Question 1

A drawback of Flexible Spending Accounts (FSA) is that any account funds must be used to pay for expenses incurred before year's end or the money is lost.

Accepted Answer

A) True 
 B)False

Question 2

Tim Bridges owns a bass fishing boat. His state imposes an annual 3.25 percent tax on the current value of this boat. What type of tax is this most likely to be?

Accepted Answer

A)   General sales tax
B)   Excise tax
C)   Personal property tax
D)   Income tax
E)   Estate taxF) A) and B)
G) C) and D)

Question 3

The interest paid on which type of loan is not tax deductible?

Accepted Answer

A)   Home equity loan used to purchase an automobile
B)   Credit card
C)   Mortgage for a primary residence
D)   Mortgage for a second home
E)   Second mortgage for a primary residenceF) A) and B)
G) A) and C)

Question 4

An itemized deduction of $500 with a 36 percent tax rate would reduce a person's taxes by:

Accepted Answer

A)   $500.
B)   $36.
C)   $464.
D)   $280.
E)   $180.$500 × .36 = $180F) All of the above
G) B) and D)

Question 5

An estate tax is imposed on the value of an individual's property at the time of his or her death.

Accepted Answer

A) True 
 B)False

Question 6

Reductions from gross income for such items as individual retirement account contributions and alimony payments will result in:

Accepted Answer

A)   adjusted gross income.
B)   taxable income.
C)   earned income.
D)   passive income.
E)   total exclusions.F) B) and D)
G) None of the above

Question 7

Which one of the following people is least likely to have to file a federal income tax return?

Accepted Answer

A)   A U.S. citizen who is a resident of Puerto Rico
B)   A U.S. citizen living and working in a foreign country
C)   A person earning less than $9,000
D)   A person over age 65
E)   A college studentF) A) and B)
G) A) and C)

Question 8

An office audit requires that a taxpayer visit an IRS office to clarify some aspect of his or her tax return.

Accepted Answer

A) True 
 B)False

Question 9

Approximately what percent of tax filers are audited each year?

Accepted Answer

A)   1%
B)   3%
C)   5%
D)   10%
E)   15%F) A) and E)
G) B) and E)

Question 10

Earnings from a limited partnership would be an example of ____________ income.

Accepted Answer

A)   passive
B)   capital gain
C)   portfolio
D)   earned
E)   excludedF) B) and D)
G) B) and C)

Question 11

Which one of the following is most apt to qualify as an itemized deduction?

Accepted Answer

A)   Interest on a credit card or charge account
B)   Unreimbursed job-related travel expenses
C)   Cost of commuting to work
D)   Life insurance premiums
E)   Traffic violation feeF) A) and E)
G) B) and C)

Question 12

Factors that affect a person's filing status include marital status and:

Accepted Answer

A)   employment status.
B)   age.
C)   occupation.
D)   dependents.
E)   place of residence.F) C) and D)
G) All of the above

Question 13

An exclusion affects a person's taxes by:

Accepted Answer

A)   reducing the amount of taxable income.
B)   increasing itemized deductions.
C)   decreasing itemized deductions.
D)   decreasing the number of exemptions a person can claim.
E)   increasing the number of exemptions a person can claim.F) All of the above
G) B) and D)

Question 14

Which type of audit is the least complicated for taxpayers?

Accepted Answer

A)   A field audit
B)   An office audit
C)   A research audit
D)   A correspondence audit
E)   A documentation auditF) A) and C)
G) A) and E)

Question 15

Ms. Nelson is a single mom with three children; Dana is 18 and a high school senior, Derrick is 20 and a college sophomore, and Tonya is 25 and unemployed. All three children live at home. How many exemptions can Ms. Nelson claim on her tax return?

Accepted Answer

A)   1
B)   2
C)   3
D)   4
E)   0F) D) and E)
G) A) and D)

Question 16

A tax on the value of automobiles, boats, or furniture is referred to as a personal property tax.

Accepted Answer

A) True 
 B)False

Question 17

Which one of these investments produces tax-exempt income?

Accepted Answer

A)   U.S. savings bonds
B)   Corporate stock
C)   Stock mutual fund
D)   Municipal bond
E)   Corporate bondF) A) and B)
G) None of the above

Question 18

A general sales tax is also referred to as an excise tax.

Accepted Answer

A) True 
 B)False

Question 19

Taxable income is used to compute a person's:

Accepted Answer

A)   exemptions.
B)   income tax.
C)   deductions.
D)   capital gains.
E)   exclusions.F) C) and D)
G) A) and E)

Question 20

Two types of education savings plans are the Coverdell Education Savings Account and the:

Accepted Answer

A)   401k.
B)   529 plan.
C)   Keogh plan.
D)   traditional IRA.
E)   Roth IRA.F) A) and B)
G) All of the above

Exam 4: Planning Your Tax Strategy

Which type of audit is the least complicated for taxpayers?

Correct AnswerverifiedShow Answer

An exclusion affects a person's taxes by:

Correct AnswerverifiedShow Answer

Ms. Nelson is a single mom with three children; Dana is 18 and a high school senior, Derrick is 20 and a college sophomore, and Tonya is 25 and unemployed. All three children live at home. How many exemptions can Ms. Nelson claim on her tax return?

Correct AnswerverifiedShow Answer

Tim Bridges owns a bass fishing boat. His state imposes an annual 3.25 percent tax on the current value of this boat. What type of tax is this most likely to be?

Correct AnswerverifiedShow Answer

A tax on the value of automobiles, boats, or furniture is referred to as a personal property tax.

Correct AnswerverifiedShow Answer

An itemized deduction of $500 with a 36 percent tax rate would reduce a person's taxes by:

Correct AnswerverifiedShow Answer

Which one of the following people is least likely to have to file a federal income tax return?

Correct AnswerverifiedShow Answer

Earnings from a limited partnership would be an example of ____________ income.

Correct AnswerverifiedShow Answer

Factors that affect a person's filing status include marital status and:

Correct AnswerverifiedShow Answer

The interest paid on which type of loan is not tax deductible?

Correct AnswerverifiedShow Answer

Which one of these investments produces tax-exempt income?

Correct AnswerverifiedShow Answer

Taxable income is used to compute a person's:

Correct AnswerverifiedShow Answer

An estate tax is imposed on the value of an individual's property at the time of his or her death.

Correct AnswerverifiedShow Answer

A drawback of Flexible Spending Accounts (FSA) is that any account funds must be used to pay for expenses incurred before year's end or the money is lost.

Correct AnswerverifiedShow Answer

A general sales tax is also referred to as an excise tax.

Correct AnswerverifiedShow Answer

Which one of the following is most apt to qualify as an itemized deduction?

Correct AnswerverifiedShow Answer

An office audit requires that a taxpayer visit an IRS office to clarify some aspect of his or her tax return.

Correct AnswerverifiedShow Answer

Two types of education savings plans are the Coverdell Education Savings Account and the:

Correct AnswerverifiedShow Answer

Reductions from gross income for such items as individual retirement account contributions and alimony payments will result in:

Correct AnswerverifiedShow Answer

Approximately what percent of tax filers are audited each year?

Correct AnswerverifiedShow Answer

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