Personal Finance 12th Edition by E. Thomas Garman – Test Bank

Chapter 3

1. Tax planning includes eliminating, reducing or deferring income taxes to be paid.

a. True

b. False

ANSWER: True

POINTS: 1

DIFFICULTY: Easy

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

NATIONAL STANDARDS: United States – BB_1 – Legal

KEYWORDS: Bloom’s: Understanding

OTHER: Analytic

NOTES: 4.1

2. Personal income taxes are paid only on your taxable income.

a. True

b. False

ANSWER: True

POINTS: 1

DIFFICULTY: Easy

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

NATIONAL STANDARDS: United States – BB_1 – Legal

KEYWORDS: Bloom’s: Understanding

OTHER: Analytic

NOTES: 4.1

3. Personal income taxes are paid on all of your income.

a. True

b. False

ANSWER: False

POINTS: 1

DIFFICULTY: Easy

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

NATIONAL STANDARDS: United States – BB_1 – Legal

KEYWORDS: Bloom’s: Understanding

OTHER: Analytic

NOTES: 4.1
several sources of income are not taxed including gifts, scholarships used to pay tuition and books, and child support received.

4. The key to reducing one’s tax liability is to reduce taxable income rather than gross income.

a. True

b. False

ANSWER: True

POINTS: 1

DIFFICULTY: Easy

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

NATIONAL STANDARDS: United States – BB_1 – Legal

KEYWORDS: Bloom’s: Understanding

OTHER: Analytic

NOTES: 4.1

5. Taxes are defined as compulsory charges imposed by a government on its citizens and their property.

a. True

b. False

ANSWER: True

POINTS: 1

DIFFICULTY: Easy

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

NATIONAL STANDARDS: United States – BB_1 – Legal

KEYWORDS: Bloom’s: Understanding

OTHER: Analytic

NOTES: 4.1

6. The Internal Revenue Service is the agency that collects federal income taxes.

a. True

b. False

ANSWER: True

POINTS: 1

DIFFICULTY: Easy

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

KEYWORDS: Bloom’s: Remembering

OTHER: Analytic

NOTES: 4.1

7. A regressive tax is one that demands a higher percentage of a person’s income as income increases.

a. True

b. False

ANSWER: False

POINTS: 1

DIFFICULTY: Moderate

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

NATIONAL STANDARDS: United States – BB_1 – Legal

KEYWORDS: Bloom’s: Remembering

OTHER: Analytic

NOTES: 4.1
it demands a higher percentage as income decreases.

8. A progressive tax is one that demands a higher percentage of a person’s income as income increases.

a. True

b. False

ANSWER: True

POINTS: 1

DIFFICULTY: Moderate

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

NATIONAL STANDARDS: United States – BB_1 – Legal

KEYWORDS: Bloom’s: Understanding

OTHER: Analytic

NOTES: 4.1

9. If you earn enough extra income to be placed in a higher tax bracket and have a higher marginal tax rate, the new rate will be applied to all of your taxable income.

a. True

b. False

ANSWER: False

POINTS: 1

DIFFICULTY: Moderate

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

NATIONAL STANDARDS: United States – BB_1 – Legal

KEYWORDS: Bloom’s: Understanding

OTHER: Analytic

NOTES: 4.1
the marginal tax rate will only be applied to the income within that higher bracket.

10. Each year the tax brackets are adjusted to reduce the effects of inflation.

a. True

b. False

ANSWER: True

POINTS: 1

DIFFICULTY: Easy

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

NATIONAL STANDARDS: United States – BB_1 – Legal

KEYWORDS: Bloom’s: Understanding

OTHER: Analytic

NOTES: 4.1

11. State sales tax is an example of a regressive tax.

a. True

b. False

ANSWER: True

POINTS: 1

DIFFICULTY: Moderate

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

NATIONAL STANDARDS: United States – BB_1 – Legal

KEYWORDS: Bloom’s: Understanding

OTHER: Analytic

NOTES: 4.1

12. The tax rate paid on your last dollar of income is called the average tax rate.

a. True

b. False

ANSWER: False

POINTS: 1

DIFFICULTY: Easy

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

NATIONAL STANDARDS: United States – BB_1 – Legal

KEYWORDS: Bloom’s: Understanding

OTHER: Analytic

NOTES: 4.1
this is your marginal tax rate.

13. All of a taxpayer’s income is subject to federal income taxes.

a. True

b. False

ANSWER: False

POINTS: 1

DIFFICULTY: Easy

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

NATIONAL STANDARDS: United States – BB_1 – Legal

KEYWORDS: Bloom’s: Understanding

OTHER: Analytic

NOTES: 4.1
adjustments, deductions and exemptions may be subtracted first.

14. The objective in effective tax planning is to legally reduce gross income to the lowest possible taxable income.

a. True

b. False

ANSWER: True

POINTS: 1

DIFFICULTY: Easy

REFERENCES: Explain the nature of progressive income taxes and the marginal tax rate

NATIONAL STANDARDS: United States – BB_1 – Legal

KEYWORDS: Bloom’s: Understanding

OTHER: Analytic

NOTES: 4.1

MAECENAS IACULIS

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