Lesson 15.1: Individual Taxation Flashcards
The Marginal Rate ???
Is the industry jargon, the tax on the last dollar of income is at.
The IRS defines marginal tax rate as “the highest rate that you will pay on your income.” Basically, as you make more money, you pay tax at a higher rate incrementally. The effective tax rate is the average that you pay on all of your income.
Under current federal tax law, which of the following would have an effect on the amount of taxes your client would pay?
I. Age
II. Citizenship
III. Marital status as of the last day of the year
IV. Residency
I, II, III, IV
Each of these can affect a client’s tax rate. Taxpayers age 65 and older get an extra exemption, so that lowers their tax. If a client is not a U.S. citizen and is considered a nonresident alien, they are taxed somewhat differently than others. Only married persons can file a joint return, which usually—but not always—results in lower taxes. Residency determines if a client will also have to pay a state income tax and receive deductions for that (or a state sales tax) on their federal income tax.
Progressive taxes
Progressive taxes are those where the tax rate increases as the amount being taxed increases.
(EX: gift taxes, estate taxes, personal income taxes)
Regressive tax
Where the rate remains the same regardless of the dollar amount being taxed. Excise taxes, such as those on cigarettes, are a prime example. Whether someone purchases a pack, a carton, or a case, the tax rate is constant. AKA sales tax
A taxpayer’s marginal tax rate is ???
the rate of taxation on any additional taxable income received.
Marginal tax rate is defined as the rate of taxation on any additional taxable income received. It is sometimes referred to as the tax on the next dollar or the last dollar of income. The effective tax rate is the overall rate paid on the total taxable income.
You have a client who was divorced three years ago, maintains a home, and has custody of the children. More than likely, the most advantageous tax filing status for your client is ???
Head of Household
When qualifying for head of household status (the technical qualifications are beyond the exam), the individual has the lowest tax burden. There is no such status as “divorced parent,” and one cannot file jointly unless married. Filing as a single carries the highest tax burden.
