Exam 1: Introduction to Taxation

What tax provision encourages the fiduciary of an estate or a trust to distribute the income annually to the beneficiaries?

Daniel is a single with taxable income of $40,000 in 2018. What is his marginal tax rate?

What is the marginal tax rate for a single individual with $110,000 of taxable income?

Terri owns a 50 percent interest in the TT Partnership. At the beginning of the year, her basis in her partnership interest was $75,000. The partnership reports a $40,000 loss for the year and distributes $4,000 cash to Terri. What is her basis in her partnership interest at the end of the year?

A hidden tax is one that is included with a payment but not specifically identified.

Briefly compare a sole proprietorship to a corporation as a business entity.

Jordan is the sole proprietor of Adams Company that reported net income of $57,000 for the year. During the year he withdrew $11,000 from the business for personal use. Jordan is in the 24% marginal tax bracket. How much income from the above must Jordan include in his taxable income for the year?

Which of the following types of taxes is not levied by the U.S. government?

Which of the following is never included in computing gross income?

When appreciated property is transferred, the gift tax is based on

Which of the following types of taxes is a consumption tax?

Cragen Corporation has gross income of $625,000 and operating expenses of $418,000. What is its taxable income? What is its income tax liability in 2018?

William is single and had salary income from his position as Chief Financial Officer of Zippy Bank of $450,000 putting him in the 37% marginal tax bracket. He also had $35,000 in income from the dividends on the stock of his previous employer. What tax rate will apply to William's dividend income?

Jerry and Matt decide to form a business. Jerry will contribute $4,200 for a 35% interest and Matt will contribute $7,800 for a 65% interest. The business will take out a $25,000 loan to cover the balance of their working capital needs. They expect that the business will have a loss of $38,000 for the first year. In the second year, the business will have a profit of $52,000 and it will distribute $5,200 to Matt and $2,800 to Jerry. Jerry is in the 32% marginal tax bracket and Matt is in the 24% marginal tax bracket. Their marginal tax brackets will not change as a result of profit or loss from this business. How much tax will Matt pay in the second year (rounded to the nearest dollar) due to this business if they organize the business as a partnership?

Chloe and Bill, both single with no dependents, plan to marry either immediately before or immediately after year-end. Chloe's income for 2018 is $89,000 and Bill's is $86,000 before subtracting $12,000 for the standard deduction for each. Would they have a marriage penalty or a marriage benefit if they married at the end of 2018?

Which of the following is an objective of taxation?

Adam Smith's four canons of taxation are Equity, Certainty, Economy and Convenience.

Which of the following is normally not included in gross income?

Vertical equity asserts that persons in similar circumstances should face similar tax burdens.

Ian contributes $9,000 in exchange for a 30 percent interest in a C corporation. For 2017, the corporation reported a total loss of $35,000 and made no cash distributions. For 2018, the corporation reported net income of $45,000 and made a cash distribution to the shareholders. Ian received $5,000 of this cash distribution in 2018. Ian is in the 24% marginal tax bracket and 15% dividend rate in both 2017 and 2018. How much income tax did Ian save for 2017 as a result of his share of loss from this corporation and how much income tax does Ian pay as a result of his ownership in the corporation for 2018?