Deck 1: Introduction to Taxation

Question 1

A hidden tax is one that is included with a payment but not specifically identified.

Answer 1

True

Question 2

A flat tax generally would be considered a regressive tax.

Answer 2

False

Question 3

Partnerships and S corporations are flow-through entities.

Answer 3

True

Question 4

The type and degree of connection between a business and a state necessary for a state to impose a tax is referred to as nexus.

Question 5

The 16^th Amendment to the US Constitution that provided for an income tax was ratified in 1939.

Question 6

A corporation incurring a net operating loss in 2019 can only carry that loss forward to offset profits in future years.

Question 7

Which of the following is a tax?

A)Dog license
B)Parking fine
C)Water usage fee
D)Import duty

Question 8

All interest paid to a taxpayer must be included in gross income.

Question 9

A $100 tax deduction is more valuable to a taxpayer than a $100 tax credit.

Question 10

Which of the following types of taxes is not levied by the U.S.government?

A)Sales tax
B)Income tax
C)Gift tax
D)Estate tax

Question 11

Both sales and use taxes are collected in the state in which the sale takes place.

Question 12

Vertical equity asserts that persons in similar circumstances should face similar tax burdens.

Question 13

Adam Smith's four canons of taxation are Equity, Certainty, Economy and Convenience.

Question 14

There are three basic taxable entities: the individual, the fiduciary, and the C corporation.

Question 15

All limited liability companies (LLCs) can file their tax returns as partnerships.

Question 16

The lowest tax rate on the tax rate schedules for taxable incomes is the same for individuals and C corporations.

Question 17

Which of the following types of taxes is a consumption tax?

A)Estate tax
B)Income tax
C)Gift tax
D)Use tax

Question 18

The value added tax is a type of consumption tax.

Question 19

Any current changes to the tax laws are now amendments to the Internal Revenue Code of 2019.

Question 20

The person receiving the gift pays the gift tax.

Question 21

Which of the following statements describes the correct relationship between marginal and average tax rates in a progressive tax system?

A)The marginal tax rate is higher than the average tax rate.
B)The average tax rate is higher than the marginal tax rate.
C)The marginal and average tax rates are the same.
D)The average tax rate will always be half of the marginal tax rate.

Question 22

Which type of tax is a real property tax?

A)Income tax
B)Consumption tax
C)Wealth tax
D)Use tax

Question 23

Which of the following types of taxes is levied by almost all states on some or all goods purchased?

A)Sales tax
B)Income tax
C)Property tax
D)Wealth transfer tax

Question 24

The Mercury Corporation must decide whether to invest in some new machinery for its business.Which tax rate is the most relevant for making this decision?

A)The average tax rate
B)The marginal tax rate
C)The nominal tax rate
D)The effective tax rate

Question 25

Which of the following federal income tax rates applies to a C corporation in 2019?

A)15%
B)21%
C)25%
D)35%

Question 26

Kate received $140,000 in salary in 2019.What is her FICA tax if the Medicare rate is 1.45% and the Social Security rate is 6.2% on a maximum of $132,900 in 2019?

A)$10,270
B)$10,710
C)$10,167
D)$10,607

Question 27

Which of the following best describes horizontal equity?

A)All taxpayers should pay some taxes on their incomes
B)As income increases, taxes should increase
C)Persons with equal incomes should pay the same amount of taxes
D)A person with capital gains should pay less tax than a person with the same amount of salary income

Question 28

By what right does the U.S.levy an income tax on individuals?

A)A law proposed by the President and approved by the Senate
B)Public Law 1913
C)The 16^th Amendment to the Constitution
D)An Act of Congress ratified by the states

Question 29

What is the marginal tax rate for a single individual with $110,000 of taxable income in 2019?

A)10%
B)12%
C)22%
D)24%

Question 30

Which of the following types of taxes is not levied by the U.S.government?

A)Excise tax
B)Income tax
C)Value added tax
D)Gift tax

Question 31

Which of the following statements is false?

A)Use taxes are assessed on out-of-state purchases used in the purchaser's state.
B)The estate tax is based on the fair market value of property transferred at the owner's death.
C)Tariffs are taxes levied on goods and materials brought into a country.
D)Gift taxes are imposed on the recipient of the gift.

