Ch 1 Introduction to Tax Smartbook

Roger purchased a new suit for $350. The sales tax rate was 6%. What is the total cost of the suit to Roger?

$371

Tori bought a dress costing $80 from Arlene's Dress Shop in a state where there is a sales tax. The tax base is the price of the dress, and the tax rate is 6 percent. What amount of tax did Tori have to pay on the purchase?

$4.80

Andy has two nephews and three nieces. He wants to give each of them the maximum gift he can disburse without having to file a gift tax return. What is the total aggregate amount that Andy can give his two nephews and three nieces in 2021?

$75,000

Shelby bought a dress costing $200 from Arlene's Dress Shop in a state where there is a sales tax rate of 5%. Shelby had to pay (blank) dollars in sales tax.

10

Steven and Sally have income from all sources (taxable and nontaxable) totaling $140,286. Their taxable income is $114,966. Their tax liability is $20,219. Their effective tax rate is (blank) % (rounded to the nearest whole number).

14

Arlene is single and has taxable income of $18,000. Her tax liability is currently $2,236. 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 $2,986 if she accepts the special project. Arlene has a marginal tax rate of (blank)%.

15

In 2021, the annual gift exclusion totals $(blank) per donee. The unified tax (blank) exempts up to $11,700,000 in lifetime gifts and bequests upon the death of a taxpayer.

15,000 , credit

Steven and Sally have income from all sources (taxable and nontaxable) totaling $140,286. Their taxable income is $114,966. Their tax liability is $20,219. Their average tax rate rounded to the nearest whole number is (blank) %.

18

Randall is single and has total income from all sources (taxable and nontaxable) of $83,000. His taxable income is $62,000. Randall's tax liability is $11,239. What is Randall's average tax rate?

18.13%

Arlene is single and has taxable income of $34,000. Her tax liability is currently $4,636. She has the opportunity to earn an additional $6,000 this year. Her tax liability will grow to $5,771 if she receives the additional income. What is Arlene's marginal tax rate for the additional $6,000?

18.92%

Cathy purchases a new computer for $500 in a state where the sales tax rate is 5%. The amount of sales tax that will be added to the purchase is $(blank).

25

Select all that apply Which of the following statements are correct regarding a flat tax? (Check all that apply.) Multiple select question. With a flat tax, different portions of a tax base may be taxed at different rates. With a flat tax, higher income brackets will be assessed at a higher tax rate than lower income brackets. The term graduated tax has the same meaning as flat tax. A flat tax is a single tax rate applied to an entire tax base. 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. The term proportional tax has the same meaning as flat tax.

Marcus and Lydia Brown are married and filing jointly and have $161,000 in taxable income. Lydia has been offered a job promotion which will increase their taxable income to $180,000 in 2021. This additional income will move them into the next graduated tax bracket (24%). Which of the following statements is correct?

A portion of the additional $19,000 will be taxed at 22% and a portion will be taxed at 24%.

The city of Tinderville imposed a 1% tourism tax on all restaurant sales. The proceeds from the tax will be used to promote tourism in the city. What is this type of tax called?

An earmarked tax Reason: An earmarked tax is a tax that is assessed for a specific purpose.

Which of the following common decisions would most likely NOT be influenced by the United States income tax laws?

Choosing a public school for your children

Which of the following decisions would most likely NOT be influenced by our tax system?

Choosing a vacation destination

Which of the following criteria is NOT a characteristic of a good tax system?

Complexity

Judging the equity of a tax system is best described by which of the following?

Considering how the tax burden should be distributed across taxpayers

Judging the certainty of a tax system is best described by which of the following?

Considering that taxpayers should be able to determine when, where, and how to calculate and pay the tax

Judging the sufficiency of a tax system is best described by which of the following?

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

By having employers withhold federal income tax from employees' pay and submitting the payments to the government, the system is adhering to which of the criteria for a good tax system?

Convenience

Which of the following taxes is based on the quantity of a product sold, rather than the selling price of the product sold?

Excise tax

True or false: A tax can be defined as a fine or penalty.

False

True or false: The general purpose of a tax is to provide incentives that will stimulate and improve the economy.

False

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

Federal corporate income tax

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

Federal individual income tax

Select all that apply Which of the following taxes are known as transfer taxes? (Check all that apply.) Multiple select question. Sales tax Gift tax Excise tax Income tax Estate tax

Gift tax Estate tax

Which of the following federal taxes comprises the highest percentage (almost half) of all tax revenues collected by the U.S. government?

Income tax

Which of the following statements is correct regarding state income tax?

Many states also impose an income tax on corporations.

Mary Beth 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?

Marginal tax rate Reason: The marginal rate is the rate of tax assessed on the next additional increment of income.

Which tax is assessed to provide medical insurance for individuals who are elderly or disabled?

Medicare tax

Which of the following statements is true regarding taxes?

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

Which of the following statements is INCORRECT regarding sales tax?

Products purchased on the internet are never subject to sales tax.

Select all that apply Which of the following taxes are commonly assessed by state and/or local governments? (Check all that apply.) Multiple select question. Property tax Gift tax Estate tax Income tax Sales tax

Property tax Income tax Sales tax

Blade pays tax of $5,000 on taxable income of $50,000 while Caden pays tax of $10,000 on taxable income of $100,000. What type of tax rate structure appears to be in force?

Proportional

Andrew argues that a tax rate increase will simply cause taxpayers to work more to generate the same after tax dollars as before the tax rate increase. Sally disagrees and believes that taxpayers will engage in more leisure activities since the after tax value of additional work has decreased. The basis of (blank)'s argument is the substitution effect, while the basis for (blank)'s argument is the income effect.

Sally, Andrew

Which of the following statements is true regarding sin taxes?

