2nd finance exam

Question 1

a type of tax structure in which the larger the amount of tax income, the highter the rate at which it’s taxed

Answer 1

progressive tax structure

Question 2

5 filing categories for taxpayers

Answer 2

• single taxpayers
• married filing jointly
• married filing separately
• head of household
• qualifying widow/widower with dependent child

Question 3

married couples may file separately (report only his or her income, deductions, and exemptions) if it means they have less tax to pay from that income

Question 4

the total of all of a taxpayer’s income (before any adjustments, deductions, or exemptions) subject to federal taxes, it includes active, portfolio, and passive income

Answer 4

gross income

Question 5

income !!!!earned on the job!!!!!, such as wages and salaries, bonuses, and tips, also includes most other forms of noninvestment income, such as pension income and alimony

Answer 5

Active income

Question 6

earnings- interest, dividends, and capitals gains (profits on the sale of investments)- generated from most types of investment holdings; includes savings accounts, stocks, bonds, mutual funds, options, and futures

Answer 6

portfolio income

Question 7

a special category thart includes income derived from real estate, limited partnerships, and other forms of tax shelter

Answer 7

passive income

Question 8

level of earnings and number of witholding allowances claimed on W-4

Answer 8

factors that determine federal witholding (amount of federal income tax withheld from your paycheck)

Question 9

deductions from AGI based on the number of people supported by the taxpayer’s income

Answer 9

exemptions

Question 10

calculate tax rates, tax credits, tax forms and schedules, and the procedures for determining tax liability

Answer 10

calculating amount of taxable income

Question 11

the amount of income remaining after subtracting all allowable adjustments to income from gross income

Answer 11

AGI (adjusted gross income)

Question 12

directly reduces, dollar for dollar, the amount of taxes due

Answer 12

tax credit

Question 13

deductions and exemtions can only reduce the amount of taxable income (tax credeit is better

Question 14

occures whenever a capital asset (stock, bond, or real estate* are sold for more than its original cost

Answer 14

capital gain (if you purchased stock for 5 and sold it for 6 you have a capital gain of 1*

Question 15

capital gains are taxed at different rates depending on different holding rates (short term gains from sale or exchange held for less than 12 months are taxed at the same rates as ordinary income, long term gains from the sale or exchange of property held for more than 12 months are typically taxed less

Question 16

in excess of 7.5 itemized percent of AGI in 2zero18

Answer 16

itemized deduction of medical and dental expenses

Question 17

itemized deuction- state, local, and foreign income (or if greater, state sales tax and property taxes, state and local personal property

Answer 17

limited to total deduction of ten thousand

Question 18

itemized deduction residential mortgage interest on principal amounts of seven fifty thousand or less of acquisition indebtedness

Answer 18

deductible for seven fifty thousand, interest on refinanced mortgages may be deductible with the same limit if the term of the original acquisiton mortgage (interest on home equity loans no longer deductible

Question 19

casualty losses that are uninsured are deductble for tax years 2018-2025 only to the extent they are attributable to a federally declared disaster area so if you total a then thousand dollar car and have no insurance youre out of luck

Question 20

moving exenses are NOT deductible but your employer could reimburse you and that would be included on your taxable income

Question 21

basic accumulations required, dollar amounts

Answer 21

form 1040

Question 22

filing status, income, tax rates

Answer 22

schedules

Question 23

lists different filing statuses, taxable income, and tax rate

Answer 23

tax rate schedules

Question 24

tax payments required on income not subject to withholding that are paid in 4 installments

Answer 24

estimated taxes often given to lawyers, buisness owners, and investors and consultants

Question 25

exam to validate return accuracy

Answer 25

tax audit, can be prepared by saving records

Question 26

• national and local tax services
• certified public accountants
• enrolled ageents
• tax attorneys
• IRS will compute taxes whose taxable income is less than 100000 and do not itemize deductions

Answer 26

what assistance/tax prep services does the irs provide

Question 27

use various ways to reduce shift or defer taxes

Answer 27

advantages of using tax preparation software

Question 28

reduce taxes legally

Answer 28

tax avoidance

Question 29

failing to accurately report income and deductions

Answer 29

tax evasion

Question 30

list all possible deductions that can be used

Answer 30

maximize deduction

Question 31

shift portion of income and taxes to a lower tax bracket

Answer 31

income shifting

Question 32

interest income earned on municipal bonds and earnings on money put into a roth IRA

Answer 32

tax free income

Question 33

investment vehicles allows you to accumulate tax-free earnings, resulting in much higher savings.
ex. income earned in a traditional IRA

Answer 33

tax deferred

Question 34

This schedule is used by filers to report itemized deductions.
itemized deductions: state/local income on sales taxes, property taxes, charitable donations, mortgage interest

Answer 34

schedule A form 1040 (itemized deductions)

Question 35

This schedule is used by filers to report interest and ordinary dividend income.