Question 32

John earns $25,000 and pays $2,000 in taxes.Marcy earns $60,000 and pays $4,000 in taxes.How would you characterize this tax system?

A)A flat tax system
B)A proportional system
C)A regressive system
D)A progressive system

Question 33

Ethan received $135,000 in salary in 2019.What is his FICA tax if the Medicare rate is 1.45% and the Social Security rate is 6.2% on the 2019 maximum of $132,900?

A)$10,327.50
B)$10,197.30
C)$10,166.85
D)$9,918.30

Question 34

Which of the following is an objective of taxation?

A)Raise revenue
B)Foster social goals
C)Stimulate the economy
D)All of the above

Question 35

Which of the following is a type of wealth tax?

A)A tax on a person's salary
B)A tax on stocks owned by the taxpayer
C)A tax on purchases made at a department store
D)A tax on property given to a grandchild

Question 36

Alexander received $80,000 in salary in 2019.What is his FICA tax if the Medicare rate is 1.45% and the Social Security rate is 6.2% on the 2019 maximum of $132,900?

A)$4,960
B)$6,120
C)$6,540
D)$10,920

Question 37

Current changes to the federal tax law are amendments to which of the following?

A)The Internal Revenue Code of 1913
B)The Internal Revenue Code of 1954
C)The Internal Revenue Code of 1986
D)The Internal Revenue Code of 2018

Question 38

William lives in Delaware but works for a company that has offices in both Maryland and Pennsylvania.William spent four months working in Pennsylvania and 8 months working in Maryland.

A)Only Delaware can impose a state income tax on his income.
B)Only Maryland can impose a state income tax on his income as he worked there the longer time period.
C)Only Pennsylvania and Maryland can impose state income taxes on his income.
D)Delaware, Pennsylvania, and Maryland can impose state income taxes on his income.

Question 39

When appreciated property is transferred, the gift tax is based on

A)replacement cost of the property
B)fair market value of the property on the date of the gift
C)the donor's original cost of the property
D)the donor's original cost increased by half of the appreciation

Question 40

William is single and had salary income from his position as Chief Financial Officer of Zippy Bank of $450,000 putting him in the 37% marginal tax bracket.He also had $35,000 in income from the dividends on the stock of his previous employer.What tax rate will apply to William's dividend income?

A)15%
B)20%
C)35%
D)39.6%

Question 41

Which of these entities is taxed directly on its income?

A)Limited Liability Company
B)C Corporation
C)Partnership
D)Sole Proprietorship

Question 42

Ethan and Mia are married and file a joint tax return.Their taxable income is $200,000 in 2019.What is their marginal tax rate?

A)10%
B)12%
C)22%
D)24%

Question 43

Jason operates his business as a C Corporation.For the year, the business income is $120,000, business expenses are $20,000, and there is a $2,000 capital loss as a result of a stock sale.What is the C Corporation's taxable income for the year?

A)$120,000
B)$118,000
C)$100,000
D)$98,000

Question 44

Which of the following is never included in computing gross income?

A)Loss on stock sale
B)Social security benefits
C)Unemployment benefits
D)Gifts

Question 45

What is a corporation's annual deduction for capital losses?

A)$3,000
B)An amount equal to capital gains only
C)An amount equal to capital gains plus $3,000
D)Corporations cannot deduct capital losses

Question 46

Which of the following best describes vertical equity?

A)All taxpayers should pay some taxes on their incomes
B)As income increases, taxes should increase
C)Persons with equal incomes should pay the same amount of taxes
D)A person with capital gains should pay less tax than a person with the same amount of salary income

Question 47

Two married persons with moderately high incomes will pay more taxes than two single persons with the same income.This is commonly called:

A)vertical equity.
B)horizontal equity.
C)a marriage bonus.
D)a marriage penalty.

Question 48

What is the earliest year to which a corporation can use a net operating loss from 2019?

A)2018
B)The first year after 2019 the corporation's gross income exceeds its tax deductions for the year.
C)The first year after 2021 that the corporation earns any revenues
D)2017

Question 49

How much income tax must the Benton Trust pay in 2019 if its taxable income (after all deductions) is $4,600?

