Federal Income Tax 2023 Chapter 1

Which of the following criteria are often used to evaluate a good tax system? A) Certainty B) Equity C) Convenience D) Popularity E) Punctuality F) Economy G) Sufficiency

Correct: A) Certainty B) Equity C) Convenience F) Economy G) Sufficiency

Which of the following criteria is NOT a characteristic of a good tax system? A) Complexity B) Sufficiency C) Equity D) Convenience

Correct: A) Complexity Incorrect: B) Sufficiency C) Equity D) Convenience

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

Correct: A) Property tax C) Income tax D) Sales tax Incorrect: B) Estate tax E) Gift tax

Judging the convenience of a tax system is best described by which of the following? A) Suggesting that a tax system should be designed to facilitate the collection of tax revenue without undue hardship B) Considering how the tax burden should be distributed across taxpayers C) Considering that taxpayers should be able to determine when, where, and how to calculate and pay the tax D) Considering whether tax revenues generated are adequate to meet the financial needs of the government E) Considering that the system should minimize compliance and administration costspliance and administration costs

Correct: A) Suggesting that a tax system should be designed to facilitate the collection of tax revenue without undue hardship Incorrect: B) Considering how the tax burden should be distributed across taxpayers (Reason: This is the definition of equity.) C) Considering that taxpayers should be able to determine when, where, and how to calculate and pay the tax (Reason: This is the definition of certainty.) D) Considering whether tax revenues generated are adequate to meet the financial needs of the government (Reason: This is the definition of sufficiency.) E) Considering that the system should minimize compliance and administration costspliance and administration costs (Reason: This is the definition of economy.)

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

Correct: A) The income tax was once ruled unconstitutional. B) The 16th Amendment to the U.S. Constitution gives Congress the power to assess income tax on individuals. Incorrect: C) The first personal income tax contained a very high marginal tax rate. D) The first personal income tax was enacted to fund the Spanish-American War.

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: A) dynamic forecasting B) static forecasting C) zero-based budgeting D) substitution forecasting

Correct: A) dynamic forecasting Incorrect: B) static forecasting (Reason: Dynamic forecasting attempts to account for possible taxpayer responses.) C) zero-based budgeting (Reason: Dynamic forecasting attempts to account for possible taxpayer responses.) D) substitution forecasting (Reason: Dynamic forecasting attempts to account for possible taxpayer responses.)

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

Correct: A) the reduced before-tax return that a tax-favored asset produces because of its tax-advantaged states Incorrect: B) The increased after-tax return taht a tax-favored asset produces because of its tax-advantaged states. C) The reduced after-tax return that a tax-favored asset produces becuase of its tax-advantaged states D) The increased before-tax return that a tax-favored asset produces because of its tax-advantaged states

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. A) True B) False

Correct: B) False (Reason: In 2021, the federal income tax represented approximately 50.2 percent of all tax revenues collected in the U.S.) Incorrect: A) True (Reason: In 2021, the federal income tax represented approximately 50.2 percent of all tax revenues collected in the U.S.)

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

Correct: B) Medicare tax Incorrect: A) Gift tax C) Social Security tax D) Excise tax

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

Correct: B) Products purchased on the internet are never subject to sales tax. Incorrect: A) The retailer is responsible for collecting and remitting the tax. C) The tax base is the sales price of goods or some services that are subject to the tax. D) Some local goverments may impose a sales tax in addition to teh sate sales tax.

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

Correct: B) Social Security taxes

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

Correct: C) Income tax Incorrect: A) Excise tax B) Estate tax D) Value-added tax

Which of the following types of taxes are paid by employers based upon their employees wages? A) Sales tax B) Excise tax C) Medicare tax D) Social Security tax E) Unemploment tax

Correct: C) Medicare tax D) Social Security tax E) Unemploment tax Incorrect: A) Sales tax B) Excise tax

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

Correct: C) The retailer is responsible for collecting and remitting the tax to the state where the consumer resides. Incorrect: A) The use tax allows a state to collect tax on items purchased in another state but utilized or consumed within their own state. B) 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.

The tax base for sales tax is the ______ of goods and certain services provided. A) wholesale price B) quantity C) retail sales price

Correct: C) retial sales price Incorrect: A) wholesale price (Reason: The tax base for sales tax is the retail sales of goods and certain services provided.) B) quantity (Reason: The tax base for sales tax is the retail sales of goods and certain services provided.)

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? A) excise tax B) income tax C) use tax D) sales tax

Correct: C) use tax Incorrect: A) excise tax (Reason: The excise tax is based on the quantity of goods purchased rather than the retail price.) B) income tax (Reason: The income tax is based on taxable income, not purchases of goods.) D) sales tax (Reason: The sales tax is assessed on goods purchased within the sate.)

