Chapter 1 Flashcards
Intro to Tax
If Susie earns $750,000 in taxable income, how much tax will she pay as a single taxpayer for 2023? (Use tax rate schedule.)
$237,832
$174,238 + 0.37 ($750,000 − $578,125) = $237,832
If Susie earns $750,000 in taxable income and files as head of household for year 2023, what is Susie’s average tax rate? (Use tax rate schedule.)
31.50 percent
[$172,623.50 + 0.37 ($750,000 − $578,100)] ÷ $750,000 = 31.50%
Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Incorporated that pays 9 percent interest with similar risk as the city of Athens bond. Assume that Curtis’s marginal tax rate is 24 percent.
What is Curtis’s after-tax rate of return on the city of Athens bond?
7.00 percent
The after-tax rate of return is the same as the pretax rate because the interest from municipal bonds is tax-exempt.
Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Incorporated that pays 9 percent interest with similar risk as the city of Athens bond. Assume that Curtis’s marginal tax rate is 24 percent.
How much implicit tax would Curtis pay on the city of Athens bond?
$5,000
The implicit tax equals the difference in pretax income earned from a similar (same risk) bond. In this case: ($250,000 × 0.09) − ($250,000 × 0.07) = $5,000.
Margaret was issued a $150 speeding ticket. This is:
not a tax because it is considered a fine intended to punish illegal behavior.
Which of the following is a tax?
A 1 percent special sales tax for funding local road construction.
A fee paid to the state for a license to practice as an attorney.
An income tax imposed by Philadelphia on persons working within the city limits.
A special property assessment for installing a new water system in the taxpayer’s neighborhood.
I and III are correct.
A tax is a payment required by a government that is unrelated to any specific benefit or service received from the government.
Which of the following is considered a tax?
Tolls
Parking meter fees
annual licensing fees
a local surcharge paid on retail sales to fund public schools
entrance fees paid at national parks
A local surcharge paid on retail sales to fund public schools
To calculate a tax, you need to know:
the tax base
the taxing agency
the tax rate
the purpose of the tax
I and III are correct.
The ultimate economic burden of a tax is best captured by:
the effective tax rate
Which of the following is true regarding use taxes?
A use tax is relatively easy to enforce compared to a sales tax.
use taxes attempt to eliminate any tax advantage of purchasing goods out of state.
use taxes encourage taxpayers to buy goods out of state to avoid paying sales tax in their home state.
a use tax is generally a progressive tax.
none of these choices are correct.
Use taxes attempt to eliminate any tax advantage of purchasing goods out of state
Employers often withhold federal income taxes directly from workers’ paychecks. This is an example of which principle in practice?
Convenience
Which of the following is not one of the basic tax rate structures?
Proportional
Equitable
Regressive
Progressove
All of these are different kinds of basic tax rate structures
Equitable
