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

Tax deductions reduce income subject to tax, while credits directly reduce the tax bill dollar-for-dollar.

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

The EITC is available to lower and moderate-income workers regardless of itemizing, and it is refundable.

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

Form W-4 guides employer tax withholding and should be updated after marriage, divorce, birth of child, or significant income changes.

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

Life insurance on the primary earner is critical for protecting family financial security.

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

The 2024 standard deduction is $14,600 for single filers. Itemize only when total deductible expenses exceed the standard deduction.

FiCEP - Financial Counseling Certification Program Practice Test