FiCEP Taxes and Insurance 2

Question 1

What is the difference between a tax deduction and a tax credit?

Accepted Answer

A deduction reduces taxable income; a credit directly reduces the amount of tax owed

Answer

They are the same thing

Answer

A credit reduces taxable income

Answer

Neither affects the final tax bill

Question 2

A client earns $40,000 and does not itemize. What common tax credit might they be eligible for?

Accepted Answer

Earned Income Tax Credit

Answer

Mortgage interest deduction

Answer

Charitable deduction for large donations

Answer

Business expense deduction

Question 3

What is the purpose of Form W-4 and when should it be updated?

Accepted Answer

It tells the employer how much tax to withhold, and should be updated after major life changes

Answer

It is a tax return filed annually

Answer

It is only needed when starting a new job

Answer

It determines Social Security benefits

Question 4

Which type of insurance is most critical for a single-income family with young children?

Accepted Answer

Life insurance on the primary earner

Answer

Dental insurance

Answer

Extended warranty coverage

Answer

Pet insurance

Question 5

What is the standard deduction for 2024 and when should a taxpayer itemize?

Accepted Answer

$14,600 for single filers; itemize when deductible expenses exceed this amount

Answer

There is no standard deduction

Answer

$5,000 for all filers; always itemize

Answer

$14,600 for all; never itemize

Question 6

What is a health savings account and what triple tax advantage does it offer?

Accepted Answer

An account with tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses

Answer

A savings account with no tax benefits

Answer

A government health insurance program

Answer

A checking account only for pharmacies