Taxes

Question 1

Interest on direct debt issued by the U.S. government is taxable at what level(s)?

Answer 1

Federal level only

Interest on direct debt (T-bills, T-notes, T-bonds, and STRIPS) is taxable by the federal government but not by state or local governments.

Question 2

Are excise taxes condsidered a progressive tax?

Answer 2

No

excise taxes, such as fuel tax and transportation tax, are a fixed rate, and therefore, would not be considered progressive.

Question 3

What are Excise taxes?

Answer 3

• Tax levied at moment of manufacturing rather than sale
• Producer pays tax, includes in price of goods ‘

Excise taxes are internal taxes that are levied on the sale of specific goods and services, such as alcohol, fuel and tobacco. An excise tax is an indirect tax that is not paid by the customers directly — instead, the excise tax is imposed on the supplier or the producer, who then includes it in the product price.

Question 4

Is straight line depreciation a tax preference item (as apposed to accelerated depreciation)?

Answer 4

No, straight line depreciation is not a tax preference item

But accelerated depreciation is

Question 5

T/F: Tax preference items are used for the purpose of computing the alternative minimum tax

Answer 5

True

Used to compute alternative min tax

Question 6

Tax preference items are used for the purpose of computing the alternative minimum tax. Name 3 tax preference items

Answer 6

1. excess intangible drilling costs (wages, fuel, repairs).
2. accelerated depreciation.
3. percentage depletion in excess of basis.

Prop more than just 3 tax preference items

Question 7

Tax preference item

Answer 7

Would normally be deductible, but not for rich ppl paying alternative min tax (AMT)

“a tax preference item would be tax-deductible under normal circumstances but is not for purposes of the alternative minimum tax. If the amount of tax preference items exceeds a certain percentage of the taxpayer’s income, the taxpayer must add these items back to his or her taxable income to compute the amount of tax owed, thus, creating a higher tax bill.”

Examples:
Excess drilling costs
Income from munis

Question 8

Is accelerated depreciation (like in oil and gas program) a tax preference item?

Answer 8

Yes

Is tax preference for AMT

Question 9

T/F: The income from an UTMA account is not taxable in the year received.

Answer 9

False

The income is taxable in the year received

“The income from an UTMA account is taxable in the year received”

Question 10

T/F: Among the many benefits of the Section 529 plan (edu savings) is that all earnings between now and withdrawal can be tax free when used for qualified expenses.

Answer 10

True

Earnings tax free if used for qualified expenses

Question 11

T/F: Contributions to a 529 plan (education savings) are tax deductible

Answer 11

False, contributions not deductible

“Although contributions are not deductible, earnings in a 529 plan grow federal tax-free and will not be taxed when the money is taken out to pay for college.”

Question 12

T/F: Interest from industrial revenue bonds is not considered a tax preference item by the IRS

Answer 12

False, the interest is a tax preference item

“The IRS defines interest received from industrial development revenue bonds (IDRs) as a tax preference item. As such, the income received might be subject to taxation under the alternative minimum tax.”

Question 13

T/F: utilizing municipal securities in a tax-favored account, such as an IRA, would be considered unsuitable because the interest paid by municipal bonds is already tax free.

Answer 13

True

Interest already tax free