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Exam 1: Federal Income Taxation-An Overview

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Question 61

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Alan is a single taxpayer with a gross income of $88,000, a taxable income of $66,000, and an income tax liability of $10,460 for 2018. Josh also has $8,000 of tax-exempt interest income. What are Alan's marginal, average, and effective tax rates?

A) 22% marginal; 14.5% average; 15.8% effective.
B) 24% marginal; 14.5% average; 15.8% effective.
C) 12% marginal; 15.8% average; 14.1% effective.
D) 22% marginal; 15.8% average; 14.1% effective.

E) A) and C)
F) C) and D)

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Question 62

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Sally is an electrician employed by Bogie Company. Sam is a self-employed electrician. During the current year, Sally's salary is $85,000 and Sam's net self-employment income is $85,000. Which of the following statements about the Social Security and self-employment taxes paid is/are correct? I.Sam pays more self-employment tax than Sally pays in Social Security tax. II.Sam's self-employment tax is equal to the Social Security tax paid on Sally's income. ​

A) Only statement I is correct.
B) Only statement II correct.
C) Both statements are correct.
D) Neither statement is correct.

E) B) and C)
F) A) and B)

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Question 63

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Which of the following taxpayers used tax evasion tactics when filing their 2018 tax return? I.Fern, a cash basis accountant intentionally billed clients for services on December 31, 2018, to avoid receiving cash payments from clients until 2019. II.Samual made a mathematical mistake on a schedule in his tax return that resulted in a $2,000 underpayment of tax. The IRS does not detect the mistake.. III.Beverly accidentally underreported $800 of income she earned providing childcare in her home. IV.Bo, a cattle rancher, deducted the cost of raising 7 steers that were used by his family and relatives for food during 2018. ​

Jessica is single and has a 2018 taxable income of $199,800. She also received $15,000 of tax-exempt income. Jessica's marginal tax rate is:

When property is transferred, gift and estate taxes are based on the

Ed travels from one construction site to another pursuing his work as an insulator. Because of family problems and being on the road so much, Ed overlooked filing his 2010 tax return. Ed hasn't filed any returns since 2010 because he is afraid the IRS will find the missed returns and put him in jail and he won't be able to support his family. Ed carefully makes sure that his employers withhold more income tax than is necessary. Ed knows for certain that if he filed the late returns he would get a tax refund for each of the years. Has Ed evaded the income tax? Explain.

How much additional Social Security tax does Elise pay in 2018 on her $10,000 Christmas bonus? Her total earnings for the year (before the bonus) are $140,000.

How much additional Social Security tax does Betty pay in 2018 on her $10,000 Christmas bonus? Her total earnings for the year (before the bonus) are $100,000.

Vertical 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.

Match each term with the correct statement below. -Based on a quantity of a product sold.

Match each term with the correct statement below. -The payment of tax throughout the year as income is earned.

Which of the following types of taxes rely solely on "income" as the tax base for determining the amount of tax liability? I.Sales Tax II.Property Tax III.Gift Tax IV.Social Security Tax V.Excise Tax ​

A property tax I.is levied on the value of property. II.is referred to as ad valorem. III.on personal property is more common than a tax on real property. IV.is based upon assessed value rather than actual transactions. ​

Pedro, a cash basis taxpayer, would like to sell ordinary income property that will result in an increase in his taxable income of $20,000. Pedro also owes $12,000 of property taxes that are deductible. He is flexible and can properly report either or both of the items on his 2018 or 2019 tax return. Pedro expects his marginal tax rate to be 24% for 2018 and 32% for 2019. If the applicable interest rate is 9% (.917 present value factor), when should Pedro report each item? Show your calculations and explain.

Shara's 2018 taxable income is $39,000 before considering charitable contributions. Shara is a single individual. She makes a fully deductible donation of $5,000 to the American Heart Association in December 2018. By how much did Shara's marginal tax rate decline simply because of the donation?

The Federal income tax is a

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

A deferral is like an exclusion in that it does not have a current tax effect, but it differs in that an exclusion is never subject to taxation, whereas a deferral will be subject to tax at some point of time in the future.

Gifts to qualified charitable organizations may be deducted as a contribution, but not to exceed 60% of an individual taxpayer's adjusted gross income.

Which of the following are included among Adam Smith's criteria for evaluating a tax? I.Convenience. II.Fairness. III.Neutrality. IV.Economy.