Exam 1: Federal Income Taxation-An Overview

Betty hires Sam, a C.P.A., to prepare her current federal income tax return for the first time. In preparing the return, Sam determines an error in last year's return. Sam should: I.Do nothing and see if the IRS catches the error. II.Inform Betty and recommend corrective measures. III.Immediately contact the IRS IV.Immediately call Betty and tell her he can not complete this year's return ​

Which of the following payments meets the IRS definition of a tax?

Tax planning involves the timing of income and deductions. General rules of thumb to follow when planning include I.deferring recognition of income. II.putting deductions into the year with highest marginal tax rate. ​

Elrod is an employee of Gomez Inc. During 2018, Elrod receives a salary of $120,000 from Gomez. What amount should Gomez withhold from Elrod's salary as payment of Elrod's social security and medicare taxes?

Oliver 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. Oliver'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 regressive if based on taxable income. II.The structure of the sales tax is proportional if based on sales price. III.The structure of the sales tax is progressive based on taxable income. IV.The average sales tax paid on a purchase equals the marginal tax rate for this tax. ​

Tax evasion usually involves certain elements. Which of the following are elements necessary for tax evasion to occur? I.Nondisclosure of the relevant facts on the taxpayer's tax return. II.Underpayment of tax. III.Avoiding detection by the IRS. IV.Willfulness on the part of the taxpayer. V.An affirmative act by the taxpayer to misrepresent. ​

For 2018, Nigel and Lola, married taxpayers without children, calculated their total allowable itemized deductions to be $28,100. Accordingly, Nigel and Lola file jointly and should deduct from adjusted gross income I.the standard deduction amount of $24,000 II.total itemized deductions equal to $28,100. III.tax credits totaling $4,000 for two qualifying individuals IV.the standard deduction of $24,000 plus the itemized deductions of $28,100 ​

Betty hires Sam, a C.P.A., to prepare her current federal income tax return. In preparing the return, Sam discovers that he made an error in the preparation of Betty's return for the previous year. Sam should: I.Immediately contact the IRS. II.Tell Betty that they should wait and see if the IRS catches the error. ​

The marginal tax rate is the rate of tax that will be paid on the next dollar of income or the rate of tax that will be saved by the next dollar of deduction.

Match each term with the correct statement below. -The excess of an asset's tax basis over its selling price.

Marie earns $80,000 as a sales manager for Household Books. How much Social Security and medicare tax does Marie have to pay for 2018?

The calculation of an individual's income tax includes certain deductions for adjusted gross income. The following are examples of this class of deductions: I.Trade or business expenses II.Rental expenses III.Interest on student loans IV.Investment interest ​

Raquel is a recent law school graduate. She is upset by an IRS Revenue Agent's Report on her income tax return that she must pay an additional $2,000 in tax on last year's income. Raquel tells you that she "... will take her case all the way to the Supreme Court." What is the probability Raquel will be able to take her case to the Supreme Court.

Samantha is a self-employed electrician. During 2018, her net self-employment income is $120,000. What is Samantha's self-employment tax?

Lee's 2018 taxable income is $108,000 before considering charitable contributions. Lee is a single individual. She makes a donation of $20,000 to the American Heart Association in December 2018. By how much did Lee's marginal tax rate decline simply because of the donation?

The mythical country of Januvia imposes a tax based on the number of titanium coins each taxpayer owns at the end of each year per the following schedule: ? Number of titanium coins Tax 0-200 \ 500+\ 5 per titanium coin 201-500 \ 1,000+\ 6 per titanium coin >500 \ 4,000+\ 7 per titanium coin Marvin, a resident of Januvia, owns 300 titanium coins at the end of the current year. I.Marvin's titanium coins tax is $2,800. II.Marvin's marginal tax rate is $6. III.Marvin's average tax rate is $9.33. IV.Marvin's average tax rate is $6.

Ordinary income is I.the common type of income that individuals and businesses earn. II.receives no special treatment under tax laws. III.the character of the gain from the sales of shares of stock held more than one year ​

A tax provision has been discussed that would add an additional marginal tax rate of 42% to be applied to an individual's taxable income in excess of $800,000. If this provision were to become law, what overall distributional impact would it have on our current income tax system?

Horizontal equity I.means that those taxpayers who have the greatest ability to pay the tax should pay the greatest proportion of the tax. II.means that two similarly situated taxpayers are taxed the same. III.is reflected in the progressive nature of the federal income tax system. IV.exists when Avis, a single individual with 4 dependent children, and Art, a single individual with no dependents, both pay $2,400 income tax on equal $26,000 annual salaries.

Adam Smith identified efficient, certainty, convenience, and economy as the four basic requirements for a good tax system.