Preparing your tax return can be a complicated process, but it is one that can have a major impact on your bank account. Should you prepare your own or hire a professional? What should you do if you can't afford to pay the tax that you owe? This quiz will test your knowledge of the tax preparation and filing process.
Where does income tax rank among most Americans' expenses?
What do you need in order to be able to deduct an expense on your taxes?
a receipt from the expense
any verifiable proof of the expense
both a receipt and a written record of when and where the expense occurred
What is the best way to ensure that you don't miss any large tax deductions for which you may be eligible?
keeping organized records
hiring a professional tax preparer
having a professional look over your tax return after you prepare it yourself
For whom are tax preparation courses often free?
people over age 55
those whose earnings fall in the lower 25% of the population
What is the name of the IRS' free tax return filing system?
What is the problem with getting information from the IRS toll-free information line?
It may be incorrect.
It is unverifiable.
Although the call is free, you must pay for the service.
When might it make sense for a married couple to file separate tax returns?
if one spouse has high medical expenses
if only one spouse is employed
How might you be able to lower the amount of tax you owe on investment income?
by transferring some of the earnings to your children
by reinvesting the profits
by transferring the earnings to a long-term CD account
When should you ideally file your U.S. tax return?
as early as possible
as early as possible if you are getting money back, and close to April 15th if you owe money
When would it make sense to hire a professional tax preparer?
if you have any special schedules on your tax return
if you earn over $75,000 per year
What should you do first when hiring a professional tax preparer?
Negotiate the fee.
Clarify your exact financial circumstances.
Hand over all of your receipts.
Why might you not want to get an "instant refund" from a tax preparation company?
They often charge high interest rates.
You will owe money if they refund you more than you actually deserve.
You could incur high penalties if you get audited.
Who is responsible if your tax preparer makes a mistake on your tax return?
the tax preparer
the tax preparer's company
What might happen if you don't respond in a timely fashion to inquiries from the IRS?
Your wages may be garnished.
The amount you owe may be doubled.
You may be imprisoned.
Why is it not ideal to get a refund on your taxes each year?
It means you are having too much withheld, and you could instead earn interest on that money.
It increases the chances that you will get audited.