Income Tax I : Smartbook Ch. 1

1.) effective 2.) average 3.) marginal

1.) The ______________ 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. 2.) The _____________ tax rate measures the average level of tax on only taxable income. 3.) The _____________tax rate indicates the rate of tax on the next additional increment of income.

proportional

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

flat ; graduated

A single tax rate applied to an entire base is known as a(n) ________ 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) ______________ tax.

C.) sin tax

A tax imposed on a legal product or service that may be addictive in nature is known as a(n): A.) earmarked tax B.) excise tax C.) sin tax D.) consumption tax

earmarked

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

implicit

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

income, sales, use, excise, property or ad valorem

An example of a tax assessed by a state or local government is __________ tax.

D.) $85,000 Reason: He can distribute $17,000 to each of his nieces and nephews ($17,000 * 5 = $85,000).

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 2023? A.) $0 B.) $16,000 C.) $12,920,000 D.) $85,000

12% How: ($2,660-$2,060)/$5,000 = 0.12

Arlene is single and has taxable income of $19,000. Her tax liability is currently $2,060. 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 $2,660 if she accepts the special project. Arlene has a marginal tax rate of ____________%

C.) 18.92% Reason: ($5,771-$4,636)/$6,000 = .1892 or 18.92%

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? A.) 25% B.) 14.99% C.) 18.92% D.) 15%

A.) Proportional Reason: Both Blade and Caden are paying the same percentage (10%) of tax on their taxable income regardless of the level of income.

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? A.) Proportional B.) Graduated C.) Progressive D.) Regressive

C.) Progressive Reason: Blade is paying 10%. Caden is paying a higher percentage of tax (12%) on a higher level of income.

Blade pays tax of $5,000 on taxable income of $50,000 while Caden pays tax of $12,000 on taxable income of $100,000. What type of tax rate structure appears to be in force? A.) Proportional B.) Regressive C.) Progressive D.) Flat

True Reason: Excise taxes are based on the quantity of the product purchased. These taxes are often imposed on sales of alcohol, gasoline, and tobacco products.

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 or False

transfer

Gift taxes are also known as _________________taxes.

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

How do taxpayers benefit from taxes paid to a government? A.) Taxpayers do NOT benefit from taxes paid because the money is used to fund the operations of the government, rather than benefit the taxpayers. B.) They benefit directly by receiving a specific benefit, such as admittance to a national park when remitting their tax payments. C.) They benefit from government-provided programs and services, such as national defense and public schools.

$17,000 ; credit

In 2023, the annual gift exclusion totals $__________________ per donee. The unified tax _________________ exempts up to $12,920,000 in lifetime gifts and bequests upon the death of a taxpayer.

No Reason: A tax is intended to raise revenue for a government. A fine or penalty is intended to punish or prevent illegal behavior.

Is it true that a "tax" is essentially the same as a fine or penalty?

1.) corporate 2.) 4% ; 4.5% 3.) implicit

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%. 1.) Given this information, Jack should invest in the ____________ bonds. 2.) The after-tax rate of return on the municipal bonds is _____________% and the after tax rate of return on the corporate bonds is __________________%. 3.) The difference in the rates of return is known as _____________ taxes.

B.) 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. Reason: Not all income is taxed at the marginal rate. The first portion of income (up to $11,000 for single) is taxed at 10%, the next portion is taxed at 12%, and so on.

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. A.) This is possible. Jose's entire taxable income will be taxed at the higher rate which could causse his increased taxes to exceed his increased salary. B.) 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.

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

Marcus and Lydia Brown are married and filing jointly and have $175,000 in taxable income. Lydia has been offered a job promotion which will increase their taxable income to $194,000 in 2023. This additional income will move them into the next graduated tax bracket (24%). Which of the following statements is correct? A.) A portion of the additional $19,000 will be taxed at 22% and a portion will be taxed at 24%. B.) The Browns will pay 24% in income tax on $194,000 rather than 22% on $175,000 if they are moved into a new rate bracket. C.) The additional $19,000 will be taxed at 24%.

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

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? . A.) Proportional tax rate B.) Marginal tax rate C.) Effective tax rate D.) Average tax rate

Income Tax

Most states and the District of Columbia impose ___________ ______________on individuals and corporations who earn income within the state.

A.) fair market value of the property.

