Personal Finance Tax Planning Practice Quiz
Which of the following is an example of an income tax?
A) Sales tax
B) Property tax
C) Federal income tax
D) Estate tax
What is the purpose of a tax deduction?
A) To reduce your total tax bill
B) To increase your tax bill
C) To exempt you from paying taxes
D) To create tax credits
Which tax is based on the value of property you own?
A) Sales tax
B) Income tax
C) Property tax
D) Excise tax
Which of the following is an example of a tax credit?
A) Standard deduction
B) Child Tax Credit
C) Mortgage interest deduction
D) State income tax deduction
Which of the following is NOT a type of tax?
A) Sales tax
B) Property tax
C) Payroll tax
D) Consumption tax
What is a standard deduction?
A) A fixed amount you can deduct from your taxable income
B) A percentage of your income that you pay in taxes
C) A tax credit for families with children
D) A tax-free amount for retirement savings
Which of the following taxes is typically imposed by state and local governments on the purchase of goods and services?
A) Property tax
B) Sales tax
C) Income tax
D) Capital gains tax
What is the purpose of tax brackets?
A) To determine how much you owe for sales tax
B) To define the income thresholds at which different rates of tax apply
C) To provide exemptions for taxpayers with high incomes
D) To set the rates for tax credits
Which of the following would likely reduce your taxable income?
A) Tax credit for dependents
B) Property taxes
C) Deducting student loan interest
D) Sales tax paid
Which tax is levied on an individual’s earnings?
A) Capital gains tax
B) Estate tax
C) Income tax
D) Gift tax
Which of the following is a form of tax planning?
A) Spending all income to avoid paying taxes
B) Maximizing deductions and credits available to you
C) Ignoring government tax rates
D) Not filing taxes to save money
Which of the following is an example of an itemized deduction?
A) Standard deduction
B) Deduction for mortgage interest
C) Child Tax Credit
D) Earned Income Tax Credit
Which tax bracket would apply to an individual earning $150,000 in taxable income?
A) 10%
B) 12%
C) 22%
D) 32%
Which of the following is an example of a progressive tax?
A) Property tax
B) Sales tax
C) Federal income tax
D) Excise tax
What is the Earned Income Tax Credit (EITC)?
A) A tax credit for businesses
B) A tax credit for higher-income individuals
C) A tax credit for low- to moderate-income working individuals
D) A tax deduction for high earners
Which of the following is a benefit of claiming tax credits?
A) They reduce your taxable income
B) They lower the amount of taxes you owe, dollar-for-dollar
C) They exempt you from paying taxes
D) They are applied to income earned from foreign sources
Which of the following can reduce your tax liability?
A) Higher earnings
B) Tax credits
C) Increased sales tax rates
D) Higher property values
What does the tax bracket you fall into determine?
A) The total tax you owe
B) The percentage of income you pay in taxes
C) The amount of your standard deduction
D) Your eligibility for tax credits
Which of the following is NOT a form of income tax?
A) Corporate tax
B) Federal income tax
C) Sales tax
D) State income tax
Which of the following taxes is typically paid on goods that are sold?
A) Sales tax
B) Estate tax
C) Excise tax
D) Income tax
What is the Child Tax Credit?
A) A credit for children’s education expenses
B) A tax credit for parents with qualifying children under age 17
C) A credit for taxpayers who pay for daycare
D) A deduction for dependents
How is taxable income calculated?
A) By adding all your income sources
B) By subtracting deductions and exemptions from gross income
C) By multiplying your total income by a tax rate
D) By claiming tax credits for each child
What is the benefit of itemizing deductions instead of claiming the standard deduction?
A) It provides more tax-free income
B) It may result in a larger deduction if your expenses exceed the standard deduction
C) It is simpler and faster to file
D) It automatically qualifies you for tax credits
Which of the following can potentially increase your tax refund?
A) Not claiming deductions
B) Paying the maximum amount of sales tax
C) Claiming eligible tax credits
D) Ignoring tax laws
Which of the following is a common form of tax for local government revenue?
A) Sales tax
B) Property tax
C) Income tax
D) Capital gains tax
Which of the following deductions is available to all taxpayers regardless of whether they itemize?
A) Mortgage interest deduction
B) Standard deduction
C) Charitable contributions deduction
D) Medical expense deduction
Which tax is typically applied to profits made from selling investments or property?
A) Sales tax
B) Estate tax
C) Income tax
D) Capital gains tax
What is an example of a tax credit for low-income workers?
A) Child Tax Credit
B) Earned Income Tax Credit
C) Mortgage interest deduction
D) Tuition tax credit
Which of the following describes a regressive tax?
A) The more you earn, the higher the rate you pay
B) The rate decreases as your income increases
C) All taxpayers pay the same amount regardless of income
D) The rate is the same for all taxpayers
Which of the following is a good tax strategy for minimizing your tax bill?
A) Maximizing deductions and credits
B) Ignoring your tax return
C) Withholding all your taxes
D) Paying your taxes late
31. Which of the following is a common example of a tax-exempt income source?
A) Salary from employment
B) Interest from municipal bonds
C) Rent from property
D) Business profits
32. Which of the following would NOT be considered a tax credit?
A) Child and Dependent Care Credit
B) Earned Income Tax Credit
C) American Opportunity Tax Credit
D) Charitable contribution deduction
33. What is the primary benefit of tax credits over tax deductions?
A) Tax credits reduce taxable income, while deductions reduce taxes owed directly
B) Tax credits lower the amount of taxes owed directly, while deductions reduce taxable income
C) Tax credits apply to a broader range of expenses than deductions
D) Tax credits are only available to low-income individuals
34. What does the term “taxable income” refer to?
A) The income after deductions and exemptions
B) The total income before any deductions
C) The total income earned during the year
D) The income that is not subject to taxes
35. Which of the following is a feature of the progressive tax system?
A) Tax rate remains the same regardless of income
B) Higher income is taxed at a higher rate
C) Tax rate decreases as income increases
D) Only individuals with income over $100,000 are taxed
36. Which of the following deductions is typically allowed for homeowners?
A) Mortgage interest
B) Sales tax on groceries
C) Property tax
D) Both A and C
37. Which of the following would be considered a “tax-deferred” investment?
A) Roth IRA
B) 401(k)
C) Regular savings account
D) Municipal bonds
38. Which of the following types of taxes is generally the most regressive?
A) Estate tax
B) Federal income tax
C) Sales tax
D) Corporate tax
39. What is a key advantage of itemizing deductions over taking the standard deduction?
A) It always results in lower taxes
B) It may result in higher deductions if you have significant deductible expenses
C) It qualifies you for additional tax credits
D) It is easier to file than taking the standard deduction
40. Which of the following is an example of a tax-deferred account?
A) Roth IRA
B) Traditional 401(k)
C) Health Savings Account (HSA)
D) Taxable brokerage account
41. What is the difference between tax credits and tax deductions?
A) Tax credits directly reduce taxes owed, while tax deductions reduce taxable income
B) Tax credits reduce taxable income, while tax deductions reduce taxes owed
C) Tax credits are only for businesses, while deductions apply to individuals
D) Tax credits are temporary, while deductions are permanent
42. Which of the following is an example of an itemized deduction?
A) Child Tax Credit
B) Charitable donations
C) Standard deduction
D) Personal exemptions
43. Which of the following is generally NOT deductible as a personal expense on your tax return?
A) Mortgage interest
B) Business expenses for self-employed individuals
C) Personal clothing costs
D) Charitable contributions
44. What is the maximum income for eligibility for the Earned Income Tax Credit (EITC) for a family with two children (2024 tax year)?
