Pop Quiz: Twenty Questions About Taxes

Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.

School will be back in session soon and, in order to dust off the summer cobwebs and get all you armchair CPAs up to speed with what’s doing in the world of taxes, here’s a pop quiz. The first 10 questions are true or false. The last 10 are multiple choice. No cheating!

True or False

1. You will be charged interest and penalty if you are due a refund, but file after April 15.

2. You have a traditional 401(k) at work. When you retire and begin withdrawing from the plan, you pay no income tax.

3. Your FICO credit score has to be in the 750 range to qualify for the best interest rates.

4. Only a parent can open a 529 college savings plan for a child.

5. You and your spouse bought your primary residence in 2010 for $100,000, and sold it in 2013 for $500,000. You will owe no income tax.

6. You never have to take a required minimum distribution from a Roth IRA.

7. You must itemize your deductions to claim moving expenses or alimony payments.

8. Your ’emergency fund’ should cover about three to six months of your expenses.

9. A good rule of thumb is to save about 10% of your income for retirement.

10. Because your kid’s college comes before your retirement, you should save for their college before saving for your retirement.

Multiple Choice

11. You and your wife could never agree about who should be guardians of your children, so you never named anyone in your will. You want your brother, while she wants her best friend. If you both die, who becomes guardian?

a)   Whichever of them can prove that the two of you named that person as guardian.

b)   Your brother, because he is a blood relative.

c)   The executor makes the decision.

d)   The probate court makes the decision.

12. Which would you rather have:

a)   A tax credit of $100.

b)   A deductible expense of $125.

c)   A taxable capital gain of $150.

d)   A deductible loss of $1125.

13. The following are always included in your income except:

a)   A bonus of $100.

b)   Alimony received of $1175.

c)   Unemployment compensation of $75.

d)   Social Security payments of $100.

14. Which of the following is normally not deductible?

a)   The fair market value of old clothes given to a charity.

b)   Personal credit card interest.

c)   Job-hunting expenses.

d)   Tax planning advice

15. A casualty loss:

a)   Is normally deducted in the year of the loss.

b)   Must be reduced by all insurance payments unless you paid the insurance premiums.

c)   Must be reduced by 15 percent of your adjusted gross income.

d)   Must be reduced, in the aggregate, by $2,500.

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

a)   The broker’s commission on stock sales.

b)   Life insurance premiums.

c)   Job-related expenses.

d)   Non-business bad debts.

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

a)   Write a check immediately.

b)   Check to be sure the notice is correct before sending in the money.

c)   Return to sender, marked ‘deceased.’

d)   Move.

18. Which are the three major credit bureaus in the United States?

a)   Experian®, Equifax®, TransUnion®

b)   American Express, Master Card, Visa

c)   Bank of America, Citibank, Chase Manhattan

19. What information is used to calculate your credit score?

a)   Your average credit history from the previous year

b)   The information that appears on your credit report the day your score is
calculated

c)   Information contained on your credit reports from the last three months

d)   Your credit report and bank statements

20. When you marry, your credit report:

a)   Is merged with your spouse’s credit history

b)   Stays the same. The only information on both spouses’ reports are joint accounts, or those for which one spouse is an authorized user.

c)   Shows your spouse’s debt in a separate section

d)   Is wiped clean so you can start again

Answers

(1) False
(2) False
(3) True
(4) False
(5) True
(6) True
(7) False
(8) True
(9) True
(10) False
(11) D: The probate court decides.
(12) A: A tax credit of $100
(13) C: Social Security payments of $100,
(14) B: Personal credit card interest.
(15) A: Normally deducted in the year of the loss.
(16) C: Job-related expenses.
(17) B: Check to be sure the notice is correct before sending in the money.
(18) A: Experian, Equifax, TransUnion
(19) B: The information that appears on your report the day your score is calculated.
(20) B: Stays the same.

Quip: I have always said, you should learn something new every day. Unfortunately, many of us are at that age where what we learn today, we forget tomorrow.

Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.