Exam 3: Preparing Your Taxes

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?

Molly and Jason were married.Their only "dependent" was Spot,their black standard poodle.Jason died in 2004.Assuming she does not remarry,in 2005 the only legal filing status for Molly will be

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -The Federal personal income tax is a progressive tax.

Opening a traditional IRA would allow you to defer taxes on the earning.

Mr.and Mrs.McMurray have three children ages 3,6,and 12 for which they paid $6,000 in child care expenses this year.Assume the McMurray's tax liability is initially calculated to be $10,000.Then apply a 20% tax credit for child care expenses within limits normally allowed.How much will their final tax liability be?

Tax avoidance is a legal means to minimize tax liabilities.

Medical and dental expenses may be included as itemized deductions

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -A tax credit could result from [owning a home | adopting a child].

Mr.and Mrs.Sanborn are retired and have had several medical problems this year.Their financial matters for 2008 are as follows: How much would the Sanborns' medical expenses contribute to their total itemized deductions?

Tax credits reduce your

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -You [must | may] pay your income taxes on a pay-as-you-go basis throughout the year.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -Gifts received from family and friends are included in gross income.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -One's marginal tax rate is typical lower than one's average tax rate.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -You will itemize your deductions.You [could | could not] use the 1040A.

The income shifting tax strategy is least effective when income producing gifts are given to persons

Which of the following can be adjustment(s)to gross income on the 1040 form?

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?

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -The IRS definition of [gross | adjusted] income is "all income that is subject to federal taxes."

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -Social security taxes are deducted from all wages and salaries earned in a year.

INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement.Select A for the first item,B for the second item,and C if neither item will correctly complete the statement. -The higher your income,the [greater | smaller] the probability you will be audited.