Americans who tackle income taxes each year usually do their best to take advantage of the tax breaks offered by Uncle Sam.Skip to next paragraph
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One way to know if you're taking advantage of them is to take this quiz from the Institute of Certified Financial Planners.
Who knows? If you get all the answers right, you might want to consider taking steps to be a financial planner yourself!
1. What's the last day you can make a deductible contribution to your individual retirement account (IRA) and have it apply to your 1998 tax year?
A. December 31, 1998 B. January 1, 1999 C. April 15, 1999 D. At the end of an automatic extension.
2. Medical expenses must exceed what portion of your adjusted gross income to be deductible?
A. 2 percent B. 7.5 percent C. 10 percent D. 15 percent
3. The interest paid on which of the following types of personal loan is usually tax deductible?
A. Home equity B. Credit card C. Car D. Installment
4. The minimum age you must begin taxable withdrawals from an employer-sponsored retirement plan such as a 401(k) is:
A. 59-1/2 B. 62 C. 65 D. 70-1/2 or when you retire, whichever is later.
Are the following statements true or false?
5. Social Security benefits are not taxable.
6. Earnings from tax-free municipal bonds are never subject to federal income tax.
7. Federal unemployment income is not subject to federal tax.
8. It is better to take a $100 tax credit than a $100 tax deduction.
9. You cannot take the new Hope Scholarship tax credit if your modified adjusted gross income exceeds $100,000.
10. Professional tax-prep-aration and tax-planning fees are not tax deductible.
11. The alternative minimum tax does not affect middle-income taxpayers.
(1) C; (2) B; (3) A; (4) D. In an IRA, however, you must begin withdrawals no later than age 70-1/2, without exception; (5) False. Up to 85 percent of your benefits may be taxable by the federal government if your modified adjusted gross income is above a certain level ($25,000 for single, $32,000 for joint filers). (6) False. Capital gains from the sale of bonds may be subject to tax, and even the interest may be subject to tax if you are subject to the alternative minimum tax (AMT); (7) False; (8) True. A credit is taken directly from the tax you owe. A tax credit saves you $100 in taxes. A tax deduction is taken before taxes are calculated. Thus a person in the 28 percent tax bracket would save $28 on a $100 tax deduction; (9) True; (10) False. They can be deducted if your total miscellaneous deductions exceed 2 percent of your adjusted gross income. (11) False. The AMT is catching more and more middle-income taxpayers because the deductions haven't been indexed to inflation.