Basics Beginner: The Basics of Tax Planning

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The kiddie tax is a term that applies to what type of income?

Unearned income received by people under a certain age

Earned income received by people under a certain age

Any income received by people under a certain age

Unearned income received by people under a certain age. The kiddie tax applies to investment income and other types of unearned income.

What kind of retirement planning contributions can help you save money on filing your taxes currently?

An HSA

A traditional IRA

A Roth 401(k)

A traditional IRA. Contributions to a traditional IRA can help you save money on filing your taxes currently.

When planning your investments, it is important to recognize that ______.

Acquiring assets that pay little in current income may make sense, tax-wise, but will never result in significant long-term gains

There are many sound assets that will increase your wealth over the long haul but which produce little or no current income

Most savvy investors focus on current income

There are many sound assets that will increase your wealth over the long haul but which produce little or no current income. Examples include raw land or good growth stocks.

Which of the following statements is true?

It is possible to reduce taxes in the current year by postponing the receipt of income.

It is possible to reduce taxes in the current year by accelerating deductions into the current year.

Both the above are true.

None of the above are true.

Both the above are true. Postponing income and accelerating deductions are both good tax strategies.

How does a contribution to a traditional IRA provide income tax savings?

Within limits, the contribution provides a dollar-for-dollar reduction in the amount of tax you owe.

The contribution provides no tax savings, since IRA funds are taxable when you finally withdraw them.

Within limits, the contribution is deducted from your taxable income.

Within limits, the contribution is deducted from your taxable income. An IRA contribution is an adjustment to income and thereby provides significant tax savings.