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Income Tax Fundamentals and Calculations - Sample Questions 1 - 6

1. In order for a small business owner to avoid having to pay a "kiddie tax" on the income related to their children, you as a CFP® certificant would recommend all of the following EXCEPT:

A) Invest the children's accounts in tax-free municipal bonds
B)
If the child has earned income invest in the Roth IRA
C)
Invest the children's assets in tax-deferred accounts such as an annuity or other growth oriented investments
D)
Invest the child's assets in a brokerage account utilizing high-dividend paying stocks and high-yield bonds

2. Which of the following would be considered "adjustments" from gross income in determining adjusted gross income (AGI)?

(1) Medical expenses
(2) Health savings account contributions
(3) Alimony paid
(4) Charitable contributions
(5) Student loan interest

A) 1, 2, and 3 only
B)
2, 3, and 4 only
C)
2, 3, and 5 only
D)
3, 4, and 5 only
E) 1, 3, and 5 only


3. Which of the following items would provide the maximum tax liability reduction benefit for a tax filer?

A) An adoption credit of $9,000 for expenses incurred to adopt a child
B)
Mortgage interest deduction of $13,000
C)
Roth IRA contribution of $5,000
D)
Qualified charitable contributions of $11,500
E) Student loan interest deduction for $8,000


4. For tax year 2013, the total maximum percentage paid for Social Security tax and Medicare tax for a self-employed individual is what?

A) 12.4%
B)
15.3%
C)
13.3%
D) 7.65%


5. Which of the following statements concerning income tax rates, limits and deductions are correct?

I. A married filing jointly couple with $100,000 in taxable income would have a maximum tax rate of 25%
II. A child who has no investment income and earns $900 will not have any tax liability
III. Gross income less Adjustments equals AGI
IV. The standard deduction for a single tax filer is $6,100 in 2013

A) I and III only
B)
II and IV only
C)
I, II, and III only
D) I, II, III, and IV


6. Sam and Sally decided two years ago to get a divorce. In the divorce agreement, Sally was awarded the house and full custody of their now 7-year old son Brad. Sally and Brad live in the house together which she supports; she has not remarried. Sally is preparing her tax return for 2013. Which of the following would be true:

(1) Sally can claim an exemption for $7,800
(2) Sally can file as head of household
(3) Sally would automatically qualify for the child tax credit
(4) Sally can use the standard deduction of $12,200
(5) Kiddie tax may be due if Brad has investment income exceeding $2,000

A) 1, 2, and 5 only
B)
2, 3, and 5 only
C)
3, 4, and 5 only
D) 1, 2, 3, 4, and 5

Answer Key
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