A)$460
B)$690
C)$747
D)$1,240

Question 50

Abigail is married filing separately with taxable income of $175,000.What is her marginal tax rate?

A)37%
B)35%
C)32%
D)24%

Question 51

Charlotte is a head of household with taxable income of $40,000 in 2019.What is her marginal tax rate?

A)10%
B)12%
C)22%
D)24%

Question 52

What is an individual's maximum annual deduction for capital losses?

A)$3,000
B)An amount equal to capital gains only
C)An amount equal to capital gains plus $3,000
D)Individuals cannot deduct capital losses

Question 53

What is George's gross income if he has the following: $78,000 salary, $4,000 dividend income, $2,000 interest income on city of San Francisco bonds, a gain of $14,000 on a stock sale, and a $4,000 operating loss on a small sole proprietorship that he owns?

A)$78,000
B)$84,000
C)$92,000
D)$96,000

Question 54

Which of these persons never pays taxes directly?

A)Individual
B)Partnership
C)C corporation
D)Fiduciary

Question 55

Which of the following are included in Adam Smith's characteristics of a good tax?

A)Certainty
B)Economy
C)Convenience
D)All are included

Question 56

Daniel is single with taxable income of $40,000 in 2019.What is his marginal tax rate?

A)10%
B)12%
C)22%
D)24%

Question 57

Harold has a 50% interest in a general partnership that has a $14,000 loss for the year.He materially participates in the partnership, his basis in the partnership is $10,000 at the beginning of the year.He also has salary from other employment of $46,200.If he is single and claims the standard deduction, what are his taxable income and tax liability, respectively, in 2019?

A)$27,000; $3,046
B)$39,000; $4,510
C)$46,000; $5,963
D)None; $0

Question 58

Which of the following is not a tax credit allowed a corporation?

A)Foreign tax credit
B)Education credit
C)Investment tax credit
D)Alternative minimum tax credit

Question 59

Which of the following is normally not included in gross income?

A)Cash dividend
B)Corporate bond interest income
C)Stock dividend
D)All are included in gross income

Question 60

What is Jorge's gross income if he has the following: $78,000 salary, a $2,000 capital loss from the sale of stock, and $3,000 of municipal bond interest income.

A)$79,000
B)$78,000
C)$77,000
D)$76,000

Question 61

Jason purchased a 20 percent interest in JKL Partnership for $20,000 at the beginning of the year.At year-end, the partnership reported net income of $15,000 and distributed $2,000 cash to Jason.Assuming Jason's QBI deduction is not limited, what is the net amount taxable to Jason's this year as a result of his interest in JLK Partnership?

A)$15,000
B)$12,000
C)$3,000
D)$2,400

Question 62

Which of the following is not a characteristic of both S corporations and partnerships?

A)Both are flow through entities
B)Owners increase basis for debt undertaken by an S corporation or partnership
C)Both forms limit owner's participation in tax-free fringe benefits
D)Owners increase basis for gains and decrease basis for losses

Question 63

Which of the following business entities does not file a separate business tax return to report income from operations?

A)Sole proprietorship
B)S corporation
C)C corporation
D)Partnership

Question 64

Jason purchased a 20 percent interest in JKL Partnership for $20,000 at the beginning of the year.At year-end, the partnership reported net income of $15,000 and distributed $2,000 cash to Jason.What is Jason's year-end basis?

A)$20,000
B)$21,000
C)$23,000
D)$33,000

Question 65

In which of the following entities may an owner-employee benefit from all employee tax-free fringe benefits?

A)C corporation
B)S corporation
C)Partnership
D)Sole proprietorship

Question 66

Elena owns 25% of a partnership that reported net income of $100,000 for the year.Elena's basis in her partnership interest is $20,000 at the beginning of the year.During the year $5,000 was distributed to Elena from the partnership.How much should Elena include in her gross income for the year?

A)$30,000
B)$25,000
C)$5,000
D)$0

Question 67

Terri owns a 50 percent interest in the TT Partnership.At the beginning of the year, her basis in her partnership interest was $75,000.The partnership reports a $40,000 loss for the year and distributes $4,000 cash to Terri.What is Terri's deductible loss (included in her gross income) as a result of her 50 percent interest in TT?

