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Test Your Tax Knowledge

The more you know about taxes, the more you may be able to save. Answer these four questions to test your knowledge (more than one answer may apply).

CTA does not give tax advice. Be sure to consult your tax advisor for more information.

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Learn more about the tax benefits of 403(b)/457 plan.

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Which of the following is not an allowable deduction from your federal income tax return if you itemize deductions?

Losses on the sale of a home are not deductible. You may be able to deduct mortgage interest payments (including interest payments for home equity loans and lines of credit up to certain limits, depending on the use of the loan or equity line), charitable contributions and property taxes.




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Wrong!

Which of the following are available tax credits in 2010?

All of these credits are available to eligible taxpayers in 2010. Credits are subject to eligibility. Education tax credit ceilings vary and are subject to income limits.




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True or false: A $1,000 tax deduction is better than a $500 tax credit.

Tax deductions reduce the amount of income on which you pay taxes, but tax credits reduce the amount of tax you owe. In general, tax credits are more valuable than tax deductions, but it depends on the amount of the deduction or credit and the taxpayer's total tax liability. For example, the IRS tax tables for 2009 state that a single person would owe $8,694 in taxes on a taxable income of $50,000. Reduce taxable income to $49,000 due to a $1,000 deduction, and the tax owed is $8,444, or $250 less. However, if you have a taxable income of $50,000, are single and are eligible for a $500 tax credit, your final tax bill would be $8,194 ($8,694 - $500).


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True or false: Contributing to a Roth 403(b) plan reduces your current tax bill.

Unlike with a traditional 403(b) plan, contributions to a Roth 403(b) are deducted from your paycheck after taxes are taken out, not before. So you do not save on your current income tax bill. However, if you meet certain requirements, you will not pay taxes on the distributions in retirement. With a traditional 403(b) plan, you save on current taxes, but you will pay ordinary income taxes on qualified distributions in retirement.


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