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

Correct: C.) Fair market value of the property Incorrect: A) Quantity of items or property being taxed. (Reason: The term ad valorem refers to the fair market value of the property.) B) Original purchase price of the property. (Reason: The term ad valorem refers to the fair market value of the property.)

When evaluating a tax system, ______ suggests that taxpayers should be able to determine when to pay the tax, where to pay the tax, and how to determine the tax.

Correct: Certainty

The first personal income tax was enacted in 1861 to fund the _______ _______.

Correct: Civil War

Judging the sufficiency of a tax system is best described by which of the following? A) Suggesting that a tax system should be designed to facilitate the collection of tax revenue without undue hardship B) Considering how the tax burden should be distributed across taxpayers C) Considering that taxpayers should be able to determine when, where, and how to calculate and pay the tax D) Considering whether tax revenues generated are adequate to meet the financial needs of the government E) Considering that the system should minimize compliance and administration costspliance and administration costs

Correct: D) Considering whether tax revenues generated are adequate to meet the financial needs of the government Incorrect: A) Suggesting that a tax system should be designed to facilitate the collection of tax revenue without undue hardship (Reason: This is the definition of convenience.) B) Considering how the tax burden should be distributed across taxpayers (Reason: This is the definition of equity.) C) Considering that taxpayers should be able to determine when, where, and how to calculate and pay the tax (Reason: This is the definition of certainty.) E) Considering that the system should minimize compliance and administration costs (Reason: This is the definition of economy.)

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) Sales tax D) Excise tax

Correct: D) Excise tax Incorrect: A) Transfer tax B) Gift tax C) Sales 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) Sales tax C) Gift tax D) Excise tax

Correct: D) Excise tax Incorrect: A) Transfer tax B) Sales tax C) Gift tax

Which of the following statements is correct regarding state income tax? A) All states and the District of Columbia impose some type of a state income tax on individuals. B) The states are not allowed to deviate from the Intenal Revenue Code, except for using a much lower tax rate schedule. 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.

Correct: D) Many states also impose an income tax on corporations. Incorrect: A) All states and the District of Columbia impose some type of a state income tax on individuals. (Reason: Not all states have an income tax. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming are all examples of states without income taxes.) B) The states are not allowed to deviate from the Intenal Revenue Code, except for using a much lower tax rate schedule. C) States with an income tax system generally do NOT impose a sales and use tax.

The federal income tax is designed on a progressive rate structure so that those taxpayers earning more income are taxed at higher rates than those taxpayers earning less. This structure is based on what premise? A) Income effects B) Horizontal equity C) Substitution effects D) Vertical equity

Correct: D) Vertical equity Incorrect: A) Income effects B) Horizontal equity C) Substitution effectsve

The estate tax may also be referred to as the _______ tax.

Correct: Death

Judging the equity of a tax system is best described by which of the following? A) Suggesting that a tax system should be designed to facilitate the collection of tax revenue without undue hardship B) Considering that taxpayers should be able to determine when, where, and how to calculate and pay the tax C) Considering that the system should minimize compliance and administration costs D) Considering whether tax revenues generated are adequate to meet the financial needs of the government E) Considering how the tax burden should be distributed across taxpayers

Correct: E) Considering how the tax burden should be distributed across taxpayers Incorrect: A) Suggesting that a tax system should be designed to facilitate the collection of tax revenue without undue hardship (Reason: This is the definition of convenience.) B) Considering that taxpayers should be able to determine when, where, and how to calculate and pay the tax (Reason: This is the definition of certainty.) C) Considering that the system should minimize compliance and administration costs (Reason: This is the definition of economy.) D) Considering whether tax revenues generated are adequate to meet the financial needs of the government (Reason: This is the definition of sufficiency.)

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

Correct: Equity

An _______ tax is based on the quantity sold of particular products, rather than the monetary amount of the retail selling price.

Correct: Excise

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

Correct: Gift Estate

The term ______ equity means that two taxpayers in similar situatuions pay the same tax, while ______ equity means that taxpayers with the greater ability to pay tax, more tax that taxpayers with less ability to pay.

Correct: Horizontal Vertical

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

Correct: Implicit

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

Correct: Income Tax

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

Correct: Property

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

Correct: Real Personal

The _______ _______ tax pays the monthly retirement, survivor, and disability benefits for qualiftying individuals, whereas the _______ tax pays for medical insurance for individuals who are elderly or disabled.

Correct: Social Security Medicare

______ forecasting ignores that taxpayers may respond to a tax change by changing their behavior. ______ forecasting attempts to accoun for possible taxpayer responses to teh tax law change.

Correct: Static Dynamic

Assessing the ______ of a tax system means determining the amount of tax revenue needed to fun the government and ensuring that the funds are provided by the system.

Correct: Sufficiency

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

Correct: Unempolyment