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Tuesday, April 18, 2017

Americans Don't Understand Income Tax Yet Demand Trump Reveal His. Kinda Like Asking Someone Who Has Never Drank To Judge A Whiskey Contest

Americans get an ‘F’ on 

income tax quiz

Published: Apr 18, 2017 8:47 a.m. ET

Take this 10-question tax quiz and see how you do



Bloomberg News/Landov

By

PERSONAL FINANCE EDITOR
American adults appear to be confused — very confused —
 by the U.S. tax code.
More than half of taxpayers don’t understand many basic
personal finance questions about federal income tax returns
 as they relate to retirement, college savings and health
 care, a result not much changed from previous years,
 based on a recent survey of more than 2,300 adults 
given by personal finance site NerdWallet. That is a fail
by academic standards.
Indeed, more people are also delaying filing their taxes
 this year. Earlier this month, tax software service TurboTax
issued a profit warning and said that the tax season is
forming more slowly than usual.” It cited Internal Revenue
 Service data which said total tax return volume through
 Jan. 27 was down 33% from a year ago.
One theory: They simply don’t know what they’re doing.
 Some 57% of taxpayers don’t know what a W-4 is, the
Nerdwallet survey found, and 59% don’t know that
April 18, 2017 is the deadline for making a tax-deductible
contribution to a traditional individual retirement account
for the 2016 tax year. What’s more, 58% of taxpayers
incorrectly believe that getting a tax extension means
they can delay the due date of their income tax payment.
The majority knew about tax withholdings from their
paycheck, but they understandably struggled with more
 complex questions about Roth IRA and individual
retirement accounts, says Alex McAdams, product
manager at NerdWallet. People shouldn’t be too quick
 to celebrate an income tax refund, which averaged
$2,860 in 2016. “You are essentially giving the
government a free loan as opposed to having control
 of that money all year long and putting it in a savings
 account or maybe even investing it,” he says.
“Some of the questions were easy, but others I wouldn’t
expect people to know,” says Ian Gillespie, founder
 of IGG Software and creator of iBank, an online
 personal finance manager. “American tax law is
extremely complicated and a lot of these feel like
 they could be trick questions.”
Among the list of questions listed (below), he said
 No. 2 (“Can married couples file taxes separately?”)
easy, but wouldn’t expect a lot of people to know the
answer to No. 7 (“If you lend money to a friend and
she doesn’t pay you back, can you write it off?”).
Here are 10 questions (with the answers on the
 following page):
1. Is the money you put in a Roth IRA pretax or post-tax?
A) Pretax.
B) Post-tax.
C) None of the above.
42% got the right answer.
2. Can married couples file taxes separately?
A) Yes.
B) No.
90% got the right answer.
3. When can you adjust your withholdings and
 exemptions on your W-4 with your employer?
A) Any time of the year.
B) Any time before Jan. 1 of each year.
C) After you receive your W-2 from the previous year’s
earnings.
D) By the end-of-year tax deadline.
67% got the right answer.
4. A 529 plan is:
A) A way to make tax-deductible contributions for
college savings.
B) A college investment plan that earns tax-free income
as it grows.
C) A plan that allows qualified users to defer their tax
payments.
42% got the right answer.
5. What is a flexible spending account?
A) A tax-exempt savings account exclusively for health
 benefits.
B) A tax-exempt savings account that allows you to make
 home improvements.
C) A tax-exempt account for medical purposes or child care.
47% got the right answer.
6. If you foster a pet from a nonprofit charitable
 organization, can you claim a tax deduction?
A) Yes, but you can only write off certain items like food,
shelter and medical expenses.
B) Yes, you can write off all expenses.
C) No, you can’t write this off.
45% got the right answer.
7. If you lend money to a friend and she doesn’t pay you
 back, can you write it off?
A) Yes, you can write off the entire loan.
B) Under certain circumstances, it can be deducted under
 capital loss rules.
C) No, you can’t write it off.
42% got the right answer.
8. Which of the following is tax-deductible?
A) Gambling losses.
B) Sex-reassignment surgery.
C) Babysitting (if you’re a parent doing charity work).
D) All of the above.
E) None of the above.
39% got the right answer.
9. Which of these is the worst mistake?
A) If you owe, not filing your taxes by the deadline
 (April 18 this year).
B) Filing but not paying your taxes by the deadline.
C) You are owed a refund, but you file late.
D) You are owed a refund, but you don’t file at all.
36% got the right answer.
10. If your exemptions and withholdings are correct,
 your tax refund should be:
A) $2,500, or more.
B) $1,500 to $2,500.
C) $500 to $1,500.
D) As close to $0 as possible.
56% got the right answer.