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Exam 1: Federal Income Taxation - an Overview

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Question 21

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Tax planning involves the timing of income and deductions.General rules of thumb to follow when planning include I.deferring recognition of income. II.putting deductions into the year with highest marginal tax rate.

A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.

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Question 22

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Match each term with the correct statement below. -A tax rate that decreases as the tax base increases.

A) Average tax rate
B) Effective tax rate
C) Horizontal equity
D) Marginal tax rate
E) Progressive rate structure
F) Proportional rate structure
G) Regressive rate structure
H) Tax avoidance
I) Tax evasion
J) Vertical equity

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Question 23

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Which of the following payments meets the IRS definition of a tax?

Which of the following payments meets the IRS definition of a tax?

According to the IRS definition,which of the following is not a characteristic of a tax?

The statute of limitations is three years,six years if the taxpayer omits gross income in excess of 25%,and there is no statute of limitations if the taxpayer willfully defrauds the government.

Horizontal equity exists when two similarly situated taxpayers are taxed the same.

Gifts to qualified charitable organizations may be deducted as a contribution,but not to exceed 50% of an individual taxpayer's adjusted gross income.

The Statements on Standards for Tax Services (SSTS) have common concepts running through most of them.Which of the following statements are parts of the SSTSs? I.The preparer may in good faith rely upon,without verification,information furnished by the client. II.There is confidentiality of the CPA-client relationship. III.Taxpayer supplied estimates may be used to prepare returns if it is impractical to obtain exact data and the estimates are reasonable. IV.The preparer must never disclose to the IRS any facts about the client's tax return information -- unless the client approves disclosure,or the preparer is required to do so by law.

Marie earns $80,000 as a sales manager for Household Books.How much Social Security and medicare tax does Marie have to pay?

The mythical country of Traviola imposes a tax based on the number of gold Tokens each taxpayer owns at the end of each year per the following schedule: $\begin{array}{cc}\hline\text { Number of Tokens } &{\text { Tax }} \\\hline 0-200 & \$ 100+\$ 5 \text { per Token } \\201-500 & \$ 1,000+\$ 6 \text { per Token } \\>500 & \$ 4,000+\$ 7 \text { per Token }\\\hline\end{array}$ Traviola's Token tax is a

Indicate which of the following statements concerning the following tax rate structures is/are correct. $\begin{array}{lrr}&\text { When Income } & \text { Total Tax } \\&\text { Equals } & \text { Equals }\\\text { Structure \#1 } &{10,000} &{750} \\& 100,000 & 6,000 \\\\\text { Structure \#2 } & 15,000 & 900 \\& 75,000 & 4,000 \\\\\text { Structure \#3 } & 13,000 & 1,200\\& 86,000 & 9,600\end{array}$ I.Tax Structure #1 is regressive. II.Tax Structure #1 is proportional III.Tax Structure #2 is progressive. IV.Tax Structure #3 is progressive

Based on the definition given in Chapter 1 of the text,which of the following is a tax? I.A registration fee paid to the state to get a car license plate. II.2% special sales tax for funding public education. III.A special property tax assessment for installing sidewalks in the taxpayer's neighborhood. IV.An income tax imposed by Chicago on persons living or working within the city limits.

Which of the following payments would not be considered a tax?

Self-employed people are required to make quarterly payments of their estimated tax liability.

Horizontal equity I.means that those taxpayers who have the greatest ability to pay the tax should pay the greatest proportion of the tax. II.means that two similarly situated taxpayers are taxed the same. III.is reflected in the progressive nature of the federal income tax system. IV.exists when Avis,a single individual with 4 dependent children,and Art,a single individual with no dependents,both pay $2,400 income tax on equal $26,000 annual salaries.

Bob and Linda are married and have a 2013 taxable income of $280,000.They also received $20,000 of tax-exempt income.Their marginal tax rate is:

Barry has prepared the following 2013 income tax estimate for his sister,Sylvia.Sylvia is single,age 32,and has no children.Sylvia is an employee of General Motors and rents an apartment.Her only investment is a savings bank account. $\begin{array}{lr}\text { Salary } & \$ 37,200 \\\text { Bank interest } &{750} \\\text { Taxable income } &{\$ 37,950}\\\\ \text {Tax on first \$ 36,250 }&\$ 4,991.25\\ \text { Tax on next \( \$ 1,700 \)}&255.00\\ \text {Income tax liability }&\$ 5,246.25\\ \text {Withheld income tax }&4,800.00 \\ \text { Balance due}&\$ 446.25 \\\end{array}$ Identify the errors,if any,in Barry's income tax estimate.Additional calculations are not required.

Samantha is a self-employed electrician.During 2013,her net self-employment income is $120,000.What is Samantha's self-employment tax?

Match each term with the correct statement below. -Direct reduction in the income tax liability often created by Congress to further a public purpose.