A) $20,000
B) $50,000
C) $55,000
D) $75,000
45. Which of the following tax forms must you file to claim tax credits and deductions?
A) Form 1040
B) W-2
C) Form 1099
D) Schedule C
46. What is a tax bracket?
A) A range of income amounts to which different tax rates apply
B) A specific amount of money you owe in taxes
C) A percentage rate applied to all income
D) The total income tax paid by a household
47. What does the Child Tax Credit primarily aim to benefit?
A) Individuals saving for college
B) Taxpayers with dependent children under the age of 17
C) Taxpayers with no dependents
D) Taxpayers who contribute to retirement accounts
48. What is the tax treatment of dividends from stocks in a taxable account?
A) They are tax-exempt
B) They are taxed as capital gains
C) They are taxed as ordinary income
D) They are taxed as tax-deferred income
49. Which of the following is considered a tax-exempt account?
A) Traditional IRA
B) Roth IRA
C) 401(k)
D) HSA (Health Savings Account)
50. Which of the following is a typical feature of a tax-deferred retirement account?
A) Contributions are taxed when made
B) Contributions are not taxed until withdrawal
C) Earnings are taxed when contributed
D) Withdrawals are not taxed
51. What is the purpose of the tax-free portion of a Roth IRA?
A) Contributions are not taxed when withdrawn
B) Earnings are taxed upon withdrawal
C) Contributions grow tax-free
D) Earnings grow tax-deferred, and withdrawals are taxed
52. Which of the following is true about tax credits?
A) They reduce your taxable income
B) They reduce the amount of taxes owed directly
C) They are only available for children
D) They are applied after tax deductions
53. Which tax form would be used to report earned income from self-employment?
A) Form 1040
B) Schedule C
C) Form W-2
D) Form 1099
54. What is the main advantage of a tax-deferred retirement account, such as a 401(k)?
A) Contributions grow tax-free, and withdrawals are tax-free
B) Contributions are taxed when made, but withdrawals are tax-free
C) Contributions are not taxed until withdrawal, allowing for potential growth
D) Contributions and withdrawals are both tax-free
55. Which of the following would be considered a “taxable event”?
A) Receiving a tax refund
B) Selling a property for a profit
C) Earning interest on a savings account
D) Both B and C
56. Which of the following can reduce your taxable income?
A) Tax credits
B) Standard deduction
C) Sales tax payments
D) Capital gains taxes
57. Which of the following is an example of an itemized deduction?
A) Personal exemption
B) Medical expenses
C) Charitable giving
D) Both B and C
58. Which tax credits are specifically for education-related expenses?
A) Child Tax Credit
B) Earned Income Tax Credit
C) American Opportunity Credit
D) Mortgage Interest Credit
59. How does a “progressive” tax system affect higher earners?
A) They pay a higher percentage of income in taxes
B) They pay the same rate of tax as lower earners
C) They are exempt from paying taxes
D) They pay a lower percentage of income in taxes
60. Which of the following tax credits applies to individuals who adopt children?
A) Child Tax Credit
B) Adoption Tax Credit
C) Earned Income Tax Credit
D) American Opportunity Credit
61. Which of the following is an example of a tax deduction for educational expenses?
A) American Opportunity Tax Credit
B) Student loan interest deduction
C) Child Tax Credit
D) Earned Income Tax Credit
62. Which of the following best describes the tax treatment of long-term capital gains?
A) Taxed as ordinary income
B) Taxed at a lower rate than ordinary income
C) Taxed at the same rate as short-term capital gains
D) Not taxed
63. What is the purpose of a tax-deferred account like a 401(k)?
A) Contributions grow tax-free, but withdrawals are taxed
B) Contributions are taxed when made, and withdrawals are taxed at a lower rate
C) Contributions are not taxed until withdrawn, allowing for tax deferral
D) Contributions and withdrawals are both tax-free
64. Which of the following would NOT be deductible as an itemized deduction?
A) Mortgage interest
B) Medical expenses
C) Charitable donations
D) Social Security taxes
65. Which tax credit is aimed at reducing the tax burden for low-to-moderate-income workers?
A) Child Tax Credit
B) Earned Income Tax Credit
C) Education Tax Credit
D) Adoption Tax Credit
66. What is the maximum amount you can contribute to a Roth IRA in 2024 if you are under 50?
A) $6,000
B) $7,000
C) $5,500
D) $4,000
67. Which of the following best describes tax brackets?
A) A fixed rate of tax applied to all income
B) A range of income levels to which different tax rates are applied
C) The rate of tax applied to capital gains
D) The amount of taxes paid on dividends
68. Which of the following deductions can only be claimed if you itemize your taxes?
A) Standard deduction
B) Charitable contributions
C) Retirement savings contributions
D) Child Tax Credit
69. Which of the following describes a tax credit rather than a tax deduction?
A) A reduction in the amount of taxable income
B) A reduction in the total taxes owed
C) A reduction in the gross income
D) A reduction in retirement savings
70. Which of the following would qualify for the Child Tax Credit in 2024?
A) A child over 18 years old
B) A child under 17 years old
C) A child over 17 with special needs
D) A child in college
71. Which of the following types of income is typically NOT taxable?
A) Interest from savings accounts
B) Income from gambling winnings
C) Child support payments
D) Wages from employment
72. Which of the following tax forms is used to report your income from self-employment?
A) Form W-2
B) Form 1099-NEC
C) Form 1040
D) Form 8862
73. Which of the following tax deductions is specifically related to the cost of homeownership?
A) Student loan interest deduction
B) Mortgage interest deduction
C) Medical expense deduction
D) State and local taxes deduction
74. Which of the following best describes a “progressive” tax system?
A) The more you earn, the higher the percentage of your income is taxed
B) All income is taxed at the same rate
C) Lower earners pay a higher percentage of their income in taxes
D) Taxes are fixed and do not vary based on income
75. How do tax-deferred accounts benefit individuals in terms of taxes?
A) They provide tax-free withdrawals
B) Contributions are deducted from your income, reducing your taxable income
C) They offer tax-free growth of investments
D) Both B and C
76. What is the difference between a Roth IRA and a Traditional IRA?
