Exam 4: Managing Income Taxes

To qualify for the earned income credit,taxpayers must have earned income.

A taxpayer can claim a personal exemption for any person he or she provides over 50 percent of support during the tax year.

Which of the following is not a deductible medical expense?

The highest marginal tax rate is currently 50 percent.

A personal exemption is a legally permitted amount deducted from adjusted gross income based on the number of persons supported by the taxpayer's income.

If you earn enough extra income to be placed in a higher tax bracket and have a higher marginal tax rate,the new rate will be applied to all of your taxable income.

The IRS disallows deductions for expenses for business-related trips.

Figure 4-1 -Refer to Figure 4-1.What is Tony and Liz's adjusted gross income?

Jeff is trying to decide whether to sell his baseball card collection.He has been offered a price that would give him a profit of $2,500 by a dealer who has agreed to pay Jeff this price now or in January of next year.This year Jeff is in the 28 percent marginal tax bracket,but next year Jeff expects to be in the 15 percent marginal tax bracket.Therefore,the estimated income tax liability on this $2,500 income would be ____ this year and ____ next year.

A flexible spending account allows an employee to set up a pre-tax account into which a part of their pay is deposited with their employer to be used to pay for child care and medical expenses.

If you are owed a refund on your income tax return you can either have the funds sent to you or apply them to next year's taxes.

If you have an income tax refund coming,the IRS will automatically send the refund to you.

Both alimony and child support received are considered part of gross income for income tax purposes.

Homeowners with appreciated principal residences can avoid tax on gains of up to $500,000 if married and filing jointly and up to $250,000 if single.The home must have been owned and used as the taxpayer's private residence for two out of the last three years prior to the date of sale.

Which of the following is an example of unearned income?

Tax credits can be taken both by taxpayers who itemize deductions and by those who don't itemize.

Which of the following types of subtractions cannot be taken by a taxpayer if he or she itemizes deductions?

Which of the following expenses on a home is not tax deductible annually?

Adjusted gross income is not a factor in calculating which of the following itemized deductions?

Figure 4-1 -Refer to Figure 4-1.If Tony and Liz owe $3,296 in taxes on their taxable income what is their final tax liability after taking the credits for which they qualify?