Exam 1

Question 1

Who is affected by taxes?

Answer 1

Individuals

Politicians

Investors

Businesses

Question 2

What is a tax?

Answer 2

Fund government agencies.

Required

To a Government Agency

No direct benefit to the tax payer

Question 3

To calculate a tax

Answer 3

Tax base * Tax rate

Question 4

Measurement of taxes

Answer 4

Marginal

Average

Effective

Question 5

Marginal Tax

Answer 5

Tax on next dollar of income

Question 6

Average Tax

Answer 6

Taxable income

Question 7

Effective Tax

Answer 7

Total Income

Question 8

Proportional Tax

Answer 8

Flat tax

Question 9

Progressive Tax

Answer 9

Graduated tax higher earnings = higher taxes

Question 10

Regressive

Answer 10

Taxes decrease with earnings

Question 11

Federal taxes (4)

Answer 11

Income

Employment

Excise

Transfer Tax (death/gift tax)

Question 12

State Taxes

Answer 12

Sales

Property

Income

Inheritance

Question 13

Evaluation: Sufficiency

Answer 13

Involves assessing the aggregate (combined) size of the tax revenues that must be generated and making sure that the tax system provides these revenues

Question 14

Evaluation: Equity

Answer 14

Tax burden should be distributed across taxpayers

Horizontal- similar situations

Vertical- greater ability to pay

Question 15

Evaluation: certainty

Answer 15

Taxpayers should be able to determine when to pay the tax and how to determine the tax

Question 16

Evaluation: Convenience

Answer 16

Tax system should be designed to be collected without undue hardship on the taxpayer

Question 17

Evaluation: economy

Answer 17

Should minimize the compliance and administration costs associated with the tax system

Question 18

Gross income

Answer 18

Received economic benefit
(Burrowed)

Realized income

And tax law does not provide for exclusion or deferral.

Question 19

Income tax formula full

Answer 19

Gross income 
-deductions for agi 
=adjusted gross income 
-deductions from agi 
-exemptions 
=taxable income 
*tax rate
=tax
-credits 
\+other taxes
=total tax
-prepayments 
=refund/credit

Question 20

Excluded income

Answer 20

Municipal bond interest

Gifts

Inheritance

Workers comp

Inheritance

Life insurance proceeds

Disability if premium paid

Retirement

Health insurance premiums

Disability insurance premiums

(Whole life insurance premiums)

(Awards/prizes)

(Clothing)

Question 21

Deferred income

Answer 21

Installment sales

Like kind exchanges

Involuntary conversions

Contributions to qualifying retirement plans

Question 22

Adjustments FOR agi

Answer 22

Business deductions

Moving expenses (limited)

SE health insurance

Alimony

Student loan interest

Question 23

Adjustments FROM agi

Answer 23

Standard or itemized deduction

• personal
• dependency

Question 24

Qualifying child requirements

Answer 24

Relationship

Age 19 or 24 (or disabled)

Residence

Support

Question 25

Qualifying relative

Answer 25

Relationship - living in home >1 year

Support >50% living expenses

Gross income

Question 26

Special rates

Answer 26

Qualifying dividends-15% or 0%

Long term capital gains

Assets >1 year
Losses limited to current long term gain or $3000

Question 27

Dependency tie breaker

Answer 27

Parents

Days in home

Higher AGI

Question 28

Filing statuses

Answer 28

Single

Married joint

Married separate

Qualifying widow(2 years& dependent child)

Qualifying person

Head of household

Question 29

Head of household for filing status

Answer 29

Unmarried

Pay more than 50% costs of home

Qualifying persons

Question 30

Return of capital

Answer 30

Cost of asset is called TAX BASIS

Return of capital means the tax basis is excluded when realizing income
Gain of sale or disposition of asset

Question 31

Tax benefit rule

Answer 31

Refunds for expenses deducted prior to the extent that the refund reduced taxes in the year of deduction.

Question 32

Income can’t be assigned

Answer 32

Can income be assigned?

Question 33

Types of income

Answer 33

Earned

Unearned

• rent
• interest
• gain
• dividend

Question 34

Alimony

Answer 34

Taxable to recipient

Deductible by payer

Question 35

Discharge of indebtedness

Answer 35

Taxpayers debt is forgiven the amount is taxable unless insolvent