
b.
an additional personal exemption.
c.
part of the standard deduction.
d.
an itemized deduction.
e.
a tax credit.
Chapter 3—Preparing Your Taxes
115. A ____ would be most likely to have to pay estimated taxes.
a.
school teacher
b.
manager for a major industrial firm
c.
self-employed plumber
d.
union worker
e.
corporate attorney
116. On which of the following types of income would you normally have income tax withheld?
a.
Tips
b.
Interest
c.
Dividends
d.
Capital gains
e.
Self-employment income
117. A declaration of estimated taxes is made by filing
a.
Schedule B.
b.
Form 1040 EZ.
c.
Schedule Z.
d.
Form 1040 ES.
e.
Form 1040 A.
Chapter 3—Preparing Your Taxes
118. You made an error when you filed your tax return last year. You can correct this error by filing Form
a.
1040ES.
b.
1040X.
c.
1040E.
d.
Schedule A.
e.
Schedule D.
119. A tax audit is a(n)
a.
IRS revision of a previously filed return.
b.
IRS attempt to verify the accuracy of a return.
c.
IRS charge of illegal action.
d.
U.S. Tax Court action.
e.
U.S. Tax Court decision.
120. Which of the following offer tax preparation services?
a.
National and local tax services
b.
Certified public accountants (CPAs)
c.
Enrolled agents (EAs)
