Personal Financial Planning 13th Edition by Lawrence J. Gitman – Test Bank
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Sample Test
Chapter 3—Preparing Your Taxes
TRUE/FALSE
1. The
Federal personal income tax is a progressive tax.
ANS:
T
PTS: 1
DIF:
Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
2. The
Federal personal income tax is a flat tax.
ANS:
F
PTS: 1
DIF:
Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
3. Tax
avoidance is legal, tax evasion is illegal.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-6
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
4. One’s
marginal tax rate is typical lower than one’s average tax rate.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Analysis
5. One’s
average tax rate is typically lower than one’s marginal tax rate.
ANS:
T
PTS: 1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Analysis
6. If
you have any earned income, you are required to file a tax return.
ANS:
F
PTS: 1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
7. The
main objective of tax planning is to maximize the amount of money you keep by
minimizing the amount of taxes you pay.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-6
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Comprehension
8. If
you are eligible to receive a tax refund, you will have to file a tax return to
get the refund.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
9. Income
tax refunds are automatically sent to those who qualify for refunds no later
than April 15.
ANS:
F
PTS:
1
DIF:
Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
10. As a
single taxpayer with no dependents, one is generally eligible to file as “head
of household.”
ANS:
F
PTS:
1
DIF:
Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
11. Russ
and Lois got married December 30. Since they were single for most of the year,
however, they can legally file as married taxpayers in the year of the wedding.
ANS:
T
PTS: 1
DIF:
Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
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.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
13. If
you are married, you can legally file a single tax return.
ANS:
F
PTS:
1
DIF:
Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
14. A
husband and wife would be the only couple combination that could file a joint
return.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
15. A
couple will usually incur a lower tax liability if they choose “married, filing
jointly” rather than “married, filing a separately.”
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
16. The
Internal Revenue Service is responsible for writing the federal income tax
codes.
ANS:
F
PTS: 1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
17. The
Congress writes and passes the Internal Revenue Code.
ANS:
T
PTS: 1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
18. Social
security taxes are deducted from all wages and salaries earned in a year.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
19. Social
security taxes are paid on earned income but not on investment income.
ANS:
T
PTS:
1
DIF: Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
20. There
is no limit on the amount of Social Security withheld annually.
ANS: F
PTS:
1
DIF:
Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
21. The
Medicare portion of the Social Security tax is paid on 100% of earnings.
ANS:
T
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
22. Your
marital status will affect the amount of social security you must pay in a
year.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
23. Social
Security taxes are paid on earned income and investment income.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
24. Child
support received is included in gross income.
ANS:
F
PTS:
1
DIF:
Easy
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
25. Alimony
received is included in gross income for the receiver and a tax deduction for
the payer.
ANS:
T
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
26. Gifts
received from family and friends are included in gross income.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
27. Gross
income minus tax exempt income equals adjusted gross income.
ANS:
F
PTS:
1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
28. Dividends
received from the stock you own will be taxable income.
ANS:
T
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
29. Qualified
dividends are taxed at the same rates as long-term capital gains.
ANS:
T
PTS:
1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
30. Portfolio-related
expenses can be written off against passive income.
ANS:
F
PTS:
1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
31. A
short-term capital gain would be taxed at the same rate as your salary.
ANS:
T
PTS:
1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
32. A
long-term capital gain, a investment held for more than 6 months, would be
taxed at the same rate as earned income.
ANS:
F
PTS:
1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
33. The
sale of your home will rarely result in a taxable capital gain.
ANS:
T
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
34. An
investment must be owned over one year in order to qualify for long-term
capital gains treatment.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
35. An
investment must be owned over two years in order to qualify for long-term
capital gains treatment.
ANS:
F
PTS:
1
DIF:
Easy
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
36. One’s
home must typically be owned at least three years to receive the most favorable
capital gains treatment.
ANS:
F
PTS:
1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
37. Adjustments
to income will decrease your taxable income.
ANS:
T
PTS:
1
DIF: Easy
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Analysis
38. Itemized
deductions could include certain taxes, medical expenditures, and home mortgage
interest.
ANS: T
PTS:
1
DIF:
Easy
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Application
39. You
should itemize deductions when total itemized deductions exceed the standard
deduction.
ANS:
T
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Analysis
40. You
should itemize deductions when total itemized deductions are less than the
standard deduction.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Analysis
41. Mortgage
interest and paid home property taxes are both itemized deduction items.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
42. Qualifying
interest on a student loan can be written off as an itemized deduction.
ANS:
F
PTS:
1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
43. State
income taxes and real estate taxes are both itemized deduction items.
