CH 3: Introduction to Tax Flashcards

1
Q

who care about taxes

A

-businessess
-politicians
-individuals

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2
Q

why do businesses care abt taxes

A

business activities such as deciding location, etc, can affect a businesses taxes

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3
Q

why do politicians care abt taxes

A

-they distinguish themselves from their opponents based on their tax rhetoric

-get in the way of an efficient tax system

-business hire lobbyists for/against various tax reasons

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4
Q

what is a tax

A

a payment required by a govt that is unrelated to any specific benefit or service received from the govt

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5
Q

3 key components of a tax

A

payment required

Payment imposed by local gvt agency (local, state, federal)

Payment not tied directly to a benefit received by the taxpayer

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6
Q

main purpose of a tax

A

fund government operations

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7
Q

other purpose of taxes

A

-encourage behavior
-discourage behavior (sin taxes)
-special purpose (musems)

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8
Q

what qualifies as a tax

A

anything u are required by the govt to pay for that does not benefit you in any way

ex: tax for road fixing

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9
Q

How to calculate tax

A

Tax= Tax Base × Tax Rate

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10
Q

Tax base

A

defines what is actually taxed and is expressed in monetary terms

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11
Q

Tax rate

A

level of taxes imposed on the tax base, usually expressed a percentage

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12
Q

3 types of tax rates

A

-average
-effective
-marginal

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13
Q

average tax rate definition +formula

A

taxpayers avg level of taxation on each dollar of taxable income

total tax/ taxable income

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14
Q

effective tax rate definition + formula

A

taxpayers abg rate of taxation on each dollar of total income (both tax and non taxable)

total tax/ total income

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15
Q

key difference btw average and effective tax rate

A

denominator

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16
Q

marginal tax rate definition + forumula

A

tax rate that applies to the next additional increment of a taxpayers taxable income

new tax-old tax/new taxable income-old taxable income

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17
Q

accoutning income

A

based on gaap

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18
Q

total/economic income

A

takes opportunity costs into consideration

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19
Q

taxable income (skip)

A

based on tax codes and regulations

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20
Q

difference btw 1 taxable inc and acct in and taxable inc and total inc (skip)

A

1-a compny cant reduce its taxable income by including fines but fines are considering for accounting income

2-taxable income doesnt include opportunity costs

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21
Q

3 tax rate structures

A

-proportional
-progressive
-regressive

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22
Q

proportional tax rate

A

imposes a constant tax rate throughout the tax base

-state sales tax, corporate tax rate

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23
Q

progressive tax rate

A

imposes increasing marginal tax rate as tax base increases

-individual tax

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24
Q

regressive tax

A

imposes a decreasing marginal tax as the tax base increases

social security taxes, employment taxes

25
federal taxes (List)
Individual income tax excise taxes unemployment tax social security & medicare tax estate tax, customs & duties tax corporate income tax
26
state and local taxes
-income taxes -sales and use taxes -property taxes -excise taxes
27
income taxes (federal)
Levied on individuals, corporates, estates and trusts -largest one
28
employment/unemploymet taxes (federal)
Second largest group Include social security and medicare tax Unemployment taxes fund temporary unemployment benefits for individuals terminated from their jobs without cause
29
Excise taxes (federal)
3rd largest Levied on the quantity of products sold
30
Estate taxes (federal)
Levied on the fair market values of wealth transfers upon death or gift
31
sales and use taxes (state)
Tax base for sales tax is the retail sale of goods and some services Tax base for use tax is the retail price of which goods are owned,possesed, or consumed within a state that were not purchased within the state
32
Property taxes (state)
Ad valorem taxes meaning that the tax base for each is the fair market value of the property Real property taxes consist of taxes on land and structures permanently attached to land Personal property taxes include assets on other types of property both tangible and intangible
33
income taxes (state)
Most state taxable income calculations largely conform to the federal taxable
34
Excise taxes (state)
States typically impose excise taxes on items subject to federal excise tax.
35
Implicit taxes
Indirect taxes that result from a tax advantage the govt grants to certain transactions Defined as the reduced before tax return bc of its tax advantageous status Difficult to quantify but important to understand in evaluating the relative tax burdens of tax-advantaged investments
36
alt tax systems
sufficiency equity certainty convenience economy
37
sufficency
Involves assessing the aggregate size of the tax revenues that must be generated and making sure that the tax system provides these revenues
38
static revenue forcasting
-part of sufficeny forecasting that ignores how taxpayers may alter their activities based to a tax law changes
39
dynamic revenue forcasting
-part of sufficeny -forecasting that tries to predict possible responses by taxpayers to new tax laws Income effect& Substitution effect
40
equity
How the tax burden should be distributed across taxpayers A tax system is considered fair or equitable if the tax is based on the taxpayers ability to pau horizontal and vertical equity
41
horizontal equity
2 taxpayers in similar situations pay the same tax
42
vertical equity
taxpayers w greater ability to pay tax pay more tax relative to ppl w lesser ability to pay
43
Certainty
Taxpayers should be able to determine when and where to pay the tax and how to determine tax
44
Convenience
Tax system should be designed to be collected without hardship to the taxpayer
45
Economy
Should minimize the compliance and administration costs associated with the tax system
46
The first personal income tax was enacted in 1861 to fund the
civil war
47
The estate tax may also be referred to as the
death tax
48
excise tax examples
-gasoline -coal -alc -tabocco -phones & airline tickets
49
what is excluded from the estate giftdeath tax
payments on ones behalf for education
50
tax base of a sales tax
retaile sales of goods and some services
51
tax base for use tax
retail price of goods owned, possessed, or consumed within a state that were not purchased within the state
52
whats an ad valorem tax
tax base is the fair market value
53
example of economy tax system
state enforcement of use taxes on individuals or “under-the-table” household help
54
example of convience tax system
Employer withholds and remits taxes on your behalf
55
use tax explain self asses
if u buy a good online, or out of state, and u are not charged sales tax, u are supposed to self assess and input it urself into ur taxes (most ppl don't do this)
56
income effect
as tax rates go up, people will work harder to maintain same after-tax income.
57
substitution effect
as tax rates go up, people will substitute nontaxable activities because the marginal value of taxable ones has decreased
58
what revenue for-casting does our government use
dynamic forecasting