Question 1

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

Accepted Answer

A tax credit directly reduces the amount of tax owed, while a tax deduction reduces the amount of taxable income, resulting in a smaller tax bill. Therefore, a $100 tax credit is more valuable than a $100 tax deduction.

Question 2

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 3

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 4

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

Accepted Answer

The answer of Name and describe two types of taxes...

Question 5

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

Accepted Answer

This statement is true. Adam Smith introduced these four canons in his book "The Wealth of Nations" as principles that should guide the design and implementation of taxation systems.

Question 6

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 7

The 13^th Amendment to the US Constitution that provided for an income tax was ratified in 1916.

Accepted Answer

The answer of The 13^th Amendment to the US Constitution...

Question 8

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 9

Any current changes to the tax laws are now amendments to the Internal Revenue Code of 2018.

Accepted Answer

There is no Internal Revenue Code of 2018. The current Internal Revenue Code is based on the Tax Cuts and Jobs Act of 2017, but amendments to the code can be made in subsequent years.

Question 10

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

Accepted Answer

A hidden tax is often included in the price of a product or service and the consumer is not aware that they are paying a tax. Examples include sales tax or excise tax on certain goods.

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

Compare a sales tax to a use tax.

Accepted Answer

The answer of Compare a sales tax to a use...

Question 13

The person receiving the gift pays the gift tax.

Accepted Answer

The person giving the gift is responsible for paying the gift tax. However, there are certain situations where the donor and recipient may agree to split the gift tax payment.

Question 14

Partnerships and S corporations are flow-through entities.

Accepted Answer

Partnerships and S corporations are both examples of flow-through entities, meaning their income, deductions, and credits flow through to the individual tax returns of their owners or shareholders. This allows for a single level of taxation and avoids double taxation at both the entity and individual level.

Question 15

A corporation incurring a net operating loss in 2018 can only carry that loss forward to offset profits in future years.

Accepted Answer

This is true. A corporation cannot carry a net operating loss back to previous years, but can only carry it forward to offset profits in future years. The carryforward period is 20 years.

Question 16

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 is the term used to describe the amount and type of connection between a business and a state necessary for the state to impose a tax.

Question 17

Differentiate a wealth tax from a wealth transfer tax and give an example of each.

Accepted Answer

The answer of Differentiate a wealth tax from a wealth...

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. It is collected on the value added to a product or service at each stage of production or distribution, ultimately being paid by the end consumer.

Question 19

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 20

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

Accepted Answer

The answer of All limited liability companies (LLCs) can file...

Quiz 1: Introduction to Taxation