ANS:
T
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
44. State
income taxes and state sales taxes paid can both be included as itemized
deductions in the same tax year.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
45. Federal
income taxes paid can be deducted the following year.
ANS:
F
PTS:
1
DIF:
Easy
OBJ: LO: 3-2
NAT: BUSPROG: Analytic skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
46. Personal
exemptions are tax deductions based on the number of taxpayers and dependents
in the taxpayer’s household.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
47. The
personal exemption for a student can be taken both by the parent and by the
child.
ANS:
F
PTS: 1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
48. When
a child qualifies as a dependent on her parent’s return, the child cannot take
a personal exemption for herself.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
49. The
alternative minimum tax is an issue only for high-income taxpayers.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-3
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
50. Tax
credits are dollar-for-dollar reductions in taxable income.
ANS:
T
PTS:
1
DIF: Moderate
OBJ: LO: 3-3
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
51. Estimated
tax payments must be made by those who do not have taxes deducted from their
earnings.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-3
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
52. A
person with a significant amount of investment income would have a high
probability of needing to make estimated tax payments.
ANS:
T
PTS:
1
DIF: Moderate
OBJ: LO: 3-3
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Application
53. All
taxpayers have an equal probability of having their tax returns audited.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-4
NAT: BUSPROG: Analytic skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
54. You
have up to three years after mailing your tax return to file an amended tax
return (1040X).
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-4
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
55. If
your AGI is less than $100,000 and you do not itemize deductions, the IRS will
compute your taxes for you.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-4
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
56. 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.
ANS:
F
PTS:
1
DIF:
Easy
OBJ: LO: 3-4
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
57. Tax
preparers must be licensed by either the state of federal government.
ANS:
F
PTS:
1
DIF:
Easy
OBJ: LO: 3-5
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
58. Anyone
can legally prepare tax returns and charge a fee for that service.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-5
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
59. Marginal
tax and average tax rate refer to the same thing.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Analysis
60. If
you earn less than $15,000, you probably pay more in social security taxes than
in federal income taxes.
ANS:
T
PTS:
1
DIF: Challenging OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
61. Opening
a traditional IRA would allow you to defer taxes on the earning.
ANS:
T
PTS:
1
DIF: Challenging OBJ: LO: 3-6
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Analysis
62. Opening
a traditional IRA would allow you to take advantage of tax free earnings.
ANS:
F
PTS:
1
DIF: Challenging OBJ: LO: 3-6
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Analysis
63. Tax-deferred
income is better than tax-free income.
ANS:
F
PTS:
1
DIF: Challenging OBJ: LO: 3-6
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Analysis
64. Municipal
bond investments typically provide tax-free interest income.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-6
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
65. Most states
generate the majority of their revenues from property taxes.
ANS:
F
PTS:
1
DIF: Challenging OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
66. Tax avoidance
is a legal means to minimize tax liabilities.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-6
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
67. Tax
evasion is a legal means to avoid tax liabilities.
ANS:
F
PTS:
1
DIF:
Easy
OBJ: LO: 3-6
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
68. 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.
ANS:
F
PTS:
1
DIF: Challenging OBJ: LO: 3-1
NAT: BUSPROG: Analytic skills
STA: DISC: Taxes
KEY: Bloom’s: Analysis
69. The
amount of one personal exemption in 2011 was $3,700.
ANS:
T
PTS:
1
DIF:
Easy
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
70. The
regular income tax filing deadline is April 1 of each year.
ANS:
F
PTS:
1
DIF:
Easy
OBJ: LO: 3-4
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
71. By
filing a tax extension, one does not have to pay his income tax liability until
August 15.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-4
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
72. Income
shifting refers to the process of transferring income from the taxpayer to the
IRS.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-6
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Analysis
73. The
standard deduction in 2011 for a single filer is $5,800 and for married persons
filing jointly is $11,600.
ANS:
T
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
74. A
special tax provision reduced the social security portion for the individual
taxpayer by 2% in 2011 and 2012.
ANS:
T
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
KEY: Bloom’s: Knowledge
75. Most
major software providers have free online versions for preparing federal taxes
for all taxpayers.
ANS:
F
PTS:
1
DIF:
Easy
OBJ: LO: 3-5
NAT: BUSPROG: Analytic
skills
KEY: Bloom’s: Knowledge
76. You
are more likely to have your tax return audited if you work for a for-profit
company, compared to a non-profit organization.
ANS:
F
PTS:
1
DIF: Moderate
OBJ: LO: 3-4
NAT: BUSPROG: Analytic
skills
KEY: Bloom’s: Knowledge
77. The
tax year corresponds to the April 15 filing deadline, with a new tax year
beginning April 16th.
