Chapter 3 Study Guide- Personal
Finance Questions And Answers Scored
A+.
T/F: "Tax Freedom Day" represents how long the average person work to pay his or her taxes each year -
Answer True
T/F: An example of an excise tax is Social Security - Answer False (Social Security is an example of a tax
on earnings)
T/F: Individuals are allowed to give money or items of any value to a person without being subject to
estate - Answer False (Individuals are allowed to give money or items valued at $14,000 or less in a
year to a person without being subject to estate taxes.)
T/F: Amounts given for tuition payments or medical expenses are not subject to gift taxes - Answer
True
T/F: Determining adjusted gross income is the final step in calculating federal income tax - Answer False
(Determining adjusted gross income (AGI) is the first in calculating income taxes)
T/F: Adjusted gross income is increased by the itemized or standard deduction - Answer False (AGI is
reduced by these)
T/F: When Tom calculates his taxable income, he should subtract his tax credits - Answer False (He
should subtract his tax deductions, not his tax credits. Tax credits are subtracted directly from the
amount of taxes owed.
T/F: When Marissa completes her taxes, she can include her qualified dependent children, her husband,
and herself as exemptions - Answer True
T/F: Tax rate schedules list average tax rates - Answer False (Tax rate schedules show marginal tax rates)
, T/F: The average tax rate is the tax paid on the next dollar of taxable income - Answer False (The
marginal tax rate fits this definition. The average tax rate is calculated by dividing the total tax due by the
taxable income)
T/F: All individuals with taxable income are subject to the AMT calculation - Answer False (The AMT is
an additional tax calculation designed to ensure that those who receive tax breaks also pay their fair
share of taxes
T/F: A tax credit has a full dollar effect in lowering taxes - Answer True
T/F: A tax credit reduces the taxable income on which the tax liability is computed - Answer False (The
definition describes a tax deduction. A tax credit reduces the amount of tax owed dollar for dollar)
T/F: If your tax payments are less than the amount of income tax you owe, you are entitled to a refund -
Answer False (If your tax payments are greater than the amount of income tax you owe, then you are
entitled to a refund.)
T/F: Individuals who have high income reported on Form 1099 may be required to pay estimated tax
payments - Answer True
T/F: Federal income tax returns must be filed by April 1 or each year - Answer False (Federal income tax
returns must be filed by April 15th)
T/F: Form 4868 allows a taxpayer to obtain a six month automatic extension on filing and paying federal
taxes without penalty- - Answer False (The extension doesn't delay the payment of your federal tax
liability)
T/F: All citizens of the United States are required to file a federal income tax return if their income falls
below a certain level - Answer False (Citizens whose income is above a certain level are required to file)
T/F: Most states do not require state income taxes - Answer False (Only seven states don't have a state
income tax and additionally,another two states only tax dividends and interest)
Finance Questions And Answers Scored
A+.
T/F: "Tax Freedom Day" represents how long the average person work to pay his or her taxes each year -
Answer True
T/F: An example of an excise tax is Social Security - Answer False (Social Security is an example of a tax
on earnings)
T/F: Individuals are allowed to give money or items of any value to a person without being subject to
estate - Answer False (Individuals are allowed to give money or items valued at $14,000 or less in a
year to a person without being subject to estate taxes.)
T/F: Amounts given for tuition payments or medical expenses are not subject to gift taxes - Answer
True
T/F: Determining adjusted gross income is the final step in calculating federal income tax - Answer False
(Determining adjusted gross income (AGI) is the first in calculating income taxes)
T/F: Adjusted gross income is increased by the itemized or standard deduction - Answer False (AGI is
reduced by these)
T/F: When Tom calculates his taxable income, he should subtract his tax credits - Answer False (He
should subtract his tax deductions, not his tax credits. Tax credits are subtracted directly from the
amount of taxes owed.
T/F: When Marissa completes her taxes, she can include her qualified dependent children, her husband,
and herself as exemptions - Answer True
T/F: Tax rate schedules list average tax rates - Answer False (Tax rate schedules show marginal tax rates)
, T/F: The average tax rate is the tax paid on the next dollar of taxable income - Answer False (The
marginal tax rate fits this definition. The average tax rate is calculated by dividing the total tax due by the
taxable income)
T/F: All individuals with taxable income are subject to the AMT calculation - Answer False (The AMT is
an additional tax calculation designed to ensure that those who receive tax breaks also pay their fair
share of taxes
T/F: A tax credit has a full dollar effect in lowering taxes - Answer True
T/F: A tax credit reduces the taxable income on which the tax liability is computed - Answer False (The
definition describes a tax deduction. A tax credit reduces the amount of tax owed dollar for dollar)
T/F: If your tax payments are less than the amount of income tax you owe, you are entitled to a refund -
Answer False (If your tax payments are greater than the amount of income tax you owe, then you are
entitled to a refund.)
T/F: Individuals who have high income reported on Form 1099 may be required to pay estimated tax
payments - Answer True
T/F: Federal income tax returns must be filed by April 1 or each year - Answer False (Federal income tax
returns must be filed by April 15th)
T/F: Form 4868 allows a taxpayer to obtain a six month automatic extension on filing and paying federal
taxes without penalty- - Answer False (The extension doesn't delay the payment of your federal tax
liability)
T/F: All citizens of the United States are required to file a federal income tax return if their income falls
below a certain level - Answer False (Citizens whose income is above a certain level are required to file)
T/F: Most states do not require state income taxes - Answer False (Only seven states don't have a state
income tax and additionally,another two states only tax dividends and interest)
