Tax Accounting Exam #1 Chapters 1-4
In 2020, after what amount of income do individuals stop paying social security tax?
$137,700
Federal gift tax rules has allowed a tax free annual gift of
$15,000
If you have a company with 10 employees, and 8 are laid off. What is the max you could pay for FUTA
(6%)(7,000)(8) = $3,360
After the revenue act of 1913, the Current Tax Payment Act required employers and self-employers to:
1. employers to withold taxes from an employees wages 2. required self-employed people to make periodic payments
The government came up with the Current Tax Payment Act because (2)
1. it allowed them to get paid more frequently 2. it was much easier to collect taxes this much
The flat tax rate is currently suggested at
17-23%
Federal Government financed their operations via tariffs until ______
1913
when was the 16th amendment ratified?
1913
how long is one session?
2 years
if a taxpayer beleives they overpaid, the tax payer must claim for a refund by the later of
3 years of OG date of return OR within two years of paying the tax
If the taxpayer omits an income amount that is greater than 25% of the gross income reported on the return, then the statute of limitations is increased to ______ years. If this is a result of an unintentional overstatement of a deduction or credit, what happens?
6 years the statute of limitations does not increase past the original 3 year period
FUTA can be as high as ---% of the first ----$ of wages for each employee
6%, $7,000
what is the breakdown of the FICA 7.65% tax
6.2% for social Security, and 1.45% for medicare
How many tax rates do we have now and what at their %?
7 rates, 10%-37%
FICA (Federal Insurance Contributions Act) = what % of income
7.65%
Another word for property tax is
Ad Valorem Tax
Typically arises when the IRS believes that the taxpayer has made a minor mistake on the return. The issue is resolved through the mail
Correspondence Audit
a tax levied on imported goods are called
Custom Duties or Tariffs
all returns are ran through this formula and it calculates a score and if your return hits a certain score, then they audit that return What is this score called?
DIF - Discriminant Information Function
a type of excise tax charged on the value of property transferred to heirs
Death Tax
a. figure out the value of all the descendants assets and multiply this value by the ---- tax rate and the rest goes on to the heir
Estate Tax
The two types of death taxes are
Estate tax and Inheritance Tax
two major types of employment taxes are
FICA and FUTA
This tax is paid solely by employers and is administered by both the federal and state governments
FUTA (Federal Unemployment Tax Act)
FICA =
Federal Insurance Contributions Act
FUTA =
Federal Unemployment Tax Act
When the IRS wishes to investigate numerous items on the return (maybe even every line), thus the audit is conducted at the taxpayer's premises or the premises of the taxpayer's representative
Field Audit
What state does not apply death taxes and why?
Florida, they believe they attract enough old people there that they get enough tax $ from them living there for years before death
a tax paid for the right to do business within a state/city
Franchise Tax
local governments and state governments apply ____ to all goods being sold
General Sales Tax
tax paid to pass property to others while living
Gift Taxes
if you want to give someone 30,000 you can say that 15,000 is from the husband and 15,000 from the wife this is called
Gift-Splitting
where are tax laws supposed to orginate from?
House of Represenatives
tax levied on income from "whatever source derived."
Income Taxes
When the heir receives everything, they then pay a tax on all that they receive
Inheritance Tax
Who applies Sales Tax?
Local (city and county) and State governments
What kind of tax did the massacusetts bay colony enact in 1634?
Local Tax, since it was only a colony
Property Taxes are only used by _____________ governments
Local and State
When and where was the first enactment of income tax?
Massachusetts Bay Colony in 1634
Are most returns audited?
NO
__________________ is a tax you pay based on how much you spend
National Sales Tax
If you fit in the categories to have a .9% increase in medicare taxes, does your employer have to match that increase?
No, employers constantly pay the 1.45% rate
when the IRS believes a few issues need to be resolved on the return. Thus, the audit is restricted in scope, and is usually conducted at the IRS office
Office Audit
anything that is not realty, car, textbooks, etc.
Personalty
What case deemed Congress's attempt to enact an individual income tax in 1894?
Pollock v. Farmer's Loan and Trust Co.
when the tax rate increases as the tax base increases.
Progressive Tax System
are based on the value of the property upon which the tax is levied
Property Tax or Ad Valorem Tax
when the tax rate remains constant over the entire tax base range
Proportional Tax Structure
what was the first actual income tax law enacted and sustained?
Revenue Act of 1913
- Texas did not have any tax because they used to make so much off of these taxes from their oil What kind of tax is this?
Severance Tax
applies to extraction of natural resources. EX: Paying to extract oil from the ground
Severance Tax
The IRS can investigate and assess penalties for up to three years after the filing of the return. If the return is filed early, then the three years start from the due date of the return (which is normally April 15 for individuals). this describes the
Statute of Limitations
What happened to taxes after the Civil War?
