Comprehensive Test No. 2

Describe the difference between withholding allowances and exemptions.

The federal income tax is a _____ ____ ____ ____ tax. There are ______ ways to _____ ____ ____ ____; _______ and________ ________.

There are certain things that are used to determine the amount to be withheld from your regular pay as an employee. What are these things?

• A. 

  The number of exemptions you are allowed on your return.

• B. 

  The information you give your employer on Form W-4.

• C. 

  The filing status you select on your tax return.

• D. 

  The amount you earn in each payroll period.

May a taxpayer specify a flat dollar amount only to be withheld from his/her pay on a periodic basis?

• A. 

  Yes

• B. 

  No

Bob and Sue are married and will file a joint return. They both work and will use Form W-4 worksheets to determine their withholding allowances based on their combined income, adjustments, deductions and credits. They determine that they will have 5 withholding allowances. If they both want to reduce the amount of withholding from their pay, off the choices below, how can they legally divide the allowances between the two of them?

• A. 

  5 and 1

• B. 

  3 and 2

• C. 

  0 and 5

• D. 

  5 and 5

• E. 

  1 and 4

• F. 

  0 and 0

If you do not give your employer a completed Form W-4 at the start of a new job your employer must withhold at the highest rate as though you were single with no withholding allowances.

• A. 

  True

• B. 

  False

Betsy worked a part time job for all of 2013. She had no income tax liability when she filed her 2013 income tax return. Her pay did not change for 2014, and she expects to have no tax liability for 2014. Betsy may be able to file a new Form W-4 with her employer claiming exemption from withholding. Therefore, her employer will not withhold income tax, social security tax or medicare tax from her pay.

• A. 

  True

• B. 

  False

If you report tips to your employer, s/he will figure your withholding based on your regular pay plus the tips you report to him/her.

• A. 

  True

• B. 

  False

_______ _______ is a __________ to you to replace your regular wages while you are _________ absent from work due to __________ or _________ _________. To  _________ as sick pay, it must be paid under a plan to which your ____________ is a party.

If you are paid interest from a bank or other business, and you give the institution an incorrect or no taxpayer identification number (ITIN), or you don't report the interest on your tax return, IRS may require the business or institution to start "backup withholding" on your interest at a rate of 28% and file an information return (Form 1099) on you with IRS.

• A. 

  True

• B. 

  False

Estimated tax is the method used to pay tax on income that is not subject to withholding. Choose the form(s) of income listed below that would most likely require the recipient to pay estimated tax.

• A. 

  Dividends

• B. 

  Overtime Pay

• C. 

  Alimony

• D. 

  Wages

• E. 

  Awards

• F. 

  Bonuses

• G. 

  Interest

It is not possible for a person who is due a refund when s/he files his/her income tax return to owe a penalty for underpayment of estimated tax if the full amount of estimated tax is paid.

• A. 

  True

• B. 

  False

When, generally, is the due date of the first installment of 2015 estimated tax payments for calendar-year taxpayers?

• A. 

  June 15, 2015

• B. 

  September 15, 2015

• C. 

  April 15, 2015

• D. 

  January 15, 2015

If you are required to pay estimated tax you may choose to pay all of the required amount of your estimated tax at the time of the first installment. If you choose not to do so, when will the remaining installments generally be due?

• A. 

  July 15, October 15 and January 15 of the following year.

• B. 

  April 15, July 15 and October 15.

• C. 

  June 15, September 15 and January 15 of the following year.

Since estimated tax payments are just that, "an estimate", you are not required to pay the full liability of your taxes during the year to avoid an underpayment penalty. You must, however, pay at least 90% of whatever you do estimate to avoid that penalty if you do not meet one of the other exceptions to it. (This statement tests your general understanding of estimated tax.)

• A. 

  True

• B. 

  False

What is a decedent?

• A. 

  A surviving spouse of a deceased person.

• B. 

  A child of a deceased person.

• C. 

  An individual who has died.

• D. 

  All of the above

A personal representative for a decedent's estate can be an executor (or executrix), administrator (or administratrix), or anyone in charge of the decedent's property (e.g., a surviving spouse). What are the primary duties of a personal representative?

• A. 

  Collect all the decedent's assets.

• B. 

  Pay the decedent's creditors.

• C. 

  Distribute the remaining assets to the heirs or other beneficiaries.

• D. 

  All of the above.

If there is a court-appointed personal representative for the decedent's estate before the due date for filing the deceased person's tax return, must s/he ALWAYS sign the decedent's final return?

• A. 

  Yes

• B. 

  No

Generally, the final return for a calendar-year taxpayer is due on April 15 of the year following the year of death, regardless of when during that year death occurred.

• A. 

  True

• B. 

  False

A personal representative filing Form 1040 for a decedent must file Form 1310, Statement of Person Claiming Refund Due a Deceased Person, even if the taxpayer is not required to file a return, but had tax withheld or paid estimated tax, in order to obtain the refund.

• A. 

  True

• B. 

  False

The expression used to refer to income that a decedent had a right to receive had death not occurred, but was not properly includible on his/her final return is called _____________.

• A. 

  Tax Benefits for Survivors

• B. 

  Deductions in Respect of a Decedent

• C. 

  Income in Respect of a Decedent

Arnold Peterson owned and operated a printing company. He took orders for and sold printed promotional items. Arnold took a rather large order for A-1 Professional Services, Inc. He delivered the products to the company and made an agreement that he would be paid in six monthly installments. Arnold died before receiving any of the installments. Arnold used the accrual method of accounting. Arnold's son was named as his beneficiary in the agreement. On whose return would this income be included?

• A. 

  Arnold's son's return

• B. 

  Arnold's final return

• C. 

  Arnold's estate return

Jane Smith is a cash method taxpayer. She owns and operates a photography studio. Jane was hired to take pictures for a large company picnic. She agreed to allow the company to pay her in 4 installments for the work she performed. Jane named her brother as her beneficiary in the contract. Jane died after receiving only 2 of the installments. On whose return would the remaining 2 installments be included on as income?

• A. 

  Jane's brother's return

• B. 

  Jane's final return

• C. 

  Jane's estate return

Property received as a gift, bequest, or inheritance is not included in your income. If the property later does produce income, then, and only then, will you be required to include the value of the property in your income.

• A. 

  True

• B. 

  False