Exam 4: Tax Planning and Strategies

Expenditures that are subtracted in an effort to calculate the lowest possible taxable income are called ________.

Butch Baird sold his stock in Brenner Corporation for a price less than what he paid for it. Butch will experience

Janet and her husband, Bob, are facing a totally new income tax situation this year. She is a corporate accountant and Bob is an engineer. Their gross salaries total $89,000. Janet and Bob graduated from four-year universities six years ago and are still paying off large college loans. She is attending school part-time now to prepare for the CPA exam. The Emmersons incurred considerable expenses in the process of adopting an infant this year, and also have the ongoing expense of daycare. In January of last year they closed on their new home. Although trained as an accountant, Janet's work has not involved income tax preparation. Help them consider the following questions. -Which of the following credits would not apply to the Emmersons?

Your base income tax liability can be determined by

Bang Nguyen recently graduated from college and started working in a good job. He has a little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2011. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2011. He is just completing his tax return for 2011. Based on the information below, answer the following questions. -What is Bang's adjusted gross income for 2011?

An IRS-allowed reduction in your income for yourself, your spouse, and any dependents that is subtracted before you compute your taxes is called a(n) ________.

Katarina and Richard are a busy young couple with a son, Caleb, who is 6 and twin daughters, Stacy and Casey, who are actively exploring the world as four-year-olds. Before the twins were born, Katarina and Richard bought their first home with plenty of indoor and outdoor space for a growing young family. The Bajorshiks are concerned about their 2011 tax issues, but they are also committed to planning for the future of their family. Next year Richard should be able to pay off the remaining balance of his law school student loans. Contributing to Richard's Roth IRA is an annual priority. The following information reflects tax year 2011. Gross income $98,712 Student loan interest $1,965 Katarina's traditional IRA $1,500 Total itemized deductions $14,987 Standard deduction for 2011 $11,600 Personal exemption amount $3,700 Marginal tax bracket 25% -Richard and Katarina's filing status should be ________.

If you are unable to file your tax returns by the deadline, you may file form 4868, Application for Automatic Extension of Time, and receive an extension of up to four months

Who must file a federal income tax return?

For many years Andy paid someone else to file his income tax return. After taking a personal finance course at his local college, Andy feels he is ready to tackle it on his own for tax year 2012. Andy is single with an income of $35,000 and has no dependents. He has little interest income from savings, does not have a personal IRA, and plans to itemize deductions. Andy owns a home and travels a lot with his job. He pays some of his own work-related expenses because his employer does not pay for all of them. His only personal investments include 1,000 shares of stock he inherited from his uncle, which he does not intend to sell for many years because the blue-chip company has a strong history of dividend income and share price appreciation. However, he does contribute monthly to his 401(k) plan at work. -Which of the following tax planning strategies could Andy consider to reduce his future tax bills?

Name the sources of tax-free income.

Which indicates the correct order for completing your tax returns?

Janet and her husband, Bob, are facing a totally new income tax situation this year. She is a corporate accountant and Bob is an engineer. Their gross salaries total $89,000. Janet and Bob graduated from four-year universities six years ago and are still paying off large college loans. She is attending school part-time now to prepare for the CPA exam. The Emmersons incurred considerable expenses in the process of adopting an infant this year, and also have the ongoing expense of daycare. In January of last year they closed on their new home. Although trained as an accountant, Janet's work has not involved income tax preparation. Help them consider the following questions. -Additional items that may reduce the Emmersons' tax burden might include

Why are the various tax "credits" such a welcome relief?

A tax system in which tax rates increase as income increases is called a(n) ________ system.

Which of the following is not allowed as a personal or dependency exemption?

Which of the following is not an income tax filing status?

For many years Andy paid someone else to file his income tax return. After taking a personal finance course at his local college, Andy feels he is ready to tackle it on his own for tax year 2012. Andy is single with an income of $35,000 and has no dependents. He has little interest income from savings, does not have a personal IRA, and plans to itemize deductions. Andy owns a home and travels a lot with his job. He pays some of his own work-related expenses because his employer does not pay for all of them. His only personal investments include 1,000 shares of stock he inherited from his uncle, which he does not intend to sell for many years because the blue-chip company has a strong history of dividend income and share price appreciation. However, he does contribute monthly to his 401(k) plan at work. -Andy can qualify for all of the following except the ________.

The percentage of the last dollar you earn that goes toward your taxes is your

If the Bajorshiks' income does not exceed the phase-out level of $110,000 in 2011, by how much will the child tax credit reduce their tax liability? (Assume that the child tax credit will be the same amount in 2010 as in 2011.)