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ACCOUNTING 145 - FUNDAMENTALS OF TAXATION - Palm Beach Community College Study Resources
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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    22. Which of the following is an example of a progressive tax? a. Federal income tax b. State and local taxes levied on property c. Sales tax d. Social Security taxes Answer: a

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    21. Which of the following is an example of a regressive tax? a. Federal income tax b. State and local taxes levied on property c. Sales tax d. Social Security taxes Answer: d

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    20. Margaret earned $15,000 and paid $1,500 of income tax; Mike earned $40,000 and paid $4,000 of income tax. The tax rate structure they are subject to is: a. Progressive b. Proportional c. Regressive d. Recessive Answer: b

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    18. A tax rate that decreases as the tax base decreases is an example of what kind of tax rate structure? a. Progressive b. Proportional c. Regressive d. Recessive Answer: a. 19. Jake earned $15,000 and paid $1,500 of income tax; Jill earned $40,000 and p

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    17. A tax rate that decreases as the tax base increases is an example of what kind of tax rate structure? a. Progressive b. Proportional c. Regressive d. Recessive Answer: c

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    What is the most common way taxpayers pay their income tax liability during the year? Answer: The vast majority of taxpayers pay their annual tax liability through income tax withholdings deducted their paychecks by their employer and remitted to the gove

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    What is the amount of the permitted deduction for single and married taxpayers who use the Form 1040EZ? Answer: On Form 1040EZ, taxpayers can take a permitted deduction on line 5 of $8,750 if the taxpayers filing status is single or $17,500 if their filin

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    Explain why unemployment compensation is taxable. Answer: Unemployment compensation is paid to an individual as a result of that person becoming unemployed. The compensation is, in effect, a substitute for taxable wages. Thus, it is taxable just as wages

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    What federal tax forms do taxpayers normally receive to inform them of the amount of wages and interest they earned during the year? Answer: Normally, wages are reported to taxpayers on a W-2 form and interest is reported on a Form 1099-INT.

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    What is the definition of interest? Answer: Interest is compensation for the use of money with respect to a bona fide debt or obligation imposed by law (e.g., judgments, tax payments, installment sales).

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    What is meant by compensation for services? Give some examples. Answer: Compensation for services is the broad category used by the IRS to encompass all forms of economic benefit a taxpayer may receive as a result of an employee/employer arrangement. Exam

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    Explain what is meant by regressive tax. The social security tax is considered a regressive tax. Why? Answer: A regressive tax rate is one where the tax rate decreases as the tax base gets larger. The social security tax is assessed on the first $97,500 o

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    A change to a 17% flat tax could cause a considerable increase in many taxpayers taxes and a considerable decrease in the case of others. Explain this statement in light of the statistics in Table 1-3 of the text. Answer: Those with taxable incomes above

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    What type of tax is the U.S. federal income tax? Explain your answer. Answer: The federal income tax is a progressive tax. As the tax base increases, the rate of tax increases. Tax rates range from a low of 10% to a high of 35%.

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    What is the definition of tax base and how does it affect the amount of tax that is levied? Answer: The tax base is the dollar amount upon which the tax rate is applied in order to determine the actual tax. Income, dollar sales, and property value are the

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    What type of tax is a sales tax? Explain your answer. Answer: The sales tax is a proportional tax. A proportional tax is a tax where the tax rate remains at the same rate regardless of the tax base. Most county or state sales taxes are the same regardless

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    What is meant by a progressive tax? Why do you think the government believes it is a more equitable tax than, say, the regressive tax or proportional tax? Answer: A progressive rate structure is a rate structure where the tax rate increases as the tax bas

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    Name the three types of tax rate structures and give an example of each. Answer: Progressive U.S. federal income tax Proportional flat-tax usually leveled on property or sales at the state or local level Regressive Social Security Tax

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    2. For tax year 2004, what proportions of individual income tax returns were filed on a Form 1040EZ, Form 1040A and Form 1040? What proportion were electronically filed? Answer: In 2004, 61% of individual income tax returns were filed using a Form 1040, 2

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    1. Give a brief history of the income tax in the United States. Answer: The first federal income tax was enacted in 1861 to help finance the Civil War and was discarded soon thereafter. In 1894, another income tax was promulgated by Congress to raise addi

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    52. What are the three types of tax authority? Who issues each type? Answer: Statutory Authority issued by Congress Administrative Authority issued by the IRS Judicial issued by the various courts in the U.S. judicial system

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    51. Discuss the concept of tax authority. How does tax authority help taxpayers and tax preparers report tax items properly? Answer: Tax authority represents to body of law, regulations, judicial decisions, and other items that provide taxpayers and tax p

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    50. Xavier and his wife Maria have total W-2 income of $95,558. They will file their tax return married filing jointly. They had a total of $14,117 withheld from their paychecks for federal income tax purposes. Using the tax tables, determine the amount o

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    49. Sheniqua, a single taxpayer, had taxable income of $63,914. Her employer withheld $13,274 in federal income taxes from her paychecks throughout the year. Using the tax tables, would Sheniqua receive a refund or would she be required to pay additional

