Personal Finance Tax Planning Exam Practice Test Sample Questions and Answers
Which of the following is an example of an income tax?
A) Sales tax
B) Property tax
C) Federal income tax
D) Estate tax
Answer: C
What is the purpose of a tax deduction?
A) To reduce your total tax bill
B) To increase your tax bill
C) To exempt you from paying taxes
D) To create tax credits
Answer: A
Which tax is based on the value of property you own?
A) Sales tax
B) Income tax
C) Property tax
D) Excise tax
Answer: C
Which of the following is an example of a tax credit?
A) Standard deduction
B) Child Tax Credit
C) Mortgage interest deduction
D) State income tax deduction
Answer: B
Which of the following is NOT a type of tax?
A) Sales tax
B) Property tax
C) Payroll tax
D) Consumption tax
Answer: D
What is a standard deduction?
A) A fixed amount you can deduct from your taxable income
B) A percentage of your income that you pay in taxes
C) A tax credit for families with children
D) A tax-free amount for retirement savings
Answer: A
Which of the following taxes is typically imposed by state and local governments on the purchase of goods and services?
A) Property tax
B) Sales tax
C) Income tax
D) Capital gains tax
Answer: B
What is the purpose of tax brackets?
A) To determine how much you owe for sales tax
B) To define the income thresholds at which different rates of tax apply
C) To provide exemptions for taxpayers with high incomes
D) To set the rates for tax credits
Answer: B
Which of the following would likely reduce your taxable income?
A) Tax credit for dependents
B) Property taxes
C) Deducting student loan interest
D) Sales tax paid
Answer: C
Which tax is levied on an individual’s earnings?
A) Capital gains tax
B) Estate tax
C) Income tax
D) Gift tax
Answer: C
Which of the following is a form of tax planning?
A) Spending all income to avoid paying taxes
B) Maximizing deductions and credits available to you
C) Ignoring government tax rates
D) Not filing taxes to save money
Answer: B
Which of the following is an example of an itemized deduction?
A) Standard deduction
B) Deduction for mortgage interest
C) Child Tax Credit
D) Earned Income Tax Credit
Answer: B
Which tax bracket would apply to an individual earning $150,000 in taxable income?
A) 10%
B) 12%
C) 22%
D) 32%
Answer: C
Which of the following is an example of a progressive tax?
A) Property tax
B) Sales tax
C) Federal income tax
D) Excise tax
Answer: C
What is the Earned Income Tax Credit (EITC)?
A) A tax credit for businesses
B) A tax credit for higher-income individuals
C) A tax credit for low- to moderate-income working individuals
D) A tax deduction for high earners
Answer: C
Which of the following is a benefit of claiming tax credits?
A) They reduce your taxable income
B) They lower the amount of taxes you owe, dollar-for-dollar
C) They exempt you from paying taxes
D) They are applied to income earned from foreign sources
Answer: B
Which of the following can reduce your tax liability?
A) Higher earnings
B) Tax credits
C) Increased sales tax rates
D) Higher property values
Answer: B
What does the tax bracket you fall into determine?
A) The total tax you owe
B) The percentage of income you pay in taxes
C) The amount of your standard deduction
D) Your eligibility for tax credits
Answer: B
Which of the following is NOT a form of income tax?
A) Corporate tax
B) Federal income tax
C) Sales tax
D) State income tax
Answer: C
Which of the following taxes is typically paid on goods that are sold?
A) Sales tax
B) Estate tax
C) Excise tax
D) Income tax
Answer: A
What is the Child Tax Credit?
A) A credit for children’s education expenses
B) A tax credit for parents with qualifying children under age 17
C) A credit for taxpayers who pay for daycare
D) A deduction for dependents
Answer: B
How is taxable income calculated?
A) By adding all your income sources
B) By subtracting deductions and exemptions from gross income
C) By multiplying your total income by a tax rate
D) By claiming tax credits for each child
Answer: B
What is the benefit of itemizing deductions instead of claiming the standard deduction?
A) It provides more tax-free income
B) It may result in a larger deduction if your expenses exceed the standard deduction
C) It is simpler and faster to file
D) It automatically qualifies you for tax credits
Answer: B
Which of the following can potentially increase your tax refund?
A) Not claiming deductions
B) Paying the maximum amount of sales tax
C) Claiming eligible tax credits
D) Ignoring tax laws
Answer: C
Which of the following is a common form of tax for local government revenue?
A) Sales tax
B) Property tax
C) Income tax
D) Capital gains tax
Answer: B
Which of the following deductions is available to all taxpayers regardless of whether they itemize?
A) Mortgage interest deduction
B) Standard deduction
C) Charitable contributions deduction
D) Medical expense deduction
Answer: B
Which tax is typically applied to profits made from selling investments or property?
A) Sales tax
B) Estate tax
C) Income tax
D) Capital gains tax
Answer: D
What is an example of a tax credit for low-income workers?
A) Child Tax Credit
B) Earned Income Tax Credit
C) Mortgage interest deduction
D) Tuition tax credit
Answer: B
Which of the following describes a regressive tax?
A) The more you earn, the higher the rate you pay
B) The rate decreases as your income increases
C) All taxpayers pay the same amount regardless of income
D) The rate is the same for all taxpayers
Answer: B
Which of the following is a good tax strategy for minimizing your tax bill?
A) Maximizing deductions and credits
B) Ignoring your tax return
C) Withholding all your taxes
D) Paying your taxes late
Answer: A
31. Which of the following is a common example of a tax-exempt income source?
A) Salary from employment
B) Interest from municipal bonds
C) Rent from property
D) Business profits
Answer: B
32. Which of the following would NOT be considered a tax credit?
A) Child and Dependent Care Credit
B) Earned Income Tax Credit
C) American Opportunity Tax Credit
D) Charitable contribution deduction
Answer: D
33. What is the primary benefit of tax credits over tax deductions?
A) Tax credits reduce taxable income, while deductions reduce taxes owed directly
B) Tax credits lower the amount of taxes owed directly, while deductions reduce taxable income
C) Tax credits apply to a broader range of expenses than deductions
D) Tax credits are only available to low-income individuals
Answer: B
34. What does the term “taxable income” refer to?
A) The income after deductions and exemptions
B) The total income before any deductions
C) The total income earned during the year
D) The income that is not subject to taxes
Answer: A
35. Which of the following is a feature of the progressive tax system?
A) Tax rate remains the same regardless of income
B) Higher income is taxed at a higher rate
C) Tax rate decreases as income increases
D) Only individuals with income over $100,000 are taxed
Answer: B
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