Chapter 1

Question 1

Which of the following taxes make up the largest portion of the government’s tax revenue?

Corporate income taxes

Estate taxes

Individual income taxes

Sales taxes

Answer 1

Individual income taxes

Question 2

The most important tax on consumption is:
  The estate tax 
  The sales tax 
  The income tax 
  The property tax

Answer 2

The Sales Tax

Question 3

An income tax system where your tax rate decreases as your income increases is known as:
  a flat tax system 
  a progressive tax system 
  a linear tax system 
  a regressive tax system

Answer 3

a regressive tax system

Question 4

Suppose Government Y imposes a 10% excise tax on the sale of cigarettes. Which is the “tax base” in this scenario?
The consumption of cigarettes
The areas of the population with the highest incidence of smoking
The number of smokers
The sales price of cigarettes sold

Answer 4

The sales price of cigarettes sold

Question 5

Nick pays a tax of $15,000 on a tax base of $60,000. If this tax is proportional, what would be the tax rate that Theresa would pay on a tax base of $100,000?
  More than 25 percent 
  Exactly 25 percent 
  None of the above 
  Less than 25 percent

Answer 5

Exactly 25 percent

Question 6

From which court is there no appeal?
  A District Court 
  The Court of Appeals 
  The U.S. Supreme Court 
  The Tax Court

Answer 6

The U.S. Supreme Court

Question 7

Which of the following is the highest legal authority in income tax?
  Sections of the Internal Revenue Code 
  IRS publications. 
  IRS revenue rulings. 
  IRS technical advice memorandums.

Answer 7

Sections of the Internal Revenue Code

Question 8

Which of the following are Primary Authoritative Sources? Mark all that apply.
  Treasury Regulations 
  Tax Textbooks 
  Internal Revenue Code 
  Journal of Accountancy

Answer 8

Treasury Regulations and Internal Revenue Code

Question 9

Connor failed to pay $8,000 of income tax due with his return, which was timely filed on April 15th. He waited for 2 months after April 15th to pay the tax. How much will his penalties be?
  $80 
  $2,000 
  $0 
  $800

Answer 9

$80

Question 10

Which of the following are Primary Authoritative Sources? Mark all that apply.
  Internal Revenue Code 
  Treasury Regulations 
  Journal of Accountancy 
  Tax Textbooks

Answer 10

Internal Revenue Code and Treasury Regulations

Question 11

The tax created by the Federal Unemployment Tax Act (FUTA) is paid by:
self-employed individuals.
the employer alone.
the employer and the employee (through withholding) together.
the employee alone.

Answer 11

the employer alone

Question 12

Joe is a self-employment mechanic. His net earnings from self-employment for 2019 are $100,000. How much is Joe's medicare tax?
  $2,900.00 
  $2,678.15 
  $11,451.40 
  $14,129.55

Answer 12

$2,678.15
The first step is to multiply the self-employment earnings by 92.35%. Then, you multiply the outcome by 2.9% to get $2,678.15. Medicare does not have a wage base; it applies to all earnings.

Question 13

Mario a self-employed baseball coach. During 2019, his net earnings from self-employment were $175,000. What is Mario's total self-employment tax (OASDI and HI) for 2019?
  $24,726.71 
  $16,479.60 
  $21,166.36 
  $26,775.00

Answer 13

$21,166.36
The way we calculate self-employment tax is the following:

Multiply self-employment earnings by 92.35% ($175,00092.35%=$161,612.50)
Multiply the amount above by 2.9% for Medicare ($161,612.502.9%=$4,686.76)
Multiply the lower of amount above ($161,612.50) or the wage base ($132,900) by 12.4% for Social Security ($132,900*12.4%=$16,479.60)
The total self-employment tax is the sum of 2 and 3 above: $4,686.76+$16,479.60=$21,166.36

Question 14

Maria a self-employed artist. During 2019, her net earnings from self-employment were $115,000. What is Maria's total self-employment tax (OASDI and HI) for 2019?
  $18,236.44 
  $17,595.00 
  $13,169.11 
  $16,248.98

Answer 14

$16,248.98
Multiply self-employment earnings by 92.35%:
(115,000*92.35% = 106,202.50)

Multiply the amount above by 2.9% for Medicare:
(106,202.5*2.9%=3,079.87)

Multiply the lower of amount above (106,202.50) or wage base (132,900) by 12.4% for Social Security:
(106,202.50*12.4%=13,169.11)

Add 2 and 3 to get the total of self-employment tax:
(3,079.87+13,169.11=16,248.98

Question 15

In 2019 Matt earned $230,000 from self-employment. Calculate his OASDI tax.
  $20,333.70 
  $24,800 
  $22,902.80 
  $16,479.60

Answer 15

$16,479.60
The way we calculate self-employment tax is the following:

Multiply self-employment earnings by 92.35% ($175,00092.35%=$161,612.50)
Multiply the lower of amount above ($161,612.50) or the wage base ($132,900) by 12.4% for Social Security ($132,90012.4%=$16,479.60)