Property taxes are ad valorem taxes which means that the tax base is the: A.) fair market value of the property. B.) quantity of items or property being taxed. C.) original purchase price of the property.

real ; personal

Property taxes are commonly assessed on _______________ property (such as buildings and land) and ____________________ property (such as cars and boats).

C.) 18.13% Reason: $11,239/$62,000 = 18.13%

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? A.) 13.54% B.) 25.0% C.) 18.13%

A.) What organizational form should a business use? D.) Where should a business locate? E.) How should the business compensate employees?

Select all that apply Please check which business decisions would likely be affected by tax laws. A.) What organizational form should a business use? B.) What business name should be chosen? C.) Which employees should be promoted? D.) Where should a business locate? E.) How should the business compensate employees?

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

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

B.) With a graduated tax, higher income brackets may be assessed a higher tax rate than lower income brackets. C.) With a graduated tax, different portions of a tax base may be taxed at different rates.

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

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

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

A.) Income tax B.) Property tax D.) Sales tax

Select all that apply Which of the following taxes are commonly assessed by state and/or local governments? A.) Income tax B.) Property tax C.) Gift tax D.) Sales tax E.) Estate tax

A.) Medicare tax C.) Social Security tax D.) Unemployment tax

Select all that apply Which of the following types of taxes are paid by employers based upon their employees' wages? A.) Medicare tax B.) Sales tax C.) Social Security tax D.) Unemployment tax E.) Excise tax

$10 200 * 0.05 = 10

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 _____________ dollars in sales tax.

implicit

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) ___________ tax.

17.5% How: ($20,129/$114,966) = 0.175

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 ______________%.

D.) 14 Reason: $20,219/$140,286 = 14.41% rounded to the nearest whole percent as 14%

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 __% (rounded to the nearest whole percent). A.) 20 B.) 11 C.) 16 D.) 14

gift ; death

The ___________ tax and _____________ tax are based on fair market value of the assets being transferred at death or as a gift.

D.) An earmarked tax

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? . A.) A sin tax B.) A shared-responsibility payment C.) An income tax D.) An earmarked tax

False Reason: In 2021, the federal income tax represented approximately 50.2 percent of all tax revenues collected in the U.S.

The federal estate tax is the MOST significant tax assessed by the U.S. government because it generates more revenue for the government than other types of federal taxes. True or False

progressive

The federal individual income tax system in the United States uses ________________ tax rate structure.

Civil War

The first personal income tax was enacted in 1861 to fund the ______________-_______________.

False Reason: The main purpose of a tax is to raise revenue to fund the operations of the government.

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

unemployment

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

D.) The $400 retail price of the generator Reason: The tax base defines what is actually being taxed. In this case it is the $400.

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?" A.) The percentage of tax being charged (6%) B.) The $424 paid by Grant C.) The $24 sales tax amount D.) The $400 retail price of the generator

base

The tax _________________ defines what is actually taxed and is usually expressed in monetary terms.

C.) $4.80 Reason: Tax base x tax rate = ($80 x .06 = $4.80)

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? A.) $0.60 B.) $6.00 C.) $4.80 D.) $0.48

B.) To fund the operations of the government

What is the general purpose of a tax? A.) To punish or prevent illegal behavior B.) To fund the operations of the government C.) To influence business decisions D.) To stimulate the economy

D.) The fair market value of the gift on the date the gift is given

What is the tax base for the gift tax? A.) An appraisal made by the Internal Revenue Service B.) The original purchase price of the gift paid by the donor C.) An amount agreed upon by the donor and the donee D.) The fair market value of the gift on the date the gift is given

D.) Tax base x tax rate

Which of the following calculations is correct for determining the amount of tax? A.) Tax base/tax rate B.) Tax rate/tax base C.) Tax base + tax rate D.) Tax base x tax rate

A.) Attending a family function

Which of the following decisions would most likely NOT be influenced by our tax system? A.) Attending a family function B.) Choosing investments C.) Estate planning D.) Saving for a college education

A.) Choosing a public school for your children

Which of the following decisions would most likely NOT be influenced by the United States income tax laws? A.) Choosing a public school for your children B.) Determining how to save for retirement C.) Purchasing a home versus renting D.) Evaluating alternative job opportunities

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

Which of the following definitions describes a tax? A.) A payment required by a government that is directly related to a specific benefit or service received from the government. B.) A payment required by an organization, business, or governmental agency to benefit the general welfare of the country. C.) A payment required by a government that is unrelated to any specific benefit or service received from the government.