ANS:
F
PTS:
1
DIF:
Easy
OBJ: LO: 3-4
NAT: BUSPROG: Analytic
skills
KEY: Bloom’s: Knowledge
78. The
AMT includes in taxable income certain types of deductions otherwise allowed,
such as state and local income and property taxes.
ANS:
T
PTS:
1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
KEY: Bloom’s: Knowledge
MULTIPLE CHOICE
1. The
federal government gets the majority of its revenue from the ____ tax.
|
a. |
sales |
|
b. |
property |
|
c. |
excise |
|
d. |
income |
|
e. |
estate |
ANS:
D
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
2. Over
75% of the revenue received by the federal government is from ____ and ____
taxes.
|
a. |
sales and income |
|
b. |
income and excise |
|
c. |
Social Security and estate |
|
d. |
estate and sales |
|
e. |
income and Social Security |
ANS:
E
PTS:
1
DIF:
Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
3. The
federal income tax is
|
a. |
integrative. |
|
b. |
regressive. |
|
c. |
progressive. |
|
d. |
flat rate. |
|
e. |
none of the above. |
ANS:
C
PTS:
1
DIF:
Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
4. 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 |
ANS:
B
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
5. 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 |
ANS: B
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Application
6. 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 and b |
|
e. |
a, b, and c |
ANS:
D
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Application
7. Mandi
and Thomas were married and had one child, age 7. Mandi died in 2011 leaving
Thomas a single parent. In 2012, the most favorable filing status for Thomas
will be
|
a. |
single |
|
b. |
married filing separately |
|
c. |
head of household |
|
d. |
qualifying widow |
|
e. |
any of the above |
ANS:
D
PTS:
1
DIF: Challenging OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Analysis
8. Molly
and Jason were married. Their only “dependent” was Spot, their black standard
poodle. Jason died in 2011. Assuming she does not remarry, in 2012 the only
legal filing status for Molly will be
|
a. |
single |
|
b. |
married filing separately |
|
c. |
head of household |
|
d. |
qualifying widow |
|
e. |
any of the above |
ANS:
D
PTS:
1
DIF:
Easy
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Analysis
9. 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. |
ANS:
B
PTS: 1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
10. 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. |
ANS:
A
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
11. ____
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 |
ANS:
A
PTS: 1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
12. 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. |
ANS:
C
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
13. The
standard deduction is a blanket deduction that depends on the taxpayers
|
a. |
filing status |
|
b. |
age |
|
c. |
vision |
|
d. |
all of the above. |
ANS: D
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
14. In
2011, the total Social Security tax was
|
a. |
6.0%. |
|
b. |
6.75%. |
|
c. |
7.25%. |
|
d. |
11%. |
|
e. |
13.3%. |
ANS:
E
PTS:
1
DIF: Moderate
OBJ: LO: 3-1
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
15. 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 |
ANS:
C
PTS:
1
DIF:
Easy
OBJ: LO: 3-2
NAT: BUSPROG: Analytic skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
16. 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 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 65. |
ANS:
A
PTS:
1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic skills
STA: DISC: Taxes
KEY: Bloom’s: Evaluation
17. ____
income is subject to federal taxes.
|
a. |
Gross |
|
b. |
Adjusted gross |
|
c. |
Net |
|
d. |
Take-home |
|
e. |
Taxable |
ANS:
E
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
18. 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 |
ANS:
B
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Comprehension
19. ____
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 |
ANS:
D
PTS: 1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Application
20. ____
would not be considered taxable income.
|
a. |
Child support payments |
|
b. |
Proceedings from an
employer retirement plan |
|
c. |
Dividend income |
|
d. |
a and b |
|
e. |
a, b, and c |
ANS:
A
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
21. A
capital gain is the result of
|
a. |
selling an asset for less
than 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 purchase price. |
|
e. |
None of these. |
ANS:
D
PTS:
1
DIF:
Easy
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
22. 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. |
ANS:
B
PTS: 1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
23. 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. |
$ 550 |
ANS:
E
PTS: 1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Evaluation
24. 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 |
|
c. |
$ 6,000 |
|
d. |
$ 4,500 |
|
e. |
$ 1,500 |
ANS: D
PTS:
1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Evaluation
25. You
purchased and lived in your home 8 years. Now you have received an excellent
promotion, but you will have to sell your home and move to another community.
