Whether you're a tax whiz or you farm your return out to the professionals, it's good to know a bit about how to file your taxes. Test your income tax know-how in this quiz.
What is Adjusted Gross Income?
your after-tax income
your taxable income after deductions
your taxable income before deductions
Your Adjusted Gross Income (AGI) is your taxable income before deductions. It includes your gross income like salary and investment interest, minus adjustments that aren't taxed like money you get from interest on retirement plans or alimony.
Which of the following doesn't count as an itemized deduction on your income tax?
the cost of utilities like water and gas
The cost of utilities isn't tax deductable. You can, however, get deductions for unexpected loss of property due to theft or natural disaster. You can even deduct gambling losses up to the amount of your gambling winnings.
Which of the following isn't a good reason to file a tax amendment?
You made a mathematical error.
Don't file a tax return amendment, form 1040X, if you discover an addition or subtraction error you made on your 1040. The IRS will check your math. And, they'll notify you if a mathematical error results in a change to your taxes.
Which form tells your employer all they need to know about your tax-related allowance information?
The W-4 form lists all of your withholding allowance information like the number of dependents and child care expenses. This tells your employer how much money to withhold from your paycheck for federal income tax. Toward the end of the tax year, your company sends you a W-2 form which details how much money you've made during the last year and how much federal tax was withheld from your income.
Which of the following is not a way to lower the amount you pay in capital gains taxes?
deducting capital losses from your capital gains
taking advantage of short-term rather than long-term investments
The simplest strategy for lowering the amount you owe in capital gains tax is to avoid short-term investments. Long-term investments will almost always have a lower tax rate. You can also deduct capital losses from your capital gains to lower your total taxable earnings.
taking advantage of long-term rather than short-term investments