WorksheetsFinance Chapter 6 Final Test
Total questions: 13
Worksheet time: 39mins
Another name for take-home pay is
gross pay
salary
net pay
income
Which of the following statements about taxes is true?
Only the federal government has the right to tax a person's income.
Any taxes collected by the government are returned to the person when they file their income tax return.
Taxes are the major source of revenue for the government.
Taxes can only be taken out of a person's income when they have a full-time job.
From the following, select the tax that is matched with its correct explanation:
Payroll tax: money deducted from a person's salary that is sent to the government by the employer.
Real estate tax: money paid to the government to use for building federally subsidized housing.
Sales tax: a percentage of money that the federal government deducts from the cost of new purchases.
Income tax: money that an employer pays out of company profits to the federal government for each person employed.
If a person is self-employed and earns $70,000 annually, the person
does not have to pay federal income tax because their salary is too low.
must pay estimated income taxes every quarter.
is only responsible for paying FICA tax to cover Social Security.
will not have to pay any local or state taxes.
The purpose of the IRS is to
pass laws to determine what will be taxed.
enforce tax laws and carry out the federal tax system.
prepare tax returns for businesses and individuals.
cut federal taxes and distribute taxes that have been collected to local and state governments.
A person completes their federal 1040EZ form and sees that they paid total quarterly estimated taxes of $12,000. But the calculations show that they should have only paid $9,500 in taxes. What will happen if they send the IRS this completed form with the necessary supporting documents?
Nothing, because they completed the short form, the 1040EZ, instead of the long form, the 1040.
The IRS will deduct the over payment of $2,500 from next year's taxes.
They will receive a federal tax refund of $2,500.
The IRS will make sure that their employer deducts the correct amount of taxes in the next year.
Juanita and Jessica work at the same company. Each is married and earns $75,000 per year. Juanita is paying more in taxes than Jessica. What two factors can help to explain why this is true?
Juanita does not have any children and does not itemize deductions; Jessica itemizes deductions and has three children.
Jessica earns an additional $15,000 from a part-time job and rents her house; Juanita owns her house and does not earn any additional income.
Juanita contributes the maximum she is allowed by law to her pension plan and Jessica does not contribute more than the minimum that her employer will match to her pension plan.
Jessica files her return as a single person and lets her husband claim their three children as exemptions on his taxes when he files as head of household.
Which of the following statements about adjusted gross income is true?
It will always be higher than a person's gross income.
It is the amount used to determine what a person actually has to pay in taxes.
It will decrease when a person takes a deduction for real estate taxes, contributes to charities, and interest on a mortgage.
It is the amount used to determine if a person gets a refund for paying Social Security taxes.
Which of the following statements about taxes and financial planning is true?
It makes sense for everyone to use the services of a tax professional in order to avoid paying additional taxes.
It is not really possible to reduce the taxes a person has to pay.
Using a tax planner does not really make sense until a person is earning more than $85,000 a year.
In most cases it is possible for people to reduce their tax liability by adjusting their financial plan.
A person looks over their pay stub and sees that in addition to paying state and federal personal income taxes, they are paying other personal taxes such as Social Security and Medicare. They are only age 20, so they are sure that their employer has made a mistake since Social Security and Medicare are for old people, and the money should be returned to them. Are they right?
No. The money they are contributing to Social Security and Medicare is paying the benefits for today's older people.
No. If they pay Social Security and Medicare taxes now they can start collecting benefits now.
Yes. Only people within 20 years of retiring are expected to pay Social Security and Medicare taxes.
Yes. They need to let their employer know that they do not want to pay into the Social Security and Medicare benefits program in the future.
Which is a valid statement about a dependent?
A teenager who is living at home and earns $5,500 does not have to pay taxes on that money because their parents will claim them as a dependent on their taxes.
If a person is single but has two children they cannot count the children as dependents when they file their tax return.
Declaring someone as a dependent on a tax return increases the taxes that have to be paid by the person filing the return.
For each dependent a person has, they are able to take a deduction from the amount of taxes they owe when filing their tax return.
A 28 year old man earns $54,000 from his job as an illustrator. He also earned another $23,000 doing work for private clients. In May of this year he got married. His wife, also an illustrator, earned $47,000. They bought a house in June. He has always done his own taxes-filing the 1040EZ and taking the standard deductions. What advice should he follow this year?
He should file as a single person, take the standard deductions, ad do his own taxes.
He should file a joint return, take the standard deductions, and use an online computer program to complete the 1040EZ tax form.
Because of all of the changes in his life, he should pay a tax professional to complete his taxes and figure out the most beneficial filing status and tax form for him to use.
Given the changes in his life, he should do exactly what he has done in the past; however, this year he should claim his wife as a dependent.
A person wins $25,000 on a game show and a trip to Costa Rica worth $5,700. Do they have any tax obligation from these winnings?
No. The prize is not considered earned income.
Yes. However, they only have to pay taxes on the $25,000 since the trip is considered a gift.
Yes. All of the winnings become part of his gross income.
Yes. However, he will be able to deduct the cost of the trip next year when he returns from Costa Rica.