A) Contributions to a Roth IRA are tax-deductible, while contributions to a Traditional IRA are not
B) Contributions to a Traditional IRA are tax-deductible, while contributions to a Roth IRA are not
C) Both Roth IRA and Traditional IRA have the same tax benefits
D) Only Roth IRA earnings are tax-free
77. Which of the following would be considered taxable income?
A) Alimony received (after 2019)
B) Child support payments
C) Gifts received
D) Inheritance
78. Which of the following tax credits is available to help reduce the cost of higher education?
A) Earned Income Tax Credit
B) Child Tax Credit
C) American Opportunity Tax Credit
D) Adoption Tax Credit
79. Which of the following taxes is typically deducted from your paycheck by your employer?
A) Sales tax
B) Estate tax
C) Federal income tax
D) Gift tax
80. What does “taxable income” refer to?
A) The total income before any deductions
B) The total income minus tax credits
C) The income after all deductions and exemptions
D) The amount of income that is not subject to tax
81. Which of the following expenses can be deducted as an itemized deduction on your taxes?
A) Rent payments
B) Homeowners insurance premiums
C) Medical expenses over a certain threshold
D) Food and clothing purchases
82. Which of the following best describes a tax deduction?
A) A direct reduction of the taxes owed
B) An amount subtracted from your gross income to reduce taxable income
C) A reduction of your tax bracket
D) A benefit only available to high-income earners
83. How does a tax credit differ from a tax deduction?
A) A tax credit reduces the total amount of taxes owed, while a tax deduction reduces taxable income
B) A tax deduction reduces the total amount of taxes owed, while a tax credit reduces taxable income
C) A tax credit is available only to lower-income earners
D) A tax deduction is available only to higher-income earners
84. Which of the following is typically a tax-deductible expense for small business owners?
A) Rent for office space
B) Contributions to personal retirement accounts
C) Childcare expenses
D) Mortgage interest on a primary residence
85. Which of the following would most likely qualify for the Earned Income Tax Credit?
A) A single taxpayer with a high salary
B) A family of four with a moderate income
C) An individual with no earned income
D) A taxpayer with significant investment income
86. What is the maximum contribution limit for a 401(k) plan in 2024 for someone under the age of 50?
A) $15,000
B) $19,500
C) $22,500
D) $26,000
87. Which of the following would NOT be considered “earned income” for tax purposes?
A) Salary
B) Wages from part-time work
C) Investment income
D) Self-employment income
88. Which of the following would NOT be an itemized deduction?
A) Charitable contributions
B) State income taxes
C) Standard deduction
D) Mortgage interest
89. Which of the following is a feature of the Child and Dependent Care Credit?
A) It is a tax deduction for child care expenses
B) It provides a direct reduction in taxes owed for qualifying child and dependent care expenses
C) It applies only to children under the age of 12
D) It applies only to taxpayers who are self-employed
90. Which of the following is typically NOT deductible as an itemized expense on your taxes?
A) Charitable donations
B) Medical expenses over a certain threshold
C) Job search expenses
D) Casualty losses not reimbursed by insurance
91. Which of the following is a tax-deferred investment option?
A) Roth IRA
B) 401(k)
C) Roth 401(k)
D) Traditional IRA
92. What is the primary benefit of a tax credit compared to a tax deduction?
A) Tax credits directly reduce the amount of taxable income
B) Tax credits reduce the amount of tax liability
C) Tax credits are only available to high-income earners
D) Tax credits increase the amount of taxable income
93. Which of the following tax brackets applies to the highest income earners in 2024?
A) 10%
B) 24%
C) 35%
D) 37%
94. Which of the following is a valid deduction for business owners who use their home office for work?
A) Rent paid for the entire home
B) Utilities and internet bills proportional to the office size
C) Personal groceries
D) Personal travel expenses
95. Which of the following would NOT be eligible for the Earned Income Tax Credit (EITC)?
A) A low-income, single taxpayer with no children
B) A married couple with children and moderate income
C) A taxpayer with significant unearned income
D) A taxpayer with income from self-employment
96. What is the purpose of the standard deduction?
A) To provide a deduction for charitable contributions
B) To reduce taxable income without needing to itemize deductions
C) To calculate tax credits for education expenses
D) To determine the tax bracket for individuals
97. Which of the following can be claimed as a personal exemption?
A) A deduction for a dependent
B) A deduction for educational expenses
C) A tax credit for children
D) A standard deduction
98. Which of the following is the maximum amount a taxpayer can contribute to a Health Savings Account (HSA) in 2024?
A) $2,000
B) $3,500
C) $7,000
D) $6,500
99. Which of the following is NOT an example of a tax-deductible expense?
A) Student loan interest
B) Charitable donations
C) Medical expenses
D) Clothing expenses for work
100. What type of account is an IRA considered?
A) Tax-free account
B) Tax-deferred account
C) Pre-tax account
D) Taxable account
101. Which of the following would qualify for the Child Tax Credit in 2024?
A) A child over the age of 18
B) A child under 17 years old
C) A child attending college
D) A child with special needs who is 19
102. What is the maximum contribution limit for an individual under 50 to a traditional IRA in 2024?
A) $5,000
B) $6,000
C) $7,000
D) $9,000
103. Which of the following describes a tax shelter?
A) A legal way to reduce taxable income
B) A type of tax-free investment account
C) A tax credit for low-income individuals
D) A tax penalty for failure to file taxes
104. Which of the following is considered a tax-exempt income?
A) Wages from employment
B) Interest on municipal bonds
C) Gambling winnings
D) Social Security benefits
105. What is the main difference between a tax credit and a tax deduction?
A) Tax credits reduce your taxable income, while deductions reduce your taxes owed
B) Tax credits reduce your taxes owed, while deductions reduce your taxable income
C) Tax credits are available only to high-income earners, while deductions are available to all