Sin taxes discourage undesirable, yet legal, behaviors such as smoking and drinking.

Select all that apply Which of the following types of taxes are paid by employers based upon their employees' wages? (Check all that apply.) Multiple select question. Excise tax Social Security tax Unemployment tax Sales tax Medicare tax

Social Security tax Unemployment tax Medicare tax

Which tax is assessed to provide monthly retirement, survivor, and disability benefits for qualifying individuals?

Social Security taxes

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

Social security tax

The state of Indiana charges a 6% sales tax on most consumer goods. Grant purchased a generator for $400 and paid an additional $24 in sales tax. In this example, what is the "tax base?"

The $400 retail price of the generator

Select all that apply Which of the following statements are correct regarding the history of the U.S. personal income tax? (Check all that apply.) Multiple select question. The first personal income tax was enacted to fund the Spanish-American War. The 16th Amendment to the U.S. Constitution gives Congress the power to assess income tax on individuals. The first personal income tax contained a very high marginal tax rate. The income tax was once ruled unconstitutional.

The 16th Amendment to the U.S. Constitution gives Congress the power to assess income tax on individuals. The income tax was once ruled unconstitutional

What is the tax base for the gift tax?

The fair market value of the gift on the date the gift is given

Which of the following is necessary for a payment to be considered a tax?

The payment is required by a governmental body.

The state of Indiana charges a 6% sales tax on most consumer goods. Grant purchased a generator for $400 and paid an additional $24 in sales tax. In this example, what is the "tax rate?"

The percentage of tax being charged (6%)

Which of the following statements describes implicit taxes?

The reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status

Which of the following statements is INCORRECT regarding use tax?

The retailer is responsible for collecting and remitting the tax to the state where the consumer resides.

Which of the following sentences describes the marginal tax rate?

The tax rate applied to the next additional increment of a taxpayer's taxable income (or deductions)

How do taxpayers benefit from taxes paid to a government?

They benefit from government-provided programs and services, such as national defense and public schools.

Jose has been offered a new job. The new job will pay more than his current job. Jose is hesitant to take the new job because it will cause his income to exceed the maximum amount in his current tax bracket. He is concerned that the increase in taxes will exceed his increased income from the new job.

This is not possible. Only the portion of income that exceeds Jose's current bracket will be taxed at the higher rate, not his total taxable income.

True or false: Gasoline sales often have a state excise tax built in to the price that is based on the quantity of fuel purchased rather than the price of the fuel purchased.

True

True or false: 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.

True

Select all that apply Please check which business decisions would likely be affected by tax laws. (Check all that apply.) Multiple select question. What organizational form should a business use? Which employees should be promoted? What business name should be chosen? How should the business compensate employees? Where should a business locate?

What organizational form should a business use? How should the business compensate employees? Where should a business locate?

The tax (blank) defines what is actually taxed and is usually expressed in monetary terms.

base

Jack has $1,000 to invest. He has a choice between municipal bonds with an interest rate of 4% or corporate bonds with an interest rate of 6%. Jack has a marginal tax rate of 25%. Given this information, Jack should invest in the (blank) bonds. The after-tax rate of return on the municipal bonds is (blank)% and the after tax rate of return on the corporate bonds is (blank)%. The difference in the rates of return is known as (blank) taxes.

corporate, 4, 4.5, implicit

Federal estate taxes are also known as (blank) taxes. (Enter only one word per blank.)

death

In order to raise revenue in the city of Hamlet, the city considered assessing a local tax on food served in restaurants. When forecasting the amount of revenue that would be generated by the new tax, the budget officials suggested that about 10% of current customers would likely quit eating out in Hamlet and drive to the nearest town. This is an example of:

dynamic forecasting

A tax that is assessed for a specific purpose is a(n) (blank) tax.

earmarked

When evaluating a tax system, (blank) considers how the tax burden should be distributed across taxpayers.

equity

A(n) (blank) tax is based on the quantity sold of particular products, rather than the monetary amount of the retail selling price.

excise

Property taxes are ad valorem taxes which means that the tax base is the:

fair market value of the property.

A single tax rate applied to an entire base is known as a(n) (blank) tax. When the base is divided into a series of monetary amounts, or brackets, and each bracket is taxed at a different rate, this system is known as a(n) (blank) tax.

flat, graduated

A tax is a payment required by a(n) (blank) that is unrelated to any specific benefit or service received by the taxpayer.

government or government agency

Since municipal bonds are tax-exempt, they typically earn a lower rate of return than taxable bonds. The lower rate of return relative to taxable bonds is often referred to as a(n) (blank) tax.

implicit

An example of a tax assessed by a state or local government is (blank) tax.

property

A sales tax is an example of a tax that uses a(n) (blank) tax rate structure when compared to its tax base.

proportional

A(n) ______ tax structure applies the same tax rate to all levels of income, while a(n) ______ tax structure applies higher tax rates as the tax base increases and a(n) ______ tax structure applies lower tax rates as the tax base increases.

proportional, progressive, regressive

The tax (blank) determines the level of taxes imposed on the tax base and is usually expressed as a percentage.

rate

The social security tax is an example of a(n) (blank) tax structure because as the tax base increases, the taxes paid increase, but the marginal tax rate decreases.

regressive

The tax base for sales tax is the ______ of goods and certain services provided.

retail sales price

The general purpose of a tax is to raise (blank) to fund the operations of the (blank).

revenue, government

A tax imposed on a legal product or service that may be addictive in nature is known as a(n):

sin tax

The purpose of (blank) tax is to provide temporary income for individuals terminated from their jobs without cause.

unemployment

Which type of tax is based on the retail price of goods owned, possessed, or consumed within a state that were NOT purchased within the state?

use tax