Exam 1: Federal Income Taxation-An Overview

Rayburn is the sole owner of a dance studio. During the current year, his net self-employment income from the dance studio is $50,000. What is Rayburn 's self-employment tax?

How much additional Social Security tax does Connie pay in 2018 on her $10,000 Christmas bonus? Her total earnings for the year (before the bonus) are $42,000.

Match each term with the correct statement below. -The value or amount that is subject to taxation.

Match each term with the correct statement below. -Current period expenditure incurred in order to earn income.

The mythical country of Woodland imposes two taxes: Worker tax: Employers withhold ten percent of all wages and salaries. If taxable income as reported on the employee's income tax return is greater than $40,000, an additional 5% tax is levied on all income. Business tax: All businesses pay a tax on invested capital based on a valuation formula. The tax computed for three different amounts of invested capital is provided below: ? According to the definitions in the text: Invested Capital Tax \ 100,000 \ 12,000 \ 200,000 \ 16,000 \ 300,000 \ 20,000 I.The worker tax is a regressive tax rate structure. II.The business tax is a progressive tax rate structure. III.The worker tax is a progressive tax rate structure. IV.The business tax is a regressive tax rate structure. ?

Madeline operates a janitorial service. The business is organized as a corporation. She has a crew of 100 employees that clean offices and commercial buildings on a set schedule. Madeline also runs a maid service. Since persons paying for the maid services are individuals, the amounts paid to Madeline are not reported to the IRS. Madeline has developed a tax plan. She will deposit the maid service fees to her personal bank account. As a result, she can draw a smaller salary from the janitorial service. She will pay the maids for their services through the corporation. Since she is not deducting her salary from the corporation to the extent she keeps the maid fees, she does not report income from the maid fees. Has Madeline evaded the income tax? Explain.

Rosemary is single and works for Big B Corporation. Her only income consists of her Big B salary and interest on a savings account. During the year, she has $400 withheld from her salary for state income taxes and $7,800 for federal income taxes. Her brother provides her with the following calculation of her taxable income and income tax liability: ? ? Sal ary \ 36,000 Interest income 3,100 Less: State tax withheld (400) Equals: Gross income \ 38,700 Less: Deductions for adjusted gross income Standard deduction (24,000) Equals: Taxable income \1 4,700 Income tax liability (\ 14,700\times12\%) \ 8,125 Less: Federal withhol ding (7,800) Equals: Tax due \ 325 Explain the errors that Rosemary 's brother has made in calculating her taxable income and/or her income tax liability. A recalculation is not necessary, but you must adequately explain the errors that were made.

Match each term with the correct statement below. -The result when two differently situated taxpayers are taxed differently but fairly.

Match each term with the correct statement below. -A tax rate that remains the same at all levels of the tax base.

Match each term with the correct statement below. -The common, customary, recurring type of income earned by taxpayers.

Horizontal equity exists when two similarly situated taxpayers are taxed the same.

Monty is a licensed Certified Public Accountant. Last year he prepared an individual income tax return for Apple Bakeries, Inc. This year Apple Bakeries switched to a different tax return preparer. This year he is preparing income tax returns for a completely separate business, Cinnamon Roll Bakery, Inc. The owner of Cinnamon Roll asked Monty to give him the tax return data from Apple Bakeries, to help estimate the tax liability of Cinnamon Roll Bakery, Inc. Is there a professional responsibility issue for Monty to consider in satisfying Cinnamon Roll's request? If so, what is the issue?

Jaun plans to give $5,000 to the American Diabetes Association. Jaun's marginal tax rate is 24%. His average tax rate is 21%. Jaun, who itemizes his deductions, has an after-tax cost of the contribution of

Greg pays sales tax of $7.20 on the purchase of a lamp for $120. Michelle paid sales tax of $9 on the purchase of a similar lamp for $150. Greg's taxable income for the current year is $40,000. Michelle's taxable income is $55,000. I.The structure of the sales tax is progressive if based on taxable income. II.The structure of the sales tax is proportional if based on sales price. ​

An excise tax I.is levied on the value of property. II.is levied on the quantity of the product or service. III.differs from an sale tax, because a sales tax is imposed on the value of property. ​

Barrett and Betina are planning to be married on December 26, 2018. Barrett's salary for 2018 is $42,000 and Betina's is $40,000. Barrett pays mortgage interest of $10,200 and property taxes of $3,800; Betina has $400 of charitable contributions. Barrett earns interest of $1,450 on a savings account and makes a deductible for AGI contribution to his IRA of $2,000. Betina makes a $1,000 deductible contribution to her IRA. Amounts withheld for State taxes are $2,900 for Barrett and $2,800 for Betina. Based on the above information, answer the following questions to help Barrett and Betina prepare their 2018 tax return (they will file jointly and have no other dependents): ? ? a. What is their Adjusted Gross Income (AGI) for $\$ 2018$ ? b. What is their taxable income and tax liability? c. If Barrett and Betina don't get married until January 2019, what is Barrett's taxable income and tax liability? d. If Barrett and Betina don't get married until January 2019, what is Betina's taxable income and tax liability? e. From a purely tax standpoint, should Barrett and Betina get married in December or January? ?

Self-employed people are required to make quarterly payments of their estimated tax liability.

Match each term with the correct statement below. -Any asset that is not real estate.

Alice is a plumber and collector of rare stamps. Instead of always receiving cash payments for her work, she occasionally has her customers send their payments to a stamp broker. The broker then makes stamp purchases on Alice's behalf and mails the stamps to her. Alice never reports the value of the stamps received as income on her tax return. I.Alice's actions are a form of tax evasion. II.Alice's actions are subject to payment of tax, interest, and penalty if detected by the IRS. ​

Adam Smith's concept of vertical equity is found in a tax rate structure that is