In: Accounting
1. Apply What You’ve Learned - Managing Income Taxes
Demonstrate your knowledge of the U.S. tax system by answering the following questions:
Experts describe the U.S. tax system as being a progressive system. This means that:
every taxpayer in the United States pays the same tax rate on their taxable income.
a smaller tax rate is applied to the last dollar of earned income than on the first dollar of taxable income.
a greater tax rate is applied to the last dollar of taxable income than on the first dollar of taxable income.
only those taxpayers that earn income will incur income taxes.
Which of the following equations represent the correct formula for computing a taxpayer’s taxable income? Check all that apply.
Taxable income = Total income - Adjustments to income - Deductions - Exemptions
Taxable income = Gross income - Adjustments to income - Deductions - Exemptions
Taxable income = Adjusted gross income - (Deductions + Exemptions)
Taxable income = Total income - Exclusions
Taxable income = Adjusted gross income - Tax credits
Taxable income = Total income + Deductions and Exemptions
Taxable income = Gross income - Adjustments
Taxable income = Gross income - Exclusions
Which of the following must be included in the computation of a taxpayer’s taxable income?
Interest and dividend income
Inherited money or property
Veterans’ benefits
Social security benefits
Home ownership can provide significant income tax savings compared to renting a comparable home. This is because a taxpayer’s tax deductible.
The contributions or expenses associated with cannot be paid with pre-tax dollars, and therefore, cannot reduce your taxable income
Money placed in a flexible spending account to pay for out-of-pocket unreimbursed expenses for medical and dental fees
may be subtracted as an adjustment to gross income.
may be subtracted as a credit from taxable income
may be included in itemized deductions
should be considered to be taxable income
Which of the following is not considered to be a tax sheltered investment?
The contribution to a flexible spending account.
An investment in a Coverdell education savings account
An investment in tax-exempt municipal bonds
An investment in a mutual fund
Why is a refundable tax credit more valuable than a tax deduction or a nonrefundable tax credit?
It may reduce your tax liability to below zero (provide a refund).
It reduces tax liability by one dollar for every dollar of the credit.
It may be taken even if you do not itemize deductions.
All of these are reasons.