Taxes were repealed and they switched to TARIFFS
Why did the federal government have to switch from tariffs to taxes?
Their financial needs became too large from expansion so they needed more $ than tariffs could supply
After the $137,700 threshold for FICA, what does a person have to pay?
They only pay 1.45% of Medicare after $137,700
True or False: Both the union and confederacy used taxes to fund their war effort in 1861
True
True or false: employers have to match FICA taxes so they technically receive (7.65 x 2, of your income. 7.65% for both employer and employee
True
if you buy a car in a state without sales tax, then your home state can tax you on that because you are using it this is an example of
USE TAX
levied to prevent the avoidance of state sales taxes. (e.g. purchases of cars in another state, Internet/catalog purchases?)
Use Tax, States Only
typically a flat tax imposed on the increased value of goods via the production process
Value Added Tax (VAT)
What occurred in the 1940s that caused a majority of the population to start paying taxes?
WWII
Are some returns more likely to be audited? What percent are audited?
Yes, less than 1%
if company's begin to buy steel from Hungary, the United States could pass a law that puts a tax on steel coming into the country from Hungary is an example of
a custom duty or a tariff
What is the 16th amendment?
allows congress to tax individuals directly
a professional fee to practice as a CPA is called
an occupational tax
In regards to the failure to file penalty, what fraction of the month must pass for a month to count?
any fraction of a month
who applies excise taxes?
both state and federal
Value Added Tax (VAT) is a what type of tax
consumption tax
stimulate the economy is a ________ consideration of federal tax law
economic
taxes levied by the government based upon employee classification and other factors (e.g. income level, number of layoffs, etc.) for government insurance programs.
employment taxes
the debate between taxing the wealthy more because the money needs less, but other believes a flat tax is fair because they earned that money this is a _______ consideration of federal tax law
equity
(e.g. Phone bill, gasoline purchases, and alcohol purchases) are examples of things the government puts _____ taxes on
excise taxes
taxes that are restricted a particular transaction, according to the government
excise taxes
penalty of 5% per month up to a maximum of 25% imposed on the amount of the tax due
failure to file by due date (or extended due date if request is approved)
0.5% per month up to a maximum of 25%. Any fraction of a month counts as a whole month. This penalty will reduce the "failure to file" penalty by a similar amount in any month where both penalties are being applied
failure to pay the tax due
true or false: Excise Taxes are deductible
false
Proportional Tax Structure is also called
flat tax
what is the purpose of employment taxes?
fund government insurance program
how they interpret tax law becomes the rule of law is a -------- development of federal tax law
influence of the courts
if a tax bill does not pass one section of the process, what happens?
it does not go through
If income producing property is bought with a gift loan, the interest cannot exceed the borrower's
net investment income for the year
paid for the right to participate within a particular occupation within the state/city
occupational taxes
the use of lab experiments, economic models, macro/micro economic analysis, etc., to answer the following issues: · What are the effects of existing tax law? · What would be the effects of a proposed tax law?
policy research
policies that help certain politicians constituents, a lot of these policies will show what parties they are trying to benefit this is a ______ consideration of federal tax law
political
the first factor of development of tax law is -
raise revenue
anything attached to land and is meant to be there permanently
realty
land, building on land, a well, built in bookshelf are known as
realty
social security tax or making donations deductible is a ________ consideration of federal tax law
social
the amount to which the tax rate is applied
tax base or Taxable income
To solve for property tax you multiply __________ & ___________
tax rate by assesment value
wherewithal to pay concept means
the IRS wants to collect cash whenever the employee's collect cash
FUTA is paid by
the employer
if a tax bill is not completed within one session what happens?
the entire process must restart
During the Revenue Act of 1913, who paid the taxes and at what % did they pay?
the rich paid the taxes, between 2 and 6%
Self-Employed Businesses Lot of cash exchange businesses (Pawn Shop) High Income Businesses What do these types of businesses have in common when it comes to auditing?
they are much more likely to be audited
How did Congress get people to support the 16th amendment?
they only had the rich pay taxes, was very popular as communism was on the rise
Why do self employed individuals have to pay twice the rate of a normal employee (7.65%) for FICA?
this is because they have to pay as both the employee and the employer
usually a tax levied on the value of property because of the transfer of that property
transaction taxes
If you are single and make over $200,000 OR are married filing jointly and make over $250,000 what happens to your medicare tax?
you add .9% to the 1.45%. Then you pay 2.35% of medicare taxes
How many individuals can you give the $15,000 Gift to before it is taxed?
you can give this gift to an unlimited amount of individuals