A)$75,000
B)$51,000
C)$20,000
D)$16,000

Question 68

Deazia is the sole proprietor of Baldwin Hair Salon that reported net income of $44,000 for the year.During the year she withdrew $20,000 from the business for personal use.How much income from the above must Deazia include in her gross income for the year?

A)$20,000
B)$24,000
C)$44,000
D)$64,000

Question 69

Harold has a 50% interest in a general partnership that has a $14,000 loss for the year.He materially participates in the partnership, his basis in the partnership is $10,000 at the beginning of the year.He also has salary from other employment of $46,000.What is Harold's basis in the partnership at the end of the year?

A)$14,000
B)$10,000
C)$7,000
D)$3,000

Question 70

Which of the following is not a characteristic of an S corporation?

A)Owners have limited liability
B)The corporation is taxed directly on operating income
C)The corporation can have no more than 100 shareholders
D)Shareholders must consent to the original S election by the corporation

Question 71

Ted owns 20% of Genco (a C corporation) that had taxable income of $100,000 and paid a total of $50,000 in dividends to its shareholders.Ted also owns 10% of Subco (an S corporation) that had $100,000 of taxable income and distributed a total of $60,000 to its shareholders.How much must Ted include in his gross income as a result of being a shareholder in these two corporations?

A)$16,000
B)$20,000
C)$26,000
D)$30,000

Question 72

Jordan is the sole proprietor of Adams Company that reported $70,000 of income and $13,000 of expenses for the year.During the year he withdrew $11,000 from the business for personal use.Jordan is in the 24% marginal tax bracket.How much income from the above must Jordan include in his gross income for the year?

A)$68,000
B)$57,000
C)$14,250
D)$11,000

Question 73

Which of the following business entities has no provision that limits some or all of the liability of the owner?

A)C corporation
B)Sole proprietorship
C)S corporation
D)Limited liability company

Question 74

Elena owns 25% of a partnership that reported net income of $100,000 for the year.Elena's basis in her partnership interest is $20,000 at the beginning of the year.During the year $5,000 was distributed to Elena from the partnership.Assuming Elena's QBI deduction is not limited, how much in the net amount Elena is taxed on this year as a result of her interest in this partnership?

A)$24,000
B)$20,000
C)$4,000
D)$0

Question 75

Elena owns 25% of a partnership that reported net income of $100,000 for the year.Elena's basis in her partnership interest is $20,000 at the beginning of the year.During the year $5,000 was distributed to Elena from the partnership.What is Elena's basis at the end of the year?

A)$40,000
B)$30,000
C)$25,000
D)$20,000

Question 76

Jason purchased a 20 percent interest in JKL Partnership for $20,000 at the beginning of the year.At year-end, the partnership reported net income of $15,000 and distributed $2,000 cash to Jason.What is included in Jason's gross income as a result of his interest in JLK Partnership?

A)$15,000
B)$7,000
C)$5,000
D)$3,000

Question 77

Terri owns a 50 percent interest in the TT Partnership.At the beginning of the year, her basis in her partnership interest was $75,000.The partnership reports a $40,000 loss for the year and distributes $4,000 cash to Terri.What is her basis in her partnership interest at the end of the year?

A)$111,000
B)$75,000
C)$51,000
D)$31,000

Question 78

Sophia owns 20% of a partnership that reported net income of $130,000 for the year.During the year $18,000 was distributed to Sophia from the partnership.How much should Sophia include in her gross income for the year?

A)$44,000
B)$29,000
C)$26,000
D)$44,000

Question 79

Elena owns 40% of Martinez, Inc., a regular C corporation, that reported net income of $80,000 for the year.During the year $8,000 was distributed to Elena from the corporation's earnings and profits.How much income from the corporation should Elena include in her gross income for the year?

A)$40,000
B)$32,000
C)$8,000
D)$3,200

Question 80

Crystal invested $8,000 cash in CRK Partnership for a 30% general partnership interest.In its first year of operations, CRK lost $15,000.In its second year of operations, CRK lost an additional $14,000.How much of the second year's losses can Crystal deduct in that year?

A)$700
B)$2,400
C)$3,500
D)$4,200