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ACC-424: Tax Accounting I > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

What is the purpose of taxes?

A

-produces revenue for government operations
-influence the behavior of individuals, businesses, nonprofit entities, and even governments

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2
Q

What are the 5 Key Functions of Accounting and Finance professionals related to tax accounting?

A
  1. Compliance
  2. Planning
  3. Financial Reporting
  4. Cash Management
  5. Data Analysis
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3
Q

What are the 5 Major Types of Taxes?

A
  1. Property Taxes
  2. Transaction Taxes
  3. Gift Taxes
  4. Income Taxes
  5. Employment Taxes
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4
Q

What are some characteristics of Property Taxes?

A

-based on the value of assets (realty and personal property)
-imposed by states and local political subdivisions (NOT federal)
-can be deducted for federal tax purposes

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5
Q

What are the 4 taxes that are considered “Transaction Taxes?”

A
  1. Federal Excise Taxes
  2. State and Local Excise Taxes
  3. General Sales Taxes
  4. Severance Taxes
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6
Q

What are Federal Excise Taxes, and what is an example?

A

-Imposed at FEDERAL LEVEL
-Restricted to SPECIFIC items
e.g., tobacco products, fuel/gasoline sales, air travel, alcohol taxes

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7
Q

What are State and Local Excise Taxes, and what is an example?

A

-Imposed at STATE and LOCAL LEVELS
-Restricted to SPECIFIC ITEMS
e.g., tobacco products, gasoline sales, liquor

Local: hotel occupancy tax, rental car surcharge
-these are levied on visitors who cannot vote and are used to fund special projects that generate civic pride

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8
Q

TRUE/FALSE: States that impose sales taxes charge a “use tax” on items purchased in other states but used in their jurisdiction.

A

TRUE

e.g., cars

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9
Q

What is a Severance Tax, and what is an example?

A

Tax on natural resources extracted
-these are important revenue sources for states rich in natural resources

e.g., oil, gas, iron ore, coal

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10
Q

For Gift Taxes, what is the annual exclusion for each donee? What about married couples?

A

$15,000 for EACH donee

Married Couples = $15,000 EACH, so an annual maximum of $30,000 for each donee

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11
Q

What are Income Taxes, and their characteristics?

A

-imposed at federal, most states, and some local governments

-withholding requirements for employees
-ALL STATES require some form of withholding procedures
-most states “PIGGYBACK” from federal income tax rules
-some states “DECOUPLE” from federal tax legislation

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12
Q

TRUE/FALSE: The due date for state income tax returns is generally the same as federal income tax

A

TRUE

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13
Q

Some states occasionally institute amnesty programs. What do these allow you to do?

A

Allow taxpayers to pay back taxes with no or reduced penalty

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14
Q

Can income taxes apply to visiting non-residents?

A

YES

e.g., Jock Tax

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15
Q

What are the 2 Types of Employment Taxes?

A
  1. FICA (Social Security and Medicare)
    -1/2 paid by employee, 1/2 by employer
    -self-employed individual pay both halves
  2. FUTA - unemployment taxes, only paid by employer
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16
Q

What are the 3 Types of Audits by the IRS?

A
  1. Correspondence Audit: a letter that is sent by IRS to discuss less important issues
  2. Office Audit: meeting at IRS office, restricted in scope
  3. Field Audit: IRS agents examine numerous items, and is conducted at the taxpayer’s location (MOST SERIOUS, LARGER IN SCOPE!)
17
Q

What are some deductions FOR Adjusted Gross Income?

A

“above-the-line” deductions

Trade or Business Expenses
Part of the Self-Employment Tax
Contributions to traditional IRAs and other retirement plans
Contributions to HSAs
Interest on student loans
Excess capital losses
Certain alimony payments
Charitable contributions made in cash by taxpayers using the standard deduction in 2020

18
Q

What are some deductions FROM Adjusted Gross Income?

A

Some personal expenses as deductions from AGI (referred to as “Itemized Deductions”)

Medical Expenses in excess of 7.5% of AGI
State and local income or sales taxes (only $10K combined is deductible)
Real estate taxes
Personal property taxes
Interest on home mortgage
Investment interest
Charitable contributions
Casualty and theft losses in excess of 10% of AGI

19
Q

What are some NONDEDUCTIBLE EXPENSES from Adjusted Gross Income?

A

Personal living expenses
Employee business expenses
most investment expenses
Tax return preparation fees
Losses on the sale of personal use property
Hobby expenses
Life insurance premiums
Gambling losses
Child support payments
Fines and penalties
Political contributions
Funeral expenses
Capital expenditures

20
Q

How do you calculate Adjusted Gross Income?

A

Income
Less: Exclusions
=Gross Income
Less: Deductions for AGI
=AGI

21
Q

How do you calculate Taxable Income?

A

AGI
Less: Total itemized deductions or standard deduction
Less: Personal and dependency exemptions
Less: Deduction for qualified business income
=Taxable Income

22
Q

What is the Standard Deduction?

A

-Determined by filing status
-Itemized deductions can be used instead if total itemized deductions are greater than the allowed standard deduction

23
Q

What is the limitation on the Standard Deduction for dependents?

A

$1,100 or $350 + Earned Income (e.g., wages, salary)

24
Q

What are the 5 Types of Filing Status, and what is the point?

A

Determines which tax table to use and what amount of basic standard deduction is available

  1. Single
  2. Married, filing jointly
  3. Married, filing separately
  4. Surviving Spouse (qualifying widow(er))
  5. Head of Household
25
Q

TRUE/FALSE: The gain or loss on the sale of property has a tax effect on the seller when the realized gain or loss is recognized for tax purposes.

A

TRUE

26
Q

In the gain/loss of the sale of property, what amount is realized?

A

selling price less any cost of disposition

27
Q

Realized gains are recognized (taxable) unless __________.

A

a specific provision provides otherwise

28
Q

TRUE/FALSE: Realized losses may or may not be deductible for tax purposes, but losses from the sale of personal use property are NOT.

A

TRUE

29
Q

Gains and losses should be categorized based on their __________

A

holding period

30
Q

Gains are losses in each category are _________ together

A

netted together

31
Q

If excess losses result, they are applied to which category?

A

the one carrying the highest tax rate

32
Q

What income rates are Short Term Gains taxed at?

A

Ordinary income rates

33
Q

What income rates are Long Term Capital Gains taxed at?

A

Based on Income…

can be 0%, 15%, or 20%

34
Q

Net capital losses can be used to offset ordinary income of up to _________

A

$3,000 (excess carried forward)

ACC-424: Tax Accounting I (1 decks)

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