Exam 1: Introduction to Taxation

The value added tax is a type of consumption tax.

Walter is married and files a joint return. If his adjusted gross income is $64,000 and he has $32,850 of deductions in 2018. What is his taxable income? What is his income tax liability?

Which of the following statements describes the correct relationship between marginal and average tax rates in a progressive tax system?

What is a corporation's annual deduction for capital losses?

A flat tax generally would be considered a regressive tax.

Sylvester, single, has $12,000 in deductions when filing his income tax return. His sole proprietorship averages net income of $125,000 annually. He needs $50,000 per year to live on. If he incorporates his business, would he pay more or less in total income taxes if he takes a salary of $50,000 for his living expenses? (Consider only income taxes.)

Which type of tax is a real property tax?

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 Jerry pay in the second year (rounded to the nearest dollar) due to this business if they organize the business as an S corporation?

Deazia is the sole proprietor of Baldwin Hair Salon that reported net income of $44,000 for the year. During the year she withdrew $20,000 from the business for personal use. How much income from the above must Deazia include in her taxable income for the year?