taxes

Tax quiz to prep you for tax-filing season

Taxes » Tax Filing » Tax quiz to prep you for tax-filing season

Pencil and income tax forms © APaterson/Shutterstock.com

1. Taxpayers who bought their own health care policy under the Affordable Care Act requirements may be eligible for a tax credit. It's known as:

Answer: C or D.

Millions of people who bought insurance through a health marketplace also got some government help to pay for the medical coverage. While it's officially known as the premium tax credit, it's also referred to as a marketplace subsidy. If you got the credit/subsidy in advance, you'll have to fill out some forms when you file to ensure that you got the proper amount. If you got more credit than you should, you'll either have to pay it back at tax-filing time or it will be deducted from your refund.

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2. If you're divorced and have custody of your kids, you should file as:

Answer: B.

If you're divorced, don't file as single if you've got primary custody of your kids. When you provide more than half the cost of keeping up a home for yourself and your dependent children, and the kids lived with you for more than 6 months during the tax year, you're a head of household. The tax rates for this filing status generally are more favorable than for single or married-filing-separately taxpayers. Read more about how each of the five filing statuses can make a difference in your tax bill.

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3. If you have income that isn't subject to withholding tax, such as investment or self-employment earnings, you should pay estimated taxes. How many estimated tax payments does the IRS expect from you each year?

Answer: C.

The U.S. tax system is pay-as-you-earn. That's accomplished in large part via payroll withholding. But when you have earnings from which no income or FICA taxes are paid, the IRS prefers you send estimated tax payments 4 times a year. Bankrate has the skinny on paying estimated taxes.

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4. You have two tax deduction options: Claim the standard amount or itemize your deductions. You should:

Answer: B.

Itemizing deductions requires added work and tax forms. But most taxpayers each year claim the standard deduction. This amount, which is based on your filing status, is adjusted annually for inflation. The good news is that each tax-filing season, you can choose which deduction method, itemized or standard, works best for your situation.

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5. When you get married, as newlyweds you should:

Answer: D.

If both husband and wife work, each should reassess withholding amounts. It's generally better for the higher-earning spouse to claim all the couple's allowances on his or her W-4, with the lower wage earner claiming zero. In addition, look at your individual retirement accounts. You might run into the income limit on opening or contributing to tax-free Roth accounts or deducting traditional IRA contributions. Also, marriage is a life event that allows you to make midyear adjustments to flexible spending account payroll contributions. Check out other major life events that also have tax ramifications.

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6. You can withdraw money from a traditional IRA before you turn 59 1/2 and not face any tax or penalties if:

Answer: A.

You can take money out of your traditional IRA tax-free and penalty-free as long as you repay the full amount within 60 days, but you may do this only once in a 12-month period. If you miss the repayment, you'll owe not only taxes, but also a 10% penalty. If the money is used to buy a first home, pay college costs or cover excessive medical expenses, you'll owe the tax, but no penalty. And the donation to charity is not allowed except for taxpayers age 70 1/2 or older. Learn more about IRA terms and penalty-free 401(k) and IRA withdrawals.

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7. The top ordinary income tax bracket for the 2015 and 2016 tax years is:

Answer: C.

When Congress finally passed the American Taxpayer Relief Act in January 2013, it expanded the ordinary income tax rates and income brackets. There are seven tax rates, starting at 10 percent and topping out at 39.6 percent. Some higher income earners also could face some extra taxes, including an additional 0.9 percent Medicare payroll tax and a 3.8 percent tax on investment income.

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8. Taxes seem to get more complicated each year. That's why more than half of us each year pay someone to file our returns. When selecting a tax pro, you should:

Answer: D.

A report by the Treasury Inspector General for Tax Administration found that in 2013, nearly 60 percent of individual taxpayers paid someone else to prepare their income tax returns. With each new addition to the tax code, the need for professional help increases. So it's crucial that you make the proper choice when it comes to hiring tax help. Before you make any tax preparer decision, check out the various types of tax preparers.

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9. To err is human. But to err too much at tax time could be quite costly. The most common tax mistake year in and year out is:

Answer: C .

All of the error options make the list of 10 common tax-filing mistakes that the IRS annually catches on returns. But bad math is the one that leads the error list almost every year. This includes simple arithmetic mistakes, as well as transposing figures. So double check your 1040 and other forms against the tax documents from which you got the information.

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10. Tax time is tax-scam time. In recent years, one scam has made major inroads into many taxpayers' lives. It is:

Answer: B.

In 2014, a sophisticated phone scam emerged in which fake IRS agents tell individuals they owe money that must be paid promptly through a pre-loaded debit card or wire transfer. If they don't pay, say the crooked callers, the alarmed taxpayers could end up in jail. In March 2014, the IRS declared it the largest tax scam ever. So be on the lookout this filing season for this con and the rest of the IRS' Dirty Dozen tax scams.

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