D) There is no difference between tax credits and tax deductions
106. Which of the following tax credits is available to families with children?
A) Child Tax Credit
B) Earned Income Tax Credit
C) Lifetime Learning Credit
D) Adoption Tax Credit
107. Which of the following types of income is considered “unearned income” for tax purposes?
A) Wages from employment
B) Dividends from stock investments
C) Self-employment income
D) Salary from a job
108. What is the purpose of the Alternative Minimum Tax (AMT)?
A) To ensure that all taxpayers pay at least a minimum amount of taxes
B) To encourage individuals to invest in tax-free accounts
C) To reduce taxes for low-income earners
D) To calculate deductions for individuals with dependents
109. Which of the following would NOT be considered taxable income?
A) Alimony payments received in 2024
B) Interest earned from a savings account
C) Retirement withdrawals from a 401(k)
D) Social Security payments received from a disability claim
110. Which of the following is a requirement for claiming the Earned Income Tax Credit (EITC)?
A) You must have a high income
B) You must have children or dependents
C) You must be under age 30
D) You must file as a single taxpayer
111. What is the maximum amount of tax-free income that can be earned from municipal bonds?
A) $0
B) $5,000
C) Unlimited
D) Varies by state
112. Which of the following tax credits is designed for taxpayers paying for higher education expenses?
A) Child Tax Credit
B) Lifetime Learning Credit
C) Child and Dependent Care Credit
D) Earned Income Tax Credit
113. What is the main purpose of the standard deduction?
A) To help low-income taxpayers pay lower taxes
B) To reduce taxable income without requiring itemized deductions
C) To encourage taxpayers to contribute to retirement accounts
D) To offer a tax credit for families with children
114. Which of the following items can you deduct if you itemize your deductions?
A) Standard deduction
B) Charitable donations
C) Sales taxes
D) State income tax paid
115. Which of the following is a nonrefundable tax credit?
A) Child Tax Credit
B) Earned Income Tax Credit
C) Lifetime Learning Credit
D) Adoption Tax Credit
116. Which of the following could be a reason to consider tax planning?
A) To avoid penalties for not filing taxes
B) To legally reduce the amount of taxes you owe
C) To increase your tax refund
D) To avoid tax audits
117. Which of the following is considered tax-exempt income?
A) Interest on U.S. Treasury bonds
B) Rental income from a vacation home
C) Wages from a full-time job
D) Capital gains from the sale of stock
118. What is the maximum income threshold to qualify for the Earned Income Tax Credit (EITC) for a family with two children in 2024?
A) $30,000
B) $50,000
C) $57,000
D) $70,000
119. Which of the following is NOT an example of tax-free income?
A) Child support payments
B) Disability benefits
C) Wages from a second job
D) Interest from municipal bonds
120. Which of the following is the main benefit of contributing to a 401(k) plan?
A) Your contributions grow tax-free
B) Contributions are tax-deductible, reducing taxable income
C) You can withdraw the money tax-free
D) The government matches contributions dollar-for-dollar
121. Which of the following is a characteristic of a Roth IRA?
A) Contributions are tax-deductible
B) Earnings grow tax-free, and withdrawals are tax-free in retirement
C) Contributions are taxed when withdrawn
D) It has a required minimum distribution (RMD) at age 72
122. What is the purpose of the tax brackets in the United States tax system?
A) To determine the standard deduction for individuals
B) To categorize income and apply the appropriate tax rate to each level of income
C) To define tax credits based on income levels
D) To set limits on tax deductions for higher-income earners
123. Which of the following is a non-taxable fringe benefit provided by employers?
A) Salary
B) Health insurance premiums paid by the employer
C) Bonuses
D) Stock options
124. What is the maximum contribution limit for a 401(k) in 2024 for someone under 50 years old?
A) $5,000
B) $6,500
C) $19,500
D) $22,500
125. Which of the following would NOT be eligible for tax deductions under the IRS guidelines for itemized deductions?
A) Mortgage interest
B) Property taxes
C) Meals and entertainment expenses for personal purposes
D) Medical expenses above 7.5% of adjusted gross income
126. Which of the following taxes is primarily used to fund Social Security?
A) Income tax
B) Estate tax
C) Payroll tax
D) Sales tax
127. Which of the following tax credits is refundable, meaning it can result in a tax refund if the credit exceeds the amount of taxes owed?
A) Child Tax Credit
B) Earned Income Tax Credit
C) Adoption Credit
D) Lifetime Learning Credit
128. Which of the following is a potential benefit of contributing to a traditional IRA?
A) Tax-free withdrawals in retirement
B) Ability to borrow from the IRA for home purchase
C) Contributions are tax-deductible, reducing current taxable income
D) No penalties for early withdrawal before age 59½
129. How is the capital gains tax applied to assets held for more than a year?
A) The tax rate is the same as ordinary income tax rates
B) The tax rate is typically lower than ordinary income tax rates
C) The tax rate is based on the asset’s original purchase price
D) There is no tax on long-term capital gains
130. Which of the following is true about the Child Tax Credit?
A) The credit is available only to taxpayers with children under age 13
B) The amount of the credit phases out based on income
C) The Child Tax Credit is nonrefundable
D) The credit is a flat rate, regardless of income level
131. Which of the following would qualify as a tax-deductible expense for self-employed individuals?
A) Personal vehicle expenses
B) Business travel and meals
C) Grocery shopping for personal use
D) Rent for a personal residence
132. Which of the following types of income is typically subject to a higher tax rate?
A) Capital gains from long-term investments
B) Qualified dividend income
C) Ordinary income, such as wages
D) Interest from municipal bonds
133. What is the tax advantage of a Health Savings Account (HSA)?
A) Contributions are made after-tax, but withdrawals are tax-free
B) Contributions are tax-free, but withdrawals are taxed
C) Both contributions and withdrawals are tax-free when used for qualified medical expenses
D) The funds can be used to pay for home improvements tax-free
134. Which of the following is NOT a factor in determining eligibility for the Earned Income Tax Credit (EITC)?
A) Filing status
B) Number of children or dependents
C) Taxable income
D) Employment status
135. Which of the following is a feature of the standard deduction in 2024?
A) It is available only to taxpayers who are 65 or older
B) It is a fixed amount set by the IRS each year, regardless of filing status
C) It allows taxpayers to deduct all medical expenses
D) It can be claimed in addition to itemized deductions
136. Which of the following tax strategies could reduce your taxable income for the year?
A) Contributing to a 401(k)
B) Paying off consumer debt
C) Selling investments with a capital gain
D) Delaying income to the next year
137. How does tax loss harvesting work?
A) It involves using investment losses to offset capital gains and reduce taxes owed
