Just because you earn a certain amount of money doesn't mean you have to pay taxes on all of it. A tax shelter can help you reduce your taxable income, and keep more of your money. You must, however, make sure you're not breaking the law. Take this quiz to test your knowledge of both legal and illegal tax shelters.
What is the function of a tax shelter?
A tax shelter is an investment that lowers your taxable income.
A tax shelter is a way to avoid paying income tax entirely.
A tax shelter is a loan from the Federal Government that helps you pay your taxes.
Illegal use of a tax shelter is considered what sort of crime?
misuse of federal funds
Which federal organization is charged with monitoring the use of tax shelters?
the Federal Bureau of Investigation (FBI)
the Internal Revenue Service (IRS)
the Federal Trade Commission (FTC)
Approximately how much money did the illegal use of tax shelters cost the State of California in 2003?
Which of these companies was involved in a $2.5 billion dollar tax scam in 2005?
One of the differences between a legal shelter and an illegal one is that legal ones do which of the following?
They generate taxable income.
They stimulate the economy.
They improve foreign trade relations.
How does purchasing a home help you lower your taxable income?
You may deduct your mortgage insurance costs from your adjusted gross income (AGI).
You may deduct the price of the house from your annual salary.
You may deduct the cost of purchasing new furniture from your taxable income.
Which of these statements best defines a 403(b) retirement account?
A 403(b) is a retirement account for people earning over $1.2 million per year.
A 403(b) is a retirement account for people earning less than minimum wage.
A 403(b) is a retirement account for employees of certain tax-exempt organizations, and public schools.
What is the purpose of a contribution cap on an Individual Retirement Account (IRA)?
Contribution caps help stimulate the economy.
Contribution caps help control how much you lower your taxable income.
Contribution caps make it easier for the IRS to calculate what you owe them.
How might you use a small business to legally lower your taxable income?
Deduct all business expenses from your income, which will reduce your taxable income.
Use the small business accounts to hide some of your earnings.
Use the small business to justify opening a extra IRA.
How do people abuse Roth IRAs?
They invest in an IRA even though they don't intend to retire.
They exceed the IRA contribution cap.
They open businesses whose purpose is simply to contribute to IRAs.
How much money did the average participant in the Son of Boss scheme have to pay the IRS?
Approximately how much money did the IRS recover from prosecuting Son of Boss activities?
Which of these statements best describes an offshore tax haven?
A corporation in a foreign country, which allows the owners to avoid paying American taxes.
A secret bank account used to launder funds.
An investment in a foreign country's government.
Why are municipal bonds an effective tax shelter?
The interest earned from municipal bonds is not taxable.
The money spent to purchase a municipal bond is deducted from your income.
All investors in municipal bonds get an automatic 15 percent tax decrease.