Yahoo Finance Most Americans failed this simple tax quiz
It’s a good thing we don’t have to pass a test on the U.S. tax code to get a job — a lot of us would probably be out of work.
Financial education company NerdWallet recently put more than 1,000 adults to the test with a 10-question quiz on basic tax information. The average quiz-taker failed abysmally, answering just 5 out of 10 questions correctly.
“The U.S. tax code confuses the average American,” says Shiyan Koh, general manager of NerdWallet’s Ask an Advisor, where consumers can ask experts tax-related questions. “And that confusion can be costly.
When it comes to taxes, the more you know, the more you can potentially save. More than 40% of quiz-takers did not know that taxpayers can deduct expenses associated with things like fostering a pet or even gender reassignment surgery. And more than half incorrectly answered a question about whether they could write off the loss if a friend or family member doesn’t pay them back for a loan (hint: in some circumstances, you can).
Granted, some of these aren’t common deductions that apply to most taxpayers. But it didn’t exactly restore our faith in America's collective tax knowledge to see so many respondents unable to define simple tax-savings tools. More than 40% of respondents didn’t know that flexible spending accounts allow you save pre-tax money for medical or child-care expenses (if it’s a dependent care FSA). Nearly 60% of respondents were confounded by the Roth 401(k), which is a post-tax retirement savings account — the majority mixed it up with a traditional 401(k), in which contributions aren't taxed until they are withdrawn in retirement.
The good news is that there have never been more tools at our disposal to help ease the tax filing process. In addition to relatively cheap online tax preparation software, you can easily find a licensed tax practitioner in your area by checking out the National Association of Enrolled Agents or, if you’re looking for a CPA, by checking out the American Institute of Certified Public Accountants.
How do you think you would score? Take the tax test here.