Answer 35

Schedule B (Form 1040), Interest and Ordinary Dividends

Question 36

used to report income or loss from a business operated or profession practiced as a sole proprietor; includes recent updates, related forms, and instructions on how to file.

Answer 36

Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship)

Question 37

used instead of Schedule C by qualifying small businesses and statutory employees with expenses of $5,000 or less.

Answer 37

Schedule C-EZ (Form 1040), Net Profit from Business (Sole Proprietorship)

Question 38

used to report sales, exchanges or some involuntary conversions of capital assets, certain capital gain distributions, and nonbusiness bad debts.

Answer 38

Schedule D (Form 1040), Capital Gains and Losses

Question 39

used to report income from rental properties, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs.

Answer 39

Schedule E (Form 1040), Supplemental Income and Loss

Question 40

used by filers who claim the earned income credit to give the IRS information about the qualifying child.

Answer 40

Schedule EIC(stands for earned income credit (Form 1040 or 1040-SR), Earned Income Credit

Question 41

used to report farm income and expenses.

Answer 41

Schedule F (Form 1040), Profit or Loss From Farming

Question 42

used by household employers to report household employment taxes.

Answer 42

Schedule H(h is for household employment…) (Form 1040), Household Employment Taxes

Question 43

used to figure your income tax by averaging all or part of your taxable income from your trade or business of farming or fishing.

Answer 43

Schedule J (Form 1040), Income Averaging for Farmers and Fishermen

Question 44

used to figure the credit for the elderly or the disabled.

Answer 44

Schedule R (Form 1040), Credit for the Elderly or the Disabled

Question 45

used by self-employed persons to figure the self-employment tax due on net earnings.

Answer 45

Schedule SE(literally stands for self emloyment (Form 1040), Self-Employment Tax

Question 46

used to figure the additional child tax credit. The additional child tax credit may give you a refund even if you do not owe any tax.

Answer 46

Schedule 8812 (Form 1040), Credits for Qualifying Children and Other Dependents

Question 47

tax credits are NOT dollar for dollar reductions in taxable income, they are deductions from a taxpayeer’s tax liability that directly reduce her taxes DUE rather than taxable income

Question 48

qualified dividends are taxed at the highest capital gain rates

Question 49

tax liability on capital gain computer on 150,000

Answer 49

Murray can use the section 121 exclusion that reduces his capital gains by $250,000 (it would have been $500,000 if he was married), because he owned the house for 35 years (ownership test) and lived there for the past two years (use test).

Murray’s taxable capital gains = $400,000 - $250,0000 = $150,000

Question 50

tax credit can result from adopting a child!!!, health care, electric vehicle, homeowner, income and savings credits, dependent credits, etc.

Question 51

tips recieved are subject to federal income tax

Question 52

a tax return filed to adjust for information recieved after the filing date of the taxpayer’s original return or to correct erroos

Answer 52

amended return

Question 53

taxable income is calculating by subtracting adjustments, the larger of itemized/standard deductions, and exemptions from gross income

Question 54

the law establishing the combined old age, survivor’s, disability, and hospital insurance tax levied on both employer and employee

Answer 54

FIFCA/social security tax

Question 55

taxes based on the level of earnings and the number of witholding allowances claimed- that an employer deducts from the employee’s gross earnings each pay period

Answer 55

federal withholding taxes

Question 56

a blanket deduction that depends on the taxpayer’s filing status, age, and vision, and can be taken by a taxpayer whose total itemized deductions are too small

Question 57

minimums for paying taxes (single person earning more than 12,000 and maried couple earning more than 24,000) change based on inflation

Question 58

1000 to almost 10,000 –> 10%
38,700- 59526 –> 12%
842501-157300 –> 24%
157501 to 200000-» 35
over 500,000 pay 37%