Deck 1: Introduction to Taxation

Question 1

The person giving the gift pays the gift tax.

Answer 1

True

Question 2

Only corporations are allowed to carry their net operating losses both backwards and forwards.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

Compare progressive,proportional,and regressive taxes.

Question 5

All limited liability companies (LLCs)can file their tax returns as partnerships,or electively,as corporations.

Question 6

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

Question 7

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

Question 8

A flat tax generally would be considered a regressive tax.

Question 9

Partnerships and S corporations are flow-through entities.

Question 10

Compare a sales tax to a use tax.

Question 11

What are Adam Smith's four canons of taxation? Briefly describe each.

Question 12

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

Question 13

10 A taxpayer's filing status determines the basic standard deduction allowed.

Question 14

A married person filing a separate return has the lowest standard deduction amount.

Question 15

The alternative minimum tax is a tax determined on a broadened definition of income with no deductions permitted.

Question 16

The value added tax is a type of consumption tax.

Question 17

The 16^th Amendment to the US Constitution that provided for an income tax was ratified in 1913.

Question 18

The first codification of the Internal Revenue Code took place in 1954.

Question 19

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

Question 20

Name and describe two other types of taxes other than the income tax.Give example of each.

Question 21

Chloe and Bill plan to marry either immediately before or immediately after year-end.Chloe's taxable income for 2015 is $89,000 and Bill's is $86,000 before their exemptions and deductions.Neither has any dependents nor itemized deductions.Would they have a marriage penalty or a marriage benefit if they married at the end of 2015?

Question 22

Carlyle needs to borrow some money for some unexpected bills.He can get a home equity loan at 8 percent interest for which the interest is deductible.Alternatively,he can borrow on his life insurance at 5 percent,but the interest is not deductible.Which is his best alternative if his marginal tax rate is 35 percent?

Question 23

Briefly compare a sole proprietorship to a corporation as a business entity.

Question 24

What uses are made of adjusted gross income (AGI)in the individual tax model?

Question 25

Explain the difference between a business's gross revenue and its gross income.

Question 26

Allred Corporation has taxable income of $467,000 and a general business credit of $46,000.Determine the corporation's refund or net tax due if it made estimated tax payments of $80,000.

Question 27

Cragen Corporation has gross income of $625,000 and operating expenses of $418,000.What is its taxable income? What is its income tax liability?

Question 28

Why are S corporations and partnerships called flow-through entities?

Question 29

Joe is in the 28 percent marginal tax bracket.He has $50,000 to invest.He can invest in taxable bonds paying 5 percent interest or tax-exempt bonds paying 3.75 percent interest.Which bonds should he invest in?

Question 30

Explain how horizontal equity differs from vertical equity.

Question 31

Zenith Corporation has $900,000 of gross income and $720,000 of operating expenses.It has alternative minimum taxable income of $520,000.What is its alternative minimum tax?

Question 32

When would an individual use the standard deduction instead of itemizing deductions?

Question 33

What is the purpose of the alternative minimum tax?

Question 34

What are the fiduciary entities and how are they created?

Question 35

The Walstore Shoe Market had $1,875,000 of shoe sales and its cost for these shoes was $688,000.In addition,Shoe Market received $5,000 of corporate bond interest and $6,000 interest on State of California bonds.It paid $512,000 in salaries and had $552,000 of other operating expenses.What is Shoe Market's taxable income? What is its income tax liability?

Question 36

Which is more advantageous,a deduction for or a deduction from adjusted gross income? Why?

Question 37

When does a seller realize a loss of the sale of an asset?

Question 38

Explain the difference in owner's liability for the general business debts of a limited liability company (LLC)and a limited liability partnership (LLP).

Question 39

Conrad sold an asset for $27,000.The asset originally cost $98,000 and depreciation deductions on the asset were $59,000.What is Conrad's gain or loss on the sale of the asset?

