Chapter 04 – Planning Your Tax Strategy
1. (p. 123) Taxes are only considered as financial planning activities in April.
2. (p. 106) The principal purpose of taxes is to control economic conditions.
3. (p. 106) A state may impose a personal property tax.
4. (p. 106) Real-estate property taxes are a major source of revenue for local governments.
Chapter 04 – Planning Your Tax Strategy
5. (p. 106) A general sales tax is also referred to as an excise tax.
6. (p. 106) A tax on the value of automobiles, boats, or furniture is referred to as a personal
property tax.
7. (p. 106) An estate tax is imposed on the value of an individual’s property at the time of his or
her death.
8. (p. 108) Money received in the form of dividends or interest is commonly called “earned
income.”
Chapter 04 – Planning Your Tax Strategy
9. (p. 109) An exclusion is earnings not included in taxable income.
10. (p. 109) Exemptions are deductions for yourself, your spouse, and qualified dependents that
you can deduct from adjusted gross income.
11. (p. 113) A tax credit is an amount subtracted directly from the amount of taxes owed.
12. (p. 117) A person’s filing status is affected by marital status and dependents.
Chapter 04 – Planning Your Tax Strategy
13. (p. 127) An office audit requires that a taxpayer visit an IRS office to clarify some aspect of
his or her tax return.
14. (p. 128) Tax avoidance refers to illegal actions to reduce one’s taxes.
15. (p. 132) Capital gains refer to profits from the sale of investments.
16. (p. 106) The main purpose of taxes is to:
Chapter 04 – Planning Your Tax Strategy
17. (p. 106) Which type of tax is imposed on specific goods and services at the time of
purchase?
18. (p. 106) The ______________ property tax is based on the value of land and buildings at
some point in time.
19. (p. 108) What type of tax is imposed on the value of an individual’s property at the time of
his or her death?
Chapter 04 – Planning Your Tax Strategy
20. (p. 108) Taxable income is used to compute a person’s:
21. (p. 113) Interest earnings of $1,600 from a taxable investment for a person in a 28 percent
tax bracket would result in after-tax earnings of:
22. (p. 113) A $2,000 deposit to a tax-deferred retirement account for a person in a 25 percent
tax bracket would result in a reduced tax bill of:
Chapter 04 – Planning Your Tax Strategy
23. (p. 112) When a taxpayer’s income increases $1,000 and the taxes owed increases from
$7,867 to $8,177, the marginal tax rate is ______ percent.
24. (p. 112) A taxpayer with a taxable income of $47,856 and a total tax bill of $5,889 would
have an average tax rate of ____ percent.
Chapter 04 – Planning Your Tax Strategy
25. (p. 109) A person has $4,000 in medical expenses and an adjusted gross income of $32,000.
If taxpayers are allowed to deduct the amount of medical expenses that exceed 7.5 percent of
adjusted gross income, what would be the amount of the deduction in this situation?
26. (p. 109) Which of the following would result in a reduction of taxable income?
27. (p. 108) Money received by an individual for personal effort is classified as ______________
income.
Chapter 04 – Planning Your Tax Strategy
28. (p. 108) Money received in the form of dividends or interest is classified as ____________
income.
29. (p. 109) Earnings from a limited partnership would be an example of ____________
income.
30. (p. 109) Which one of the following is not included in gross income?
Chapter 04 – Planning Your Tax Strategy
31. (p. 108) Which of the following would be deducted from gross income to obtain adjusted
gross income?
32. (p. 108) George Washburn had earnings from his salary of $34,000, interest on savings of
$800, a contribution to a traditional individual retirement account of $1,500, and dividends
from mutual funds of $600. George’s adjusted income (AGI) would be:
33. (p. 109) An exclusion affects a person’s taxes by:
Chapter 04 – Planning Your Tax Strategy
34. (p. 109) Reductions from gross income for such items as individual retirement account
contributions and alimony payments will result in:
35. (p. 109) Tax-deferred retirement plans are a type of:
36. (p. 109) Which one of the following items is a set amount of income on which no taxes are
paid?
Chapter 04 – Planning Your Tax Strategy
37. (p. 109) An expense that would be included in the itemized deductions of a taxpayer is:
38. (p. 109) _____________ are expenses that a taxpayer is allowed to deduct from adjusted
gross income.
39. (p. 111) A deduction from adjusted gross income for yourself, your spouse, and qualified
dependents is:
Chapter 04 – Planning Your Tax Strategy
40. (p. 109) Michele Walsh is considering an additional charitable contribution of $2,000 to a
tax-deductible charity, bringing her total itemized deductions to $16,000. If Michele is in a 28
percent tax bracket, how much will this $2,000 contribution reduce her taxes?
41. (p. 111) An exemption affects a person’s tax situation by:
42. (p. 111) Which of the following would qualify a person for an exemption when computing
taxable income?
Chapter 04 – Planning Your Tax Strategy
43. (p. 111) For a dependent to qualify as an exemption, he or she must:
44. (p. 113) A tax ____________ is an amount subtracted directly from the amount of taxes
owed.
45. (p. 113) A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person’s
taxes by:
Chapter 04 – Planning Your Tax Strategy
46. (p. 116) Most people pay federal income tax by:
47. (p. 116) Estimated quarterly tax payments must be made by people who:
48. (p. 117) A taxpayer whose spouse recently died is most likely to use the ____________ filing
status.
Chapter 04 – Planning Your Tax Strategy
49. (p. 117) The “head of household” filing status is for people who are:
50. (p. 118) Which form would an individual use who has less than $100,000 in taxable income
from wages, salaries, tips, unemployment compensation, interest, or dividends, and who is
married and does not itemize deductions?
51. (p. 118) The Form 1040 is most helpful to a person who:
Chapter 04 – Planning Your Tax Strategy
52. (p. 116) Which one of the following people is least likely to have to file a federal income tax
return?
53. (p. 121) Itemized deductions are recorded on:
54. (p. 119) A person with a total tax liability of $4,350 and withholding of federal taxes of
$3,975 would:
Chapter 04 – Planning Your Tax Strategy
55. (p. 124) Kelly Vernon wants her tax return prepared by a government approved tax expert.
Which of the following tax preparers should Kelly use?
56. (p. 127) Which type of audit is the least complicated for taxpayers?
57. (p. 128) Which one of these terms is defined as the use of legitimate methods to reduce one’s
taxes?