AFC Tax Planning and Financial Literacy

Question 1

Which filing status generally results in the lowest federal income tax rate for a single parent with a dependent child?

Accepted Answer

Head of Household

Answer

Head of Household status offers wider tax brackets and a higher standard deduction than Single filing for eligible single parents.

Question 2

What is the primary purpose of a W-4 form?

Accepted Answer

To tell an employer how much federal income tax to withhold

Answer

The W-4 tells employers the correct amount of federal income tax to withhold from each paycheck based on the employee's situation.

Question 3

A tax credit differs from a tax deduction in that a credit:

Accepted Answer

Reduces the actual tax owed dollar-for-dollar

Answer

A tax credit directly reduces your tax liability dollar-for-dollar, making it generally more valuable than a deduction of the same amount.

Question 4

Which of the following is an example of a refundable tax credit?

Accepted Answer

Earned Income Tax Credit (EITC)

Answer

The Earned Income Tax Credit is refundable, meaning if it exceeds your tax liability, the IRS pays you the difference as a refund.

Question 5

Capital gains on assets held longer than one year are taxed at:

Accepted Answer

Long-term capital gains rates (0%, 15%, or 20%)

Answer

Long-term capital gains (assets held over one year) are taxed at preferential rates of 0%, 15%, or 20% depending on taxable income.

AFC - Accredited Financial Counselor Practice Test