Question 40

Walter is married,files a joint return,and has three dependent children.If his adjusted gross income is $64,000 and he has $6,000 in itemized deductions in 2015,what is his taxable income? What is his income tax liability?

Question 41

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 42

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 43

Karen,single with no dependents,wants to set up a business.She will use either a sole proprietorship or incorporate as a regular corporation.She expects the business to earn $45,000 after all expenses and payments to Karen except for federal taxes.Karen will take $25,000 from the business for living expenses (as a distribution from a sole proprietorship or a salary from a corporation).Considering only income taxes for 2015,should she establish the business as a C corporation or as a sole proprietorship?

Question 44

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

A)10%
B)15%
C)25%
D)28%

Question 45

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 good and materials brought into a country.
D)Gift taxes are imposed on the recipient of the gift.

Question 46

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 47

Which type of tax is a real property tax?

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

Question 48

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 49

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 50

Darden Corporation has taxable income of $200,000.If it distributes 25 percent of its after-tax income to its sole shareholder who is in the 25 percent marginal tax bracket,what is the total tax burden on this $200,000 of income?

Question 51

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

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

Question 52

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 53

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 54

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

A)10%
B)15%
C)25%
D)28%

Question 55

Abigail is married filing separately with taxable income of $200,000.What is her marginal tax rate?

A)35%
B)33%
C)28%
D)25%

Question 56

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

A)35%
B)33%
C)28%
D)25%

Question 57

Sylvester is single and has no dependents.His sole proprietorship averages net income of $125,000 annually.He needs $50,000 per year to live on.If he incorporates his business,would he pay more or less in total income taxes if he takes a salary of $50,000 for his living expenses? (Consider only income taxes.)

Question 58

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 59

Kate received $130,000 in salary in 2015.What is her FICA tax if the Medicare rate is 1.45%,the Social Security rate is 6.2% on a maximum of $118,500 in 2015?

A)$7,347
B)$9,065
C)$9,232
D)$9,945

Question 60

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 61

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 62

Sara is single and has no dependents.What is the total amount of her standard deduction and personal exemption for 2015?

A)0
B)$4,000
C)$6,300
D)$10,300

Question 63

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 64

Which of these persons never pays taxes directly?

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

Question 65

Alexander received $80,000 in salary in 2015.What is his FICA tax if the Medicare rate is 1.45%,the Social Security rate is 6.2% on the 2015 maximum of $118,500,and the FUTA rate is 6% on a $7,000 maximum?

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

Question 66

Which of the following nominal rates does not apply to a C corporation?

A)10%
B)15%
C)25%
D)35%

Question 67

Wilma and Barney are married and have 4 dependent children.What is the total amount of their personal and dependency exemptions for 2015?

A)$8,000
B)$16,000
C)$24,000
D)$36,400

Question 68

Which of these entities is taxed directly on its income?

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

Question 69

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 2014

Question 70

Ethan received $120,000 in salary in 2015.What is his FICA tax if the Medicare rate is 1.45%,the Social Security rate is 6.2% on the 2015 maximum of $118,500,and the FUTA rate is 6% on a $7,000 maximum?

A)$9,065
B)$9,087
C)$9,485
D)$9,507

Question 71

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
E)None are included

Question 72

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
E)None are included in gross income

Question 73

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 74

What is the marginal tax rate for a corporation with $110,000 of taxable income?

A)15%
B)25%
C)34%
D)39%

Question 75

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 76

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

A)The 13^th Amendment to the Constitution
B)Public Law 1913
C)The 16^th Amendment to the Constitution
D)An Act of Congress ratified by the states

Question 77

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 78

What is the gain or loss on the sale of an asset for $68,000 if the asset cost $185,000,depreciation expense deducted was $124,000,and there was a $19,000 major addition to the asset?

A)$0
B)$12,000 loss
C)$7,000 gain
D)$117,000 loss

Question 79

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

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

Question 80

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
E)None of the above