B) It involves making early withdrawals from retirement accounts to pay taxes
C) It allows individuals to defer taxes on capital gains until retirement
D) It allows businesses to offset inventory losses against taxable income
138. What is a 529 plan used for?
A) To fund retirement expenses tax-free
B) To save for qualified education expenses with tax advantages
C) To provide tax-free health care coverage
D) To pay for home improvements with tax-free distributions
139. Which of the following deductions can be taken by taxpayers who do not itemize their deductions?
A) Charitable contributions
B) Mortgage interest
C) Student loan interest
D) Property taxes
140. How can taxpayers avoid paying taxes on their Social Security benefits?
A) By ensuring their income is below a specific threshold
B) By investing in municipal bonds
C) By contributing to a 401(k)
D) By itemizing deductions
141. What is the tax benefit of a Dependent Care Flexible Spending Account (FSA)?
A) Contributions to the account are tax-deductible, reducing taxable income
B) Funds in the account grow tax-free
C) Withdrawals from the account are tax-free
D) Contributions are made with after-tax dollars but can be used for tax-free expenses
142. Which of the following would NOT affect your tax bracket?
A) Income level
B) Filing status
C) Tax credits
D) Charitable deductions
143. What is a tax-deferred retirement plan?
A) A plan in which you pay taxes upfront but not at retirement
B) A plan that allows you to delay taxes on contributions and earnings until you withdraw the funds
C) A plan that provides tax-free withdrawals
D) A plan where the government matches contributions
144. What is the main advantage of tax-deferred investment accounts?
A) You can avoid paying taxes on earnings while the funds are growing
B) You can withdraw funds tax-free after retirement
C) Contributions are tax-free
D) There is no income limit for eligibility
145. Which of the following tax credits is aimed at helping taxpayers cover the costs of child and dependent care?
A) Child Tax Credit
B) Lifetime Learning Credit
C) Dependent Care Credit
D) Earned Income Tax Credit
146. What is a tax advantage of contributing to a 401(k) plan?
A) Contributions are made with after-tax dollars
B) Employer matching contributions are tax-free
C) Contributions reduce taxable income, lowering your overall tax bill
D) Withdrawals are tax-free
147. What is the purpose of a tax deduction for home mortgage interest?
A) To reduce the amount of taxable income for homeowners
B) To reduce property taxes paid on the home
C) To increase the value of the home
D) To qualify for first-time homebuyer credits
148. Which of the following would NOT be included in your gross income for tax purposes?
A) Wages from employment
B) Alimony received
C) Life insurance proceeds
D) Investment income from stocks and bonds
149. What is the general tax rate for long-term capital gains in the United States?
A) 10%
B) 15%
C) 20%
D) The same as ordinary income tax rates
150. What is the tax benefit of investing in a tax-advantaged account such as a 401(k) or IRA?
A) You avoid paying taxes on contributions and earnings
B) You reduce your taxable income in the year you contribute
C) You can withdraw funds tax-free at any time
D) Your contributions are not subject to income tax
151. Which of the following can be deducted as a medical expense for tax purposes?
A) Over-the-counter medications
B) Non-prescription vitamins
C) Gym membership fees
D) Medical procedures and prescriptions
152. What is the advantage of a tax-free municipal bond?
A) Interest income is exempt from federal income tax
B) Principal is exempt from income tax
C) There are no state taxes on the bond
D) Interest income is taxable at a lower rate than corporate bonds
153. What is the penalty for withdrawing funds from an IRA before the age of 59½?
A) 10% penalty on the amount withdrawn
B) 20% penalty on the amount withdrawn
C) No penalty, but taxes on the distribution
D) 10% penalty plus ordinary income tax
154. Which of the following is a feature of the Standard Deduction?
A) It can be combined with itemized deductions
B) It is a fixed amount based on filing status
C) It applies only to individuals with taxable income above $100,000
D) It varies based on the taxpayer’s number of dependents
155. Which of the following taxes is levied on goods and services when they are sold to consumers?
A) Sales tax
B) Payroll tax
C) Income tax
D) Estate tax
156. Which of the following best describes the concept of tax deferral?
A) Paying taxes on earnings in the year they are received
B) Delaying taxes on earnings until a future date, such as retirement
C) Avoiding taxes on earnings through tax-exempt bonds
D) Reducing taxes through charitable donations
157. Which tax credit helps reduce the cost of higher education expenses?
A) Child Tax Credit
B) Lifetime Learning Credit
C) Earned Income Tax Credit
D) Adoption Credit
158. Which of the following would NOT be considered taxable income?
A) Wages from employment
B) Rental income from property
C) Social Security benefits
D) Inheritances from a deceased relative
159. How can taxpayers reduce their taxable income by contributing to a 401(k) plan?
A) By deducting contributions from their salary before taxes are applied
B) By claiming the contributions as tax credits
C) By investing in tax-exempt bonds through the 401(k)
D) By increasing their employer match on contributions
160. What is the maximum contribution limit to an individual retirement account (IRA) in 2024 for someone under 50?
A) $5,500
B) $6,500
C) $7,500
D) $10,000
161. Which of the following items is considered tax-deductible for home office expenses?
A) Internet and phone bills used for business purposes
B) Personal meals
C) Mortgage payments for personal use
D) Non-business-related vehicle expenses
162. What is the tax treatment of dividends from stocks held in a taxable account?
A) They are taxed at the same rate as ordinary income
B) They are tax-free
C) They are taxed at the capital gains tax rate
D) They are taxed only if the stock is sold
163. Which of the following is the best way to reduce taxable income through charitable giving?
A) Donate appreciated assets like stocks instead of cash
B) Donate only items that are considered luxury goods
C) Donate through a payroll deduction system only
D) Delay donations until the end of the tax year
164. What is the primary purpose of a flexible spending account (FSA)?
A) To save for retirement with tax advantages
B) To cover medical expenses with pre-tax contributions
C) To fund college education expenses tax-free
D) To receive employer contributions for dependent care
165. Which of the following could result in a tax deduction for business owners?
A) Personal meals unrelated to business
B) Business travel expenses
C) Wages paid to family members for non-business work
D) Non-deductible business penalties
166. What is the maximum annual contribution to a Health Savings Account (HSA) for individuals under 55 in 2024?
A) $3,000
B) $3,650
C) $6,550
D) $7,750
167. Which of the following is true about the Child and Dependent Care Tax Credit?
A) It can only be claimed if the taxpayer itemizes deductions
B) It covers the cost of child care for children under the age of 18
C) The amount of the credit depends on the taxpayer’s income and number of dependents
