Practice for Exam - Chapter 1-4 Taxation Of Individual With Complete Solutions 2024

Practice for Exam - Chapter 1-4 Taxation Of Individual With Complete Solutions 20241. What are the objectives in US taxes? - correct answer-The federal income tax law is used as an incentive instrument to encourage individuals and businesses to engage in certain activities that improve the health of the economy and the welfare of the public. -The social objectives: the federal government uses the tax system as an instrument to encourage or discourage certain socially desirable or undesirable activities and most importantly to promote peace in our society. -The economic objectives: First, the federal income tax law is used to boost up the economy by promoting growth, stability and efficiency. 2. What is the tax base? - correct answer-A tax base is a total amount of assets or income that can be taxed by a taxing authority, usually by the government. 3. What is taxable income? - correct answer-Taxable income is the amount of income used to calculate how much tax an individual or a company owes to the government in a given tax year. 4. What is the difference between average, marginal and effective tax rates? - correct answer--The average tax rate is the total amount of tax divided by total income, -The marginal tax rate is the amount of tax paid on an additional dollar of income and -The effective tax rate is the amount of tax owed divided by the taxable income. 5. What is the difference between progressive, regressive and flat tax rates? - correct answer--A flat tax (same as proportional tax rate) is a tax system with a constant marginal rate, usually applied to individual or corporate income. -A regressive tax rate imposes a decreasing marginal tax rate as the tax base increases. -A progressive tax rate imposes an increasing marginal tax rate as the tax base increases. 6. What is the difference between the horizontal and vertical equity? - correct answer--Horizontal equity implies that we give the same treatment to people in an identical situation. -Vertical equity implies that people with higher incomes should pay more tax. 7. What is the difference between sales and use tax? - correct answer-The sales tax is imposed on retail transactions. Consumer's use tax applies to purchases from out-of-state vendors that are not required to collect tax on their sales. 8. What is self-employment tax? - correct answer-Self-employment tax (SE tax) is the Social Security and Medicare tax paid by self-employed individuals. 9. What is excise tax? - correct answer-Excise taxes are taxes paid when purchases are made on a specific good, such as gasoline. 10. What is property tax? - correct answer-Property tax is the annual amount paid by a land owner to the local government or the municipal corporation of his area. 11. What is the difference between explicit and implicit tax? - correct answer-- 12. What is Sin tax? - correct answer-Sin taxes are typically added to liquor, cigarettes, and goods that are considered morally hazardous. 13. What are the taxation concepts? (economy, convenience, equity) - correct answer-- 14. What are earmarked taxes? - correct answer-Earmarked tax is a tax whose revenues (by law) are reserved solely for a specific group or usage. 15. What is extension to file a tax return? - correct answer-- 16. What are the treasury regulations? - correct answer-Regulations are the Treasury Department's official interpretation of the Internal Revenue Code, have the highest authoritative weight, and often contain examples of the application of the Code that may be particularly helpful to the tax researcher. Temporary regulations are regulations that have been issued after November 20, 1988 (it carries the same authoritative weight as final regulations) 17. What are the revenue rulings? - correct answer-Revenue rulings are public administrative rulings by the Internal Revenue Service (IRS) in the United States Department of the Treasury of the United States federal government that apply the law to particular factual situations. A Revenue Ruling can be relied upon as precedent by all taxpayers. 18. What are revenue procedures? - correct answer-A revenue procedure is an official statement of a procedure published in the Bulletin that either affects the rights or duties of taxpayers or other members of the public under the Internal Revenue Code and related statutes, treaties, and regulations or, although not necessarily affecting the rights and duties of the public, should be a matter of public knowledge. 19. What is the difference between acquiescence and nonacquiescence? - correct answer-An acquiescence indicates that the IRS will follow the Tax Court decision, with regards to the specific points of law involved, to other taxpayers in similar situations. A nonacquiescence issued after the IRS loses a trial-level or circuit court case when the IRS has decides to continue to litigate this issue.