Personal Finance 11th Edition by E. Thomas Garman – Test Bank
Chapter 4—Managing Income Taxes
TRUE/FALSE
1. Personal income taxes are paid only on your taxable income.
ANS: T PTS: 1 DIF: easy REF: p. 106
2. Personal income taxes are paid only on all of your income.
ANS: F
several sources of income are not taxed including gifts, scholarships used to pay tuition and books, and child support received.
PTS: 1 DIF: easy REF: p. 106
3. The key to reducing one’s tax liability is to reduce taxable income rather than gross income.
ANS: T PTS: 1 DIF: easy REF: p. 106
4.Taxes are defined as compulsory charges imposed by a government on its citizens and their property.
ANS: T PTS: 1 DIF: easy REF: p. 106
5.The Internal Revenue Service is the agency that collects federal income taxes.
ANS: T PTS: 1 DIF: easy REF: p. 106
6.A regressive tax is one that demands a higher percentage of a person’s income as income increases.
ANS: F
it demands a higher percentage as income decreases.
PTS: 1 DIF: moderate REF: p. 106
7.A progressive tax is one that demands a higher percentage of a person’s income as income increases.
ANS: T PTS: 1 DIF: moderate REF: p. 106
8.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.
ANS: F
the marginal tax rate will only be applied to the income within that higher bracket.
PTS: 1 DIF: moderate REF: p. 106-107
9.Each year the tax brackets are adjusted to reduce the effects of inflation.
ANS: T PTS: 1 DIF: easy REF: p. 106
10.State sales tax is an example of a regressive tax.
ANS: T PTS: 1 DIF: moderate REF: p. 106
11.The tax rate paid on your last dollar of income is called the average tax rate.
ANS: F
this is your marginal tax rate.
PTS: 1 DIF: easy REF: p. 106
12.All of a taxpayer’s income is subject to federal income taxes.
ANS: F
adjustments, deductions and exemptions may be subtracted first.
PTS: 1 DIF: easy REF: p. 106
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