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Test Your Tax IQ

Do you need help preparing your tax return, or should you try to do it yourself? The following quiz can help give you an idea of how well you understand tax concepts and current tax laws. There are 25 questions, and each question is worth four points.

Which of the following can use the filing status of "Married Filing Jointly"?

Bob and Janet are legally married and live together.
Bob and Janet live together in a common law marriage and currently reside in a state that recognizes common law units.
Bob and Steve live together in a state that recognizes same sex marriage and living arrangements.
A & B only.
All of the above.

The following are always included in your income except:

A bonus of $100.
Alimony received of $100.
Unemployment compensation of $100.
Social security payments of $100.

Which of the following is normally not deductible?

The fair market value of old clothes given to a charity
Personal credit card interest
Job-hunting expenses
Tax planning advice

Which of these following is normally not deductible?

Home equity interest on principal borrowed in excess of $100,000
Long-distance charges for calls to your investment broker
A subscription to "Value Line" for investment purposes
Business compensation paid to your children under age 18

Which of the following is not deductible as medical expenses?

Life insurance premiums
Expense of transportation to physician’s appointments
Swim club dues when a physician has prescribed swimming to alleviate a medical condition
Whirlpool treatments prescribed for your arthritis

If you are self employed:

You can deduct wages paid to your children over age 14, even if they perform no meaningful work.
You can escape Social Security taxes on payments to your children under age 18.
You can depreciate the cost of your home office over a 28-year period
You can deduct investment expenses whether or not you itemize deductions.

An IRS audit:

Can be done on any tax year at any time.
May require you to substantiate your deductions.
Always takes place at the IRS office.
Will never happen to you.

The marriage penalty...

Is a function of the progressive nature of our tax system.
Includes the potential loss of IRA deductions.
Is compounded by the standard deduction.
All of the above.

If you change jobs during the year and have reached the maximum income amount subject to Social Security tax on your first job, you will still have to pay Social Security taxes at your new job. You can claim the excess Social Security tax paid as a credit on your 1040 return.

True
False

Your medical deduction:

Includes home improvements made to accommodate a family member with a physical handicap.
Includes travel deductions at 12 cents a mile.
Is reduced by 7.5 percent of your adjusted gross income in excess of $100,000.
Includes payments for cosmetic surgery.

Personal property taxes are deductible if:

They’re based on either the value or weight of the property.
The tax is charged on a yearly basis.
The tax is not called a registration fee.
The tax is paid within 30 days of the end of the year.

Which of the following can be claimed as a dependent?

Your 12 year old daughter who lives with you
Your 20 year old son, who lives in California and attends Stanford University as a full time student
Your spouse’s mother who lives in a nursing home and you pay most of her medical, food and lodging
A & B
All of the above

The amount you pay in "points":

Must always be deducted proportionally over the life of the loan.
Is never deductible on the refinancing of a home.
Is deductible in full in the year of payment if the loan is to acquire your main home.
Can never be deducted by a buyer if paid by a seller.

If you sell your principal house after living in it only two years, and you net $150,000 in profit:

You owe 15% capital gain tax.
You owe 28% capital gains tax.
You owe tax at your top marginal rate.
You owe nothing.

If you rent out your primary home for two weeks each year:

You owe income tax on the rental income, minus expenses.
You can deduct 1/26th of the cost of operating your home.
You must depreciate the house.
You do not report income or expenses from the rental.

The maximum amount that you can receive for the HOPE Scholarship Credit is:

$1,000
$1,200
$1,500
$2,000

Charitable contributions:

Include the original retail cost of clothes given to Goodwill.
Include medical transportation at 31.5 cents per mile.
Include out-of pocket volunteer expenses for a Girl Scout troop.
Require written confirmation from the charity for donations in excess of $200.

A casualty loss:

Is normally deducted in the year of the loss.
Must be reduced by all insurance payments unless you paid the insurance premiums.
Must be reduced by 10 percent of your adjusted gross income for each loss event.
Must be reduced, in the aggregate, by $1,000

Which of the following can be taken as an itemized deduction on a Schedule A?

The broker’s commission on a stock sale
IRA or Keogh fees deducted from your account
Job-related expenses
Non-business bad debts

Which of the following is NOT required to file a tax return?

Mike is a single waiter and his employer does not pay into Medicare. Mike’s only income was $8,000 earned from his job.
Bob and Janet, married, lived together for the full year. Their only income was wages of $20,000.
Sally is single and had wages of $7,000 and no other income.
Sue earned $3,500 from making and selling purses from her home and had no other income.

A Roth IRA allows you to withdraw earnings without paying a tax penalty for which of these reasons:

College
Non-deductible medical premiums
Insurance premiums not paid by your employer
First-time home buyer
All of the above

The advantage of a Roth IRA over a traditional IRA is that with a Roth IRA:

Contributions grow tax deferred.
You can roll a Roth IRA into a traditional IRA
Contributions are not tax deductible.
Qualified distributions from a Roth IRA are tax free.

You may be eligible to make a full or partial Roth IRA contribution if your adjusted gross income on a joint return does not exceed:

$61,000
$100,000
$150,000
$160,000

At age 50, you can never withdraw money from your IRA account without paying an extra 10 percent penalty on what you take out.

True
False

If you receive an IRS notice that you owe money, you should:

Pay it immediately, to save on penalties and interest.
Check to be sure the notice is correct before sending in the money.
Return to sender, marked “deceased”
Move.

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