D) It is refundable even if no tax is owed
168. Which of the following is the main tax advantage of a 529 college savings plan?
A) Contributions are tax-deductible
B) Withdrawals for qualified education expenses are tax-free
C) Earnings grow tax-deferred but are taxable upon withdrawal
D) Contributions are not subject to federal income tax
169. Which of the following is an example of income that is subject to self-employment tax?
A) Wages from a full-time job
B) Investment income from stocks
C) Earnings from freelance work
D) Rental income from a personal property
170. How is tax on long-term capital gains different from ordinary income tax?
A) It is taxed at a lower rate
B) It is taxed at a higher rate
C) It is exempt from taxation
D) It is taxed based on the asset’s original purchase price
171. Which of the following is a tax credit aimed at reducing the cost of child care for working parents?
A) Earned Income Tax Credit
B) Child and Dependent Care Credit
C) Adoption Credit
D) Child Tax Credit
172. What is the limit for tax-deductible contributions to a traditional IRA in 2024 for those under age 50?
A) $5,000
B) $6,000
C) $7,000
D) $8,000
173. Which of the following is true about tax brackets?
A) All of your income is taxed at the same rate
B) Higher income levels are taxed at higher rates
C) Lower income is taxed at higher rates
D) Tax brackets are applied only to corporate income
174. How is the tax on rental income typically handled?
A) It is not subject to tax unless the property is sold
B) It is taxed as ordinary income
C) It is taxed at capital gains rates
D) It is exempt from tax
175. Which of the following is a typical deduction allowed for self-employed individuals?
A) Health insurance premiums paid for themselves and their families
B) Contributions to a traditional IRA
C) Depreciation on personal assets
D) Mortgage interest on their personal home
176. What is the purpose of the Alternative Minimum Tax (AMT)?
A) To provide a tax credit for low-income earners
B) To ensure that individuals with high incomes pay at least a minimum amount of tax
C) To eliminate all deductions for individuals with high income
D) To provide an additional deduction for high-income taxpayers
177. What is the benefit of filing taxes jointly as a married couple?
A) It allows for a larger standard deduction and eligibility for more credits
B) It increases the tax rate applied to income
C) It eliminates the need to file separate tax returns
D) It automatically reduces the tax burden for both spouses
178. Which of the following tax benefits is available for first-time homebuyers?
A) Tax-free interest on mortgage payments
B) The First-Time Homebuyer Tax Credit
C) Mortgage interest deduction
D) Property tax exemption
179. What is the tax treatment of dividends from stocks held in a tax-deferred account?
A) They are subject to capital gains tax upon withdrawal
B) They are taxed as ordinary income when withdrawn
C) They are not taxed until the funds are withdrawn from the account
D) They are not taxed at all
180. How can you minimize your tax liability through tax credits?
A) By increasing your deductions
B) By reducing your taxable income
C) By reducing the amount of tax you owe directly
D) By deferring taxes until retirement
181. What is the maximum annual contribution limit to a Health Savings Account (HSA) for a family in 2024?
A) $5,000
B) $6,000
C) $7,200
D) $8,500
182. Which of the following is a benefit of tax-exempt interest earned from municipal bonds?
A) The interest is not taxable at the state level
B) The interest is exempt from federal and state taxes
C) The interest is taxable at a lower rate than other investments
D) The interest is only taxable at the federal level
183. Which tax credit can help lower the cost of child adoption?
A) Child Tax Credit
B) Adoption Tax Credit
C) Earned Income Tax Credit
D) Child and Dependent Care Credit
184. Which of the following is NOT considered taxable income?
A) Wages from a job
B) Unemployment compensation
C) Social Security disability benefits
D) Gifts received from friends or family
185. What is the penalty for early withdrawal of a 401(k) before the age of 59½?
A) 5% penalty plus tax
B) 10% penalty plus tax
C) 20% penalty plus tax
D) No penalty if you repay within 60 days
186. What is the advantage of contributing to a Roth IRA?
A) Contributions are tax-deductible
B) Earnings grow tax-deferred and withdrawals are tax-free
C) Contributions are tax-deferred but withdrawals are taxable
D) Earnings are taxed at a lower rate than regular income
187. Which of the following is an example of a tax-deferred retirement account?
A) Roth IRA
B) 401(k)
C) Health Savings Account (HSA)
D) 529 College Savings Plan
188. Which of the following is a tax advantage of a traditional 401(k)?
A) Tax-free growth on contributions
B) Contributions are tax-deductible in the year they are made
C) Earnings grow tax-free
D) Contributions are taxed at a lower rate
189. Which of the following best defines a tax bracket?
A) A specific rate at which all income is taxed
B) A threshold that determines the tax rate applied to the last dollar of income
C) The tax rate for corporations
D) A method to calculate capital gains tax
190. What is the primary tax benefit of contributing to a Flexible Spending Account (FSA)?
A) Contributions are made with after-tax dollars
B) Contributions reduce taxable income, lowering current taxes
C) The funds can be used for retirement savings
D) Contributions can be carried over to the next tax year
191. Which of the following is NOT deductible on your tax return?
A) Charitable donations
B) Mortgage interest
C) Medical expenses exceeding 7.5% of your AGI
D) Personal entertainment expenses
192. What is the tax rate applied to long-term capital gains for taxpayers in the highest income bracket?
A) 15%
B) 20%
C) 25%
D) 28%
193. How does the Earned Income Tax Credit (EITC) help low-income earners?
A) It reduces the amount of taxable income
B) It provides a refund, even if no tax is owed
C) It reduces the tax rate on earned income
D) It is a deduction for single filers with children
194. Which of the following is an example of a “taxable event” in a retirement account?
A) Contributing to a Roth IRA
B) Earning interest on tax-deferred savings
C) Withdrawing funds from a 401(k) before age 59½
D) Contributing to a Health Savings Account (HSA)
195. What is the primary benefit of a 529 college savings plan?
A) Tax-free earnings and withdrawals for education expenses
B) Deductible contributions
C) Immediate tax credits for contributions
D) State tax exemptions for out-of-state tuition
196. Which of the following taxes is typically levied at the state level?
A) Federal income tax
B) Social Security tax
C) Property tax
D) Estate tax
197. What is the limit for tax-deductible contributions to an HSA for an individual in 2024?
A) $3,650
B) $6,500
C) $5,000
D) $7,000
198. What is the main purpose of tax deductions?
A) To reduce the amount of tax owed
B) To increase the amount of tax owed
C) To provide credits for specific expenses
D) To reduce taxable income
199. Which of the following is true regarding the Child Tax Credit?
A) It is refundable for taxpayers with a low income
B) It can only be claimed for children under the age of 18
C) It applies only to taxpayers with children who are dependents
D) It is limited to a $500 credit per child
200. Which of the following does NOT apply to a traditional IRA?
A) Contributions are tax-deductible
B) Withdrawals are taxed as income
C) Contributions are limited to a set amount each year
D) Earnings are tax-free if withdrawn before retirement
201. Which of the following is a tax-advantaged retirement account for employees?
A) 401(k)