D.) Income tax

Which of the following federal taxes comprises the highest percentage (almost half) of all tax revenues collected by the U.S. government? A.) Value-added tax B.) Excise tax C.) Estate tax D.) Income tax

B.) The payment is required by a governmental body.

Which of the following is necessary for a payment to be considered a tax? A.) The payment is intended to prevent illegal behavior. B.) The payment is required by a governmental body. C.) The payment is tied directly to an economic benefit received by the taxpayer. D.) The payment is imposed by an organization, business, or government agency.

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

Which of the following statements describes implicit taxes? . A.) The reduced after-tax return that a tax-favored asset produces because of its tax-advantaged status B.) The reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status C.) The increased before-tax return that a tax-favored asset produces because of its tax-advantaged status D.) The increased after-tax return that a tax-favored asset produces because of its tax-advantaged status

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

Which of the following statements is INCORRECT regarding sales tax? A.) The retailer is responsible for collecting and remitting the tax. B.) Some local governments may impose a sales tax in addition to the state sales tax. C.) Products purchased on the internet are never subject to sales tax . D.) The tax base is the sales price of goods or some services that are subject to the tax.

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

Which of the following statements is INCORRECT regarding use tax? A.) The retailer is responsible for collecting and remitting the tax to the state where the consumer resides. B.) The use tax allows a state to collect tax on items purchased in another state but utilized or consumed within their own state. C.) The tax base is the retail price of the goods purchased in another state. D.) Many states offer a use tax credit for purchases made in another state where a sales tax was imposed.

D.) Many states also impose an income tax on corporations.

Which of the following statements is correct regarding state income tax? A.) The states are not allowed to deviate from the Internal Revenue Code, except for using a much lower tax rate schedule. B.) All states and the District of Columbia impose some type of a state income tax on individuals. C.) States with an income tax system generally do NOT impose a sales and use tax. D.) Many states also impose an income tax on corporations.

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

Which of the following statements is true regarding sin taxes? A.) Sin taxes could be considered fines or penalties rather than taxes. B.) Sin taxes discourage undesirable, yet legal, behaviors such as smoking and drinking. C.) Sin taxes are imposed on illegal activities in order to discourage participation.

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

Which of the following statements is true regarding taxes? A.) Taxes affect many business decisions, but are NOT important in personal financial decisions. B.) Political candidates often distinguish themselves from their opponents based on their tax policies. C.) While taxes may affect many fundamental business decisions, they do NOT have a large impact in political decisions.

C.) Excise tax

Which of the following taxes is based on the quantity of a product sold, rather than the selling price of the product sold? A.) Transfer tax B.) Gift tax C.) Excise tax D.) Sales tax

A.) Federal individual income tax

Which of the following taxes uses a progressive tax rate structure? A.) Federal individual income tax B.) Excise tax C.) Social security tax D.) Federal corporate income tax E.) Sales tax

A.) Federal corporate income tax

Which of the following taxes uses a proportional tax rate structure? A.) Federal corporate income tax B.) Social security tax C.) Federal individual income tax D.) Federal estate tax

E.) Social security tax

Which of the following taxes uses a regressive tax rate structure? A.) Federal individual income tax B.) Federal corporate income tax C.) Gift tax D.) Federal estate tax E.) Social security tax

A.) Tax rate

Which of the following terms describes the level of taxes imposed on the tax base and is usually expressed as a percentage? A.) Tax rate B.) Tax bracket C.) Tax ratio D.) Tax assessment

A.) Car repair services

Which of the following transactions would NOT likely be subject to an excise tax? A.) Car repair services B.) Beer sales C.) Gasoline sales D.) Cigarette sales

C.) Medicare tax

Which tax is assessed to provide medical insurance for individuals who are elderly or disabled? A.) Social Security tax B.) Gift tax C.) Medicare tax D.) Excise tax

B.) Social Security taxes

Which tax is assessed to provide monthly retirement, survivor, and disability benefits for qualifying individuals? A.) Medicare taxes B.) Social Security taxes C.) Estate taxes D.) Excise taxes E.) Gift taxes

regressive

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