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    48. The W-2 income of Betty and her husband Ronald were $32,922 and $30,139, respectively. If Betty and Ronald use a filing status of married filing jointly, determine their tax liability. Answer: Their tax liability is $6,054. The problem tells you Betty

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    47. The W-2 income of Sandra, a single taxpayer, was $67,443. Using the tax tables, determine Sandras tax liability. Answer: Sandras tax liability is $11,093. The problem tells you Sandras W-2 income. To determine taxable income (the number necessary to u

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    46. Use the Tax Rate Schedules to determine tax liability for each of the cases in problems 43, 44, and 45, above. Answer: Liability for 43a = $2,862.25 Liability for 44a = $4,660.70 Liability for 45a = $2,471.00 Liability for 43b = $5,495.75 Liability fo

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    45. Determine the tax liability, marginal tax rate, and average tax rate in each of the following cases. Use the Form 1040EZ Tax Tables to determine tax liability. a. Married taxpayers, taxable income of $21,690. b. Single taxpayer, taxable income of $47,

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    44. Determine the tax liability, marginal tax rate, and average tax rate in each of the following cases. Use the Form 1040EZ Tax Tables to determine tax liability. a. Married taxpayers, taxable income of $36,288. b. Married taxpayers, taxable income of $4

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    43. Determine the tax liability, marginal tax rate, and average tax rate in each of the following cases. Use the Form 1040EZ Tax Tables to determine tax liability. a. Single taxpayer, taxable income of $21,690. b. Single taxpayer, taxable income of $36,28

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    42. Havel and Petra are married, will file a joint tax return, and meet the requirements to file a Form 1040EZ. Havel has W-2 income of $31,931 and Petra has W-2 income of $32,783. What are their taxable income and their tax liability. Determine tax liabi

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    40. When taxpayers file a tax return, they will either pay an additional amount or receive a refund of excess taxes paid. Briefly explain how this settling up process works. Why might a taxpayer pay too much during the year? Answer: When a tax return is f

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    40. When taxpayers file a tax return, they will either pay an additional amount or receive a refund of excess taxes paid. Briefly explain how this settling up process works. Why might a taxpayer pay too much during the year? Answer: When a tax return is f

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    38. What is the Income Tax Formula? Answer: The income tax formula is the methodology used to determine the amount of tax owed by a taxpayer. In its most simplified form, the income tax formula is: Income Permitted Deductions from Income -= Taxable Incom

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    37. Use the information in Table 1-3. If the federal tax system was changed to a proportional tax rate structure with a tax rate of 17%, calculate the amount of tax liability for 2004 for all taxpayers. How does this amount differ from the actual liabilit

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    36. Using the information in Table 1-3, determine the amount of average tax liability per tax return, in dollars, for each income range provided. Answer: In each case, the average tax liability per return is calculated by dividing the total tax liability

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    Problems 35. Using the information in Table 1-3, determine the average amount of taxable income per tax return, in dollars, for each of the ranges of taxable income provided. Answer: In each case, the average taxable income per return is calculated by div

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    33. Eddie, a single taxpayer, has W-2 income of $42,487. Using the tax tables, his tax liability is: a. $4,276 b. $4,855 c. $5,589 d. $7,043 Answer: b. 34. Arno and Bridgette are married and have combined W-2 income of $93,455. They received a refund of $

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    32. A married taxpayer has taxable income of $77,381. You have calculated tax liability using the tax tables and using the tax rate schedules. What can you say about the two figures? a. Tax liability determined using the tax tables will be more than tax l

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    31. Sandra, a single taxpayer, has taxable income of $86,937. Using the tax tables, her tax liability is: a. $14,579 b. $16,906 c. $18,048 d. $19,835 Answer: c

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    30. Elizabeth determined her tax liability was $3,942. Her employer withheld $3,492 from her paychecks during the year. Elizabeths tax return would show a. a refund of $450 b. a refund of $3,492 c. tax due of $450 d. tax due of $3,942 Answer: c

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    28. Unemployment compensation income is reported to a taxpayer on a Form a. W-2 b. 1099-G c. 1099-UN d. 1099-INT Answer: b 29. On a Form 1040EZ, the amount of the permitted deduction from income for taxpayers filing a joint return is: a. $1,500 b. $8,750

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    27. Wage income is reported to a taxpayer on a Form a. W-2 b. 1099-G c. 1099-W d. 1099-INT Answer: a

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    26. The most complex individual income tax return is a Form a. 1040 b. 1040A c. 1040EZ d. 1040 Simple Answer: a

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    24. Jennifer and Paul have taxable income of $68,135 and the following tax liability: $15,650 10% = ($63,700 $15,650) 15% = ($68,135 $63,700) 25% = Total tax liability Their average tax rate is: a. 10% b. 15% c. 25% d. 14.5% Answer: d $ 1,565.00 7,207.50

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    School: Palm Beach Community College

    Course: FUNDAMENTALS OF TAXATION

    23. Jennifer and Paul have taxable income of $68,135 and the following tax liability: $15,650 10% = ($63,700 $15,650) 15% = ($68,135 $63,700) 25% = Total tax liability Their marginal tax rate is: a. 10% b. 15% c. 25% d. 14.5% Answer: c $ 1,565.00 7,207.50

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