The capital gains on the home sold 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. |
ANS:
D
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
26. Murray
(age 68, single) just sold his home of 35 years so that he could relocate
nearer his grandchildren. He realized a $400,000 capital gain on the home. How
much of this gain will Murray have to pay taxes on?
|
a. |
$400,000 |
|
b. |
$300,000 |
|
c. |
$250,000 |
|
d. |
$150,000 |
|
e. |
$
0 |
ANS:
D
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic skills
STA: DISC: Taxes
KEY: Bloom’s: Evaluation
27. 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. How much of this gain
will Maria and Ed have to pay taxes on?
|
a. |
$400,000 |
|
b. |
$300,000 |
|
c. |
$250,000 |
|
d. |
$100,000 |
|
e. |
$
0 |
ANS:
E
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Evaluation
28. 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 |
ANS: E
PTS:
1
DIF: Moderate
OBJ: LO: 3-3
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
29. 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 |
ANS:
E
PTS:
1
DIF: Moderate
OBJ: LO: 3-3
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
30. Molly
and Justin 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?
|
a. |
$
0 |
|
b. |
$ 840 |
|
c. |
$1,400 |
|
d. |
$2,000 |
|
e. |
$5,000 |
ANS: C
PTS:
1
DIF: Challenging OBJ: LO: 3-3
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Evaluation
31. John
and Charlotte are considering contributing $1,000 to their church. This
contribution will bring their total itemized deductions to $2,000. Assuming
they are in the 15% marginal tax bracket, how much will they save in taxes by
contributing this $1,000 to their church?
|
a. |
$
0 |
|
b. |
$ 150 |
|
c. |
$ 300 |
|
d. |
$ 500 |
|
e. |
$1,000 |
ANS:
A
PTS:
1
DIF: Challenging OBJ: LO: 3-3
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Evaluation
32. Medical
and dental expenses may be included as itemized deductions
|
a. |
when they exceed 4% of
adjusted gross income. |
|
b. |
up to a maximum of $7,500
per individual per tax year. |
|
c. |
only if they do not exceed
7% of gross income. |
|
d. |
only in the amount in
excess of 7.5% of adjusted gross income. |
|
e. |
always. |
ANS:
D
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
33. Mr.
and Mrs. Davenport have three children ages 3, 6, and 13. Their financial
matters for 2011 are as follows:
|
Adjusted Gross Income |
$65,000 |
|
Un-reimbursed Medical
Expenses |
$ 5,250 |
How much would the Davenports’ medical expenses contribute to
their total itemized deductions?
|
a. |
$
0 |
|
b. |
$ 375 |
|
c. |
$3,500 |
|
d. |
$2,750 |
|
e. |
$4,500 |
ANS:
B
PTS:
1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Evaluation
34. Mr.
and Mrs. Sanborn are retired and have had several medical problems this year.
Their financial matters for 2008 are as follows:
|
Adjusted Gross Income |
$65,000 |
|
Un-reimbursed Medical
Expenses |
$14,500 |
How much would the Sanborns’ medical expenses contribute to
their total itemized deductions?
|
a. |
$
0 |
|
b. |
$ 4,875 |
|
c. |
$ 7,500 |
|
d. |
$ 9,625 |
|
e. |
$14,500 |
ANS:
D
PTS:
1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Evaluation
35. Buddy
Slaton has only one itemized deduction item, the $3,000 he gave to his church.
His standard deduction this year is $5,450, and he is in the 15% marginal tax
bracket. How much will his contribution to the church save Buddy in taxes this
year?
|
a. |
$4,400 |
|
b. |
$3,000 |
|
c. |
$ 660 |
|
d. |
$ 450 |
|
e. |
$
0 |
ANS:
E
PTS:
1
DIF: Challenging OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Evaluation
36. Itemized
non-business expenses do not include
|
a. |
charitable contributions. |
|
b. |
state income taxes. |
|
c. |
residential mortgage
interest. |
|
d. |
medical expenses. |
|
e. |
life insurance premiums. |
ANS:
E
PTS: 1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
37. If
you do not wish to itemize deductions, you can use the
|
a. |
pay-as-you-go amount. |
|
b. |
bracket deduction. |
|
c. |
standard deduction. |
|
d. |
exemption. |
|
e. |
withholding allowance. |
ANS:
C
PTS:
1
DIF:
Easy
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Knowledge
38. Connie
is a 20 year old college student who earned $8,000 and spent it all on her
support during the year. Her parents may claim her as a tax dependent as long
as
|
a. |
they contribute more than
half her support for the year. |
|
b. |
she is under 21. |
|
c. |
she makes under $10,000. |
|
d. |
she lives at home. |
|
e. |
all these things are true. |
ANS:
A
PTS:
1
DIF: Moderate
OBJ: LO: 3-2
NAT: BUSPROG: Analytic
skills
STA: DISC: Taxes
KEY: Bloom’s: Evaluation
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