Question 1

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

Accepted Answer

A hidden tax is indeed a tax that consumers pay when they purchase goods or services, but it is not explicitly listed or shown as a separate charge. Instead, it is included in the price of the item or service, making it less noticeable to the consumer.

Question 2

A flat tax generally would be considered a regressive tax.

Accepted Answer

A flat tax charges the same rate of tax to everyone, regardless of income, making it a proportional tax system rather than a regressive one, where lower income earners would pay a higher percentage of their income compared to higher income earners.

Question 3

Partnerships and S corporations are flow-through entities.

Accepted Answer

Partnerships and S corporations are considered flow-through entities because the income, deductions, credits, etc., pass through to the individual partners or shareholders to be reported on their personal tax returns, rather than being taxed at the entity level.

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.

Accepted Answer

Nexus refers to the sufficient physical presence or economic connection a business has with a state, which legally allows the state to require the business to pay taxes, collect sales tax, or comply with certain regulations.

Question 5

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

Accepted Answer

The 16th Amendment, which allows Congress to levy an income tax without apportioning it among the states or basing it on the United States Census, was ratified in 1913, not 1939.

Question 6

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

Accepted Answer

Under the Tax Cuts and Jobs Act of 2017, net operating losses incurred after December 31, 2017, can only be carried forward to offset future taxable income, with no carryback allowed.

Question 7

Which of the following is a tax?
A)Dog license
B)Parking fine
C)Water usage fee
D)Import duty

Accepted Answer

Import duty is a tax imposed on goods brought into a country.

Question 8

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

Accepted Answer

Interest received from certain state and municipal bonds (often referred to as "municipal bonds" or "munis") is generally exempt from federal income tax, and therefore, does not need to be included in gross income for federal tax purposes.

Question 9

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

Accepted Answer

A $100 tax credit reduces the amount of tax owed dollar-for-dollar, making it more valuable than a $100 tax deduction, which only reduces the amount of income subject to tax.

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

Accepted Answer

Sales tax is not levied by the U.S. federal government; it is imposed by state and local governments. Income tax, gift tax, and estate tax are all levied by the federal government.

Question 11

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

Accepted Answer

Sales tax is collected by the seller at the point of sale and remitted to the state where the sale takes place, while use tax is collected by the state where the goods are used if they were not taxed at the point of sale, often because they were purchased from another state.

Question 12

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

Accepted Answer

Vertical equity is the principle that people with higher incomes should pay more in taxes than those with lower incomes, reflecting their ability to pay. Horizontal equity, on the other hand, asserts that persons in similar financial circumstances should face similar tax burdens.

Question 13

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

Accepted Answer

Adam Smith, in his seminal work "The Wealth of Nations," proposed four main principles of effective taxation: Equity, Certainty, Economy, and Convenience, which are aimed at ensuring fairness, predictability, cost-effectiveness, and ease of payment in tax systems.

Question 14

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

Accepted Answer

The three basic taxable entities under U.S. federal income tax law are individuals, fiduciaries (which include trusts and estates), and C corporations. Each of these entities is taxed differently according to specific rules set forth in the Internal Revenue Code.

Question 15

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

Accepted Answer

Not all LLCs can file as partnerships; single-member LLCs are typically treated as sole proprietorships for tax purposes unless they elect otherwise.

Question 16

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

Accepted Answer

Individuals and C corporations are subject to different tax rate schedules in the United States. The lowest tax rate for individuals starts at 10%, while for C corporations, the flat tax rate is 21% as of the current tax laws.

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

Accepted Answer

A use tax is a type of consumption tax imposed on the use of goods and services, typically when sales tax has not been paid.

Question 18

The value added tax is a type of consumption tax.

Accepted Answer

The value added tax (VAT) is indeed a type of consumption tax that is levied on the amount by which the value of an article has been increased at each stage of its production or distribution.

Question 19

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

Accepted Answer

The Internal Revenue Code (IRC) is not specifically tied to a year like 2019; it is a living document that is amended over time as new tax laws are passed by Congress.

Question 20

The person receiving the gift pays the gift tax.

Accepted Answer

The person giving the gift is generally responsible for paying the gift tax.

Quiz 1: Introduction to Taxation