B) Roth IRA
C) Traditional IRA
D) 529 Plan
202. Which of the following taxes is typically deducted from an employee’s paycheck?
A) Property tax
B) Sales tax
C) Social Security tax
D) Capital gains tax
203. Which of the following can be used to reduce the taxable income for a married couple filing jointly?
A) Filing separately
B) The standard deduction or itemized deductions
C) Paying down student loans
D) Contributing to a 529 savings plan
204. What does “taxable income” refer to?
A) Total income before deductions
B) Total income after deductions and exemptions
C) Total salary or wages
D) Total income subject to Social Security taxes
205. Which of the following is considered a tax deduction rather than a tax credit?
A) Child Tax Credit
B) Earned Income Tax Credit
C) Mortgage interest deduction
D) Adoption Tax Credit
206. What is the penalty for failing to file a tax return?
A) A fixed fine of $100
B) Interest on unpaid taxes
C) A 10% penalty on owed taxes
D) There is no penalty for filing late
207. Which of the following is an example of income subject to self-employment tax?
A) Wages from employment
B) Rental income
C) Earnings from freelance work
D) Interest on savings accounts
208. What is the tax rate on qualified dividends for individuals in the highest tax bracket?
A) 15%
B) 20%
C) 25%
D) 28%
209. What does a tax deduction reduce?
A) The amount of taxable income
B) The amount of taxes owed
C) The amount of taxable assets
D) The amount of taxable capital gains
210. Which of the following could be claimed as a tax deduction for students?
A) Student loan interest
B) School uniforms
C) Rent for off-campus housing
D) Meal expenses during classes
211. What is the tax rate for capital gains on investments held for less than one year?
A) 0%
B) 10%
C) The same as ordinary income tax rates
D) 15%
212. Which of the following is a tax advantage of contributing to a traditional IRA?
A) Earnings grow tax-free
B) Contributions are tax-deductible
C) Withdrawals are tax-free
D) Contributions are tax-deferred
213. Which of the following is NOT an example of a tax-deductible expense for individuals?
A) Student loan interest
B) Charitable donations
C) Mortgage interest
D) Credit card payments
214. What is the purpose of a tax audit?
A) To increase the amount of taxes owed
B) To ensure that taxpayers are paying the correct amount of tax
C) To provide tax relief to individuals
D) To determine eligibility for tax credits
215. Which of the following tax credits is available for individuals with children under the age of 17?
A) Child Tax Credit
B) Earned Income Tax Credit
C) Adoption Tax Credit
D) Child and Dependent Care Credit
216. Which of the following is true about tax-free interest from municipal bonds?
A) It is only tax-free at the federal level
B) It is exempt from both federal and state taxes in some cases
C) It is taxable in all states
D) It is tax-free only for investors with low income
217. Which of the following is a key advantage of using a 529 college savings plan?
A) Contributions are tax-free
B) Earnings grow tax-deferred and withdrawals for education are tax-free
C) Contributions are tax-deductible
D) Earnings are taxed at a lower rate
218. What is the tax impact of contributing to a Health Savings Account (HSA)?
A) Contributions are tax-free
B) Contributions are made with after-tax dollars but grow tax-free
C) Contributions are tax-deductible, and withdrawals for medical expenses are tax-free
D) Contributions and withdrawals are both taxed
219. What is the maximum income for a single filer to qualify for the Earned Income Tax Credit (EITC) in 2024?
A) $15,000
B) $20,000
C) $25,000
D) $30,000
220. Which of the following is an example of a tax credit, rather than a deduction?
A) Mortgage interest deduction
B) Child Tax Credit
C) Medical expenses deduction
D) Charitable contributions deduction
221. Which of the following is the best reason for filing taxes electronically?
A) It ensures you will get a larger refund
B) It guarantees your tax return will be accepted
C) It can speed up processing and reduce errors
D) It allows you to pay less in taxes
222. What is the primary advantage of itemizing deductions instead of taking the standard deduction?
A) You can reduce your taxable income by a larger amount
B) You qualify for more tax credits
C) You can increase your refund
D) It allows you to claim more deductions than the standard amount
223. What is the penalty for withdrawing funds from an HSA for non-medical purposes before the age of 65?
A) 10% penalty plus income tax
B) 15% penalty plus income tax
C) 20% penalty plus income tax
D) No penalty
224. What is the primary benefit of contributing to a traditional 401(k) account?
A) Contributions are tax-free
B) Contributions reduce taxable income for the year
C) Withdrawals are tax-free in retirement
D) There is no limit to contributions
225. Which of the following is a tax-free way to withdraw money from a Roth IRA?
A) Withdrawing at any time, regardless of age
B) Withdrawing contributions at any time
C) Withdrawing earnings before age 59½
D) Withdrawing funds for non-medical purposes
226. Which of the following types of income is subject to self-employment tax?
A) Income earned as an independent contractor
B) Wages from a salaried job
C) Investment income from stocks and bonds
D) Income from rental property
227. What is the maximum contribution limit for a traditional IRA in 2024 for individuals under the age of 50?
A) $5,000
B) $6,000
C) $7,000
D) $10,000
228. Which of the following expenses is typically deductible on a tax return?
A) Personal expenses
B) Political contributions
C) Childcare expenses for children under the age of 13
D) Home utility bills
229. What is the purpose of the Alternative Minimum Tax (AMT)?
A) To reduce tax benefits for high-income earners
B) To ensure that individuals with significant deductions or credits pay at least a minimum amount of tax
