When it comes to tax, Americans get an F on many basic personal finance questions about federal income tax returns. As the 74,608-page-long federal tax code getting longer and more complex, the taxpayers’ confusion and frustration are padding the coffers of tax preparers and services. Based on the survey of more than 2,300 adults from Personal finance site NerdWallet, more than half of taxpayers don’t understand many basic personal finance questions about federal income tax returns relating to college savings, health care and retirement.
So why the majority of taxpayers fail badly on many basic personal finance questions about taxes? Quentin Fortrell at MarketWatch offers an answer. “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.”
Here are 10 basic personal finance questions about taxes:
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