Question 21 Which is not an example of unearned income? Dividends Royalties Rent

Question

Question 21

Which is not an example of unearned income?

Dividends

Royalties

Rents

Tips

Question 22

Which of the following is not defined as part of gross income?

Capital gains

Gifts and inheritances

Illegal income

Scholarship income spent on room and board

Question 23

Taxable income is determined by subtracting all but which of the following from gross income.

exemptions

credits

exclusions

adjustments

Question 24

Which of the following is most valuable to a taxpayer for the tax savings it provides?

$200 unreimbursed medical expense

$200 charitable contribution

$200 employee business expense

$200 dependent care credit

Question 25

Which of the following would be considered smart financial planning?

Withhold too much income in order to receive a refund next year.

Turn all your income tax planning over to someone else.

Ignore the impact of income taxes in your personal financial planning.

Contribute to your employer-sponsored 401(k) retirement plan at least up to the amount of the employer's matching contribution.

Dividends

Royalties

Rents

Tips

Explanation / Answer

Question 21

D. Tips

Unearned income is income received without any personal efforts. However, dividends, royalties, rents and interest is not considered as unearned income.

Question 22

D. Scholarship income spent on room and board

As per IRS publication 590, the amount of scholarship and grants is tax free to the extent of expenses made for the purpose it was granted. The remaining amount of scholarship is added in the income and taxed.

Question 23

B. credits

Tax credit is something that is granted from the taxes already charged and paid. Hence this is not deducted while calculating taxable income.

Question 24

D. $200 dependent care credit

Dependent care credit is offset against the tax liability. This is 100% tax free. Therefore, this is the most valuable to a tax payer for the tax savings.

Question 25

D. Contribute to your employer-sponsored 401(k) retirement plan at least up to the amount of the employer's matching contribution.

This allows the employee to get tax exemption as well as a secure future through savings. This sort of arrangement helps in systematic investment without any hassles.

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