C) To provide tax benefits for low-income earners
D) To simplify the tax filing process
230. Which of the following is true about tax-deferred investment accounts?
A) Contributions are taxed in the year they are made
B) Earnings grow tax-free, but withdrawals are taxed
C) Earnings grow tax-deferred and withdrawals are not taxed
D) Contributions are taxed, but earnings are tax-free
231. What is the purpose of the child and dependent care credit?
A) To reduce the tax liability for parents who are caregivers for their children
B) To help pay for childcare expenses for working parents
C) To reimburse parents for out-of-pocket education expenses
D) To provide tax-free income for child-related expenses
232. Which of the following is typically NOT considered taxable income?
A) Wages
B) Interest from savings accounts
C) Public assistance payments
D) Business profits
233. What is the primary advantage of a tax credit over a tax deduction?
A) Tax credits directly reduce the amount of tax owed
B) Tax credits reduce taxable income
C) Tax credits only apply to specific types of income
D) Tax credits are only available for certain groups of people
234. What is the most important tax advantage of contributing to a 401(k) plan?
A) Contributions grow tax-free
B) Contributions are made with pre-tax dollars, reducing taxable income
C) Contributions are matched by the employer
D) Withdrawals are tax-free in retirement
235. What is the penalty for withdrawing funds from a 401(k) before the age of 59½?
A) 5% penalty plus income tax
B) 10% penalty plus income tax
C) 15% penalty plus income tax
D) 20% penalty plus income tax
236. Which of the following statements about tax credits is correct?
A) Tax credits increase the amount of taxable income
B) Tax credits reduce the amount of taxes owed, dollar for dollar
C) Tax credits only apply to business owners
D) Tax credits only apply to individuals over the age of 65
237. What is the main benefit of tax-loss harvesting?
A) It can reduce the amount of taxes owed by offsetting capital gains
B) It allows individuals to defer taxes indefinitely
C) It reduces taxable income by contributing to retirement accounts
D) It applies to long-term capital gains only
238. Which of the following types of income is subject to tax at the highest marginal tax rates?
A) Long-term capital gains
B) Interest income from municipal bonds
C) Ordinary income from wages and salaries
D) Qualified dividends
239. What is the tax benefit of contributing to a 529 college savings plan?
A) Tax-free withdrawals for educational expenses
B) Contributions are tax-deductible on your federal return
C) Earnings grow tax-free and are taxed at a lower rate upon withdrawal
D) Tax-free earnings, even for non-educational expenses
240. What is the limit for the Child and Dependent Care Credit for one child?
A) $500
B) $1,000
C) $2,000
D) $3,000
241. Which of the following is a tax advantage of a Roth IRA?
A) Contributions are tax-deductible
B) Earnings grow tax-deferred
C) Withdrawals in retirement are tax-free
D) Contributions are taxed but grow tax-deferred
242. Which of the following statements about tax brackets is true?
A) Tax brackets apply only to long-term capital gains
B) Tax brackets are fixed and do not change
C) Tax brackets apply progressively, meaning that higher earnings are taxed at higher rates
D) Tax brackets apply to all income types equally
243. Which of the following is true about the standard deduction for 2024?
A) It is the same for all taxpayers
B) It is higher for those who are married filing jointly
C) It is reduced for taxpayers over 65
D) It can only be taken by single filers
244. What is the maximum amount you can contribute to a Health Savings Account (HSA) in 2024 if you’re under the age of 55?
A) $3,550
B) $6,000
C) $7,000
D) $9,000
245. Which of the following is an example of a tax credit rather than a deduction?
A) Mortgage interest deduction
B) Child Tax Credit
C) Charitable contribution deduction
D) Student loan interest deduction
246. Which of the following income is exempt from federal income tax?
A) Child support payments
B) Unemployment compensation
C) Social Security benefits
D) All of the above
247. Which of the following is NOT a type of tax-deferred account?
A) 401(k)
B) Traditional IRA
C) Roth IRA
D) Health Savings Account (HSA)
248. Which of the following is a tax benefit of contributing to a 401(k)?
A) Contributions are made with after-tax dollars
B) Earnings grow tax-free
C) Contributions reduce taxable income
D) There is no annual contribution limit
249. Which of the following is the purpose of the Earned Income Tax Credit (EITC)?
A) To reduce tax liability for low- to moderate-income workers
B) To provide a tax break for parents with children
C) To help individuals who have no income
D) To allow individuals to qualify for a higher tax bracket
250. Which of the following is an example of income that is NOT taxed?
A) Wages
B) Rental income
C) Interest from municipal bonds
D) Investment dividends
251. Which of the following is true about tax-free interest from municipal bonds?
A) It is exempt from federal taxes only
B) It is exempt from both federal and state taxes in all cases
C) It is taxed at a lower rate than ordinary income
D) It is always taxable at the federal level
252. Which of the following tax forms must be filed to claim the Child Tax Credit?
A) Form 1040
B) Form 1040EZ
C) Form W-2
D) Schedule A
253. What is the primary benefit of a tax-deferred account?
A) Contributions are tax-free
B) Earnings grow tax-free
C) Contributions are made with after-tax dollars
D) Withdrawals are taxed at a lower rate in retirement
254. Which of the following is considered taxable income?
A) Scholarships used for tuition
B) Employer-paid health insurance premiums
C) Alimony received
D) Interest from a savings account
255. Which of the following is NOT a tax-deductible expense for individuals?
A) Medical expenses exceeding 7.5% of income
B) Mortgage insurance premiums
C) Business expenses for self-employed individuals
D) Car payments
256. Which of the following types of income is subject to self-employment tax?
A) Wages from a salaried job
B) Investment dividends
C) Income from freelancing or self-employment
D) Social Security benefits
257. Which of the following tax forms is used to report dividends and interest income?
A) Form 1040
B) Form 1099-DIV
C) Form W-2
D) Form 1099-MISC
258. Which of the following is true about tax credits?
A) Tax credits increase taxable income
B) Tax credits only apply to higher-income individuals
C) Tax credits are subtracted from the amount of tax owed
D) Tax credits are available for only certain expenses
259. What is the tax rate for long-term capital gains in 2024 for most taxpayers?
A) 0%
B) 10%
C) 15%
D) 20%
260. Which of the following is an example of an itemized deduction?
A) Standard deduction
B) Child Tax Credit
C) Charitable contributions
D) Mortgage interest
261. Which of the following can reduce the taxable income of a self-employed individual?
A) A personal vehicle used for commuting
B) Contributions to a retirement account
C) A portion of the personal mortgage payment
D) All of the above
262. Which of the following is the primary advantage of tax-free municipal bonds?
A) They are exempt from all state taxes
B) They have higher interest rates than corporate bonds
C) They are not subject to federal taxes
D) They provide a guaranteed income stream
263. Which of the following is NOT an example of taxable income?
A) Alimony received (for divorces finalized before 2019)
B) Unemployment compensation
C) Child support payments
D) Interest from a savings account
264. What is the penalty for early withdrawal from a 401(k)?
A) 5% penalty plus income tax
B) 10% penalty plus income tax
C) 15% penalty plus income tax
D) No penalty if the withdrawal is for an emergency
265. What is the maximum contribution limit to a Roth IRA for 2024 for those under 50?
A) $5,000
B) $6,000
C) $7,000
D) $9,000
266. What is the maximum contribution limit to a 401(k) in 2024 for individuals under the age of 50?
A) $19,500
B) $20,500
C) $22,500
D) $25,000
267. Which of the following is true about tax deductions?
A) Tax deductions increase taxable income
B) Tax deductions are subtracted from the amount of tax owed
C) Tax deductions reduce taxable income
D) Tax deductions only apply to business income
268. Which of the following is true about the Child Tax Credit?
A) It is available for children under the age of 18
B) It is available only for children who live with the taxpayer for at least half the year
C) It is a tax deduction
D) It can only be claimed once per year
269. Which of the following is a tax benefit of owning a home?
A) Mortgage insurance premiums are tax-deductible
B) Home repairs are deductible
C) Mortgage interest is tax-deductible
D) Property taxes are always tax-free
270. Which of the following is a tax benefit of contributing to a 529 plan?
A) Contributions are tax-free
B) Contributions are tax-deductible on your federal return
C) Earnings grow tax-free and are tax-free when used for educational expenses
D) There are no annual contribution limits