Federal income tax - chapter 1

effective, average, marginal

-The effective tax rate is the best measure of the tax burden because it is the average level of tax on all income from taxable and nontaxable sources. -The average tax rate measures the average level of tax on only taxable income. -The marginal tax rate indicates the rate of tax on the next additional increment of income.

estate tax, gift tax

-The estate tax and gift tax are based on fair market value of the assets being transferred at death or as a gift. -The estate tax is based on fair market value, rather than the cost of assets in the estate.

Flat tax

-The term proportional tax has the same meaning as flat tax -A flat tax is a single tax rate applied to an entire tax base.

Graduated tax

-different portions of a tax base may be taxed at different rates -higher income brackets may be assessed a higher tax rate than lower income brackets

$70,000

Andy has two nephews and three nieces. He wants to give each of them the maximum gift he can distribute without having to file a gift tax return. What is the total amount that Andy can distribute in 2013?

Change in tax / change in taxable income 3025 - 2275 = 750 / 5000 = 0.15

Arlene is single and has taxable income of $18,000. Her tax liability is currently $2,275. She has the opportunity to earn an additional $5,000 if she accepts and completes a special project at work. There are no additional expenses to offset the $5,000 income. Consequently, Arlene will have a tax liability of $3,025 if she accepts the special project. Arlene has a marginal tax rate of 15 percent.

Sales, property, income taxes

Which of the following taxes are commonly assessed by state and local governments?

Gift tax, estate tax

Which of the following taxes are known as transfer taxes?

Federal income tax

Which of the following taxes uses a progressive tax rate structure?

unemployment, medicare, social security taxes

Which of the following types of taxes are paid by employers based upon their employees' wages?

progressive structure

federal income tax is based on a progressive structure

A tax

is a payment required by a government that is unrelated to any specific benefit or service received from the government

implicit tax

is defined as the reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status.

Which of the following statements is true regarding taxes

political candidates often distinguish themselves from their opponents based on their tax policies.

regressive tax rate structure

social security tax is based on a regressive tax rate structure

Unemployment tax

the purpose is to provide temporary income for individuals terminated from their jobs without cause

Sin taxes

-discourage undesirable, yet legal, behaviors such as smoking and drinking -impose relatively high surcharges on alcohol and tobacco products

Business decisions would likely be affected by tax laws

-how should the business compensate employees? -what organizational form should a business use? -where should a business locate?

The history of the US personal income tax

-the 16th Amendment of the US Constitution gives Congress the power to assess income tax on individuals -The income tax was once ruled unconstitutional

Marginal tax rate: the rate of tax assessed on the next additional increment of income

MaryBeth is considering accepting some additional contract work. She is trying to evaluate whether the compensation for the job is worth the effort. Which tax rate should she use to calculate her after-tax proceeds of accepting the job?

amt of tax / tax base = tax rate 114706 / 139286 = .82 * 100 = 82% 100% - 82% = 17% tax liability / tax base = effective tax rate 19500 / 139286 = .14 or 14%

Steven and Sally have income from all sources (taxable and nontaxable) totaling $139,286. Their taxable income is $114,706. Their tax liability is $19,500. Their average tax rate is 17 percent. Their effective tax rate is 14 percent. (rounded to the nearest whole number).

money, government

The general purpose of a tax is to raise money to fund the operations of the government.

A necessary criteria for a payment to be considered a tax:

The payment is required by a governmental body.

Social Security, medicare

The social security tax pays the monthly retirement, survivor, and disability benefits for qualifying individuals, whereas the Medicare tax pays for medical insurance for individuals who are elderly or disabled.

retail price, purchased

The tax base for the use tax is the retail price of goods owned, possessed, or consumed within a state that were NOT purchased within the state.

True

While taxpayers benefit from government-provided programs and services, such as national defense and law enforcement, taxes paid are NOT directly related to any specific benefit received by the taxpayer.

earmarked tax

a tax assessed for a specific purpose is labeled earmarked tax

Decision would most likely NOT be influenced by our income tax law:

choosing an elementary school for your children

Sufficiency

considers whether tax revenues generated are adequate to meet the financial needs of the government

The tax base

defines what is actually taxed and is usually expressed in monetary terms

Tax rate

describes the level of taxes imposed on the tax base and is usually expressed as a percentage