Basics Beginner: The Basics of Tax Planning

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Review your answers below to learn more.

Which of the following statements is true?

Distributions from a health savings account that are used to pay qualified medical expenses are not taxed.

Most out-of-pocket medical expenses can be claimed as adjustments to income.

Both the above statements are true.

Neither of the above statements are true.

Distributions from a health savings account that are used to pay qualified medical expenses are not taxed. Moreover, contributions to the HSA reduce taxable income.

Which of the following is true regarding tax credits?

A tax credit reduces your taxable income as reported on Form 1040.

A tax credit reduces the actual tax you owe.

For most taxpayers, the standard tax credit will be larger and more valuable than itemizing your credits.

A tax credit reduces the actual tax you owe. Within limits, a dollar of credit reduces your tax by a dollar.

You can lawfully hire your child to work for you or your company, and his or her earnings will be taxed at the child's rate, not yours.

True

False

True. Your child's tax rate on earned income for work done is likely to be lower than yours.

Contributions a business owner makes to his or her own 401(k) are deductible by the business.

True

False

True. Contributions a business owner makes to all employees' 401(k) accounts are generally deductible by the business.

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.