Bob Has Decided to Contribute $2,800 to a Roth IRA

question 205

Multiple Choice

Bob has decided to contribute $2,800 to a Roth IRA. He is currently in the 25% tax bracket. How will his contribution affect his income tax for the current year?

• A) It will reduce the amount of taxes he owes in the current tax year by $700.
• B) It will increase the amount of taxes he owes in the current year by $700.
• C) It will reduce the amount of taxes he owes in the current year by $2,100.
• D) It will have no effect on the amount of taxes he owes this year.

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Definitions:

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Phantom Profits

Profits recorded in the accounting books but not actually realized through cash transactions, potentially leading to a misleading financial condition.

FIFO Costing Assumption

A method used in accounting that assumes the first items of inventory purchased are the first ones sold.

Specific Identification Method

The specific identification method is an approach to inventory valuation that tracks the cost of individual items or groups of similar items.