311-Chapter 1 Homework Solutions

311-Chapter 1 Homework Solutions - Assignment #1 7. How is...

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Assignment #1 7. How is a sales tax different from an excise tax? Both are taxes on goods and/or services purchased. A sales tax is a percentage of the value of the sales price of the goods or services. It is paid when the goods and/or services are sold. An excise tax is based on either a quantity or volume of the product being sold, such as a gallon of gasoline or per tire. Although it is technically paid when the goods are sold, the excise tax is generally included in the sales price and is typically not shown separately as a tax. 8. Who is responsible for collecting sales and excise taxes? Who actually pays the tax? The seller of the goods and/or services subject to sales and excise taxes are responsible for the collection and payment of the tax. Sales taxes are paid directly by the purchaser as an addition to the sales price of the goods and/or services. The purchaser also pays excise taxes, but they generally are included in the price of the goods and, thus, are not shown as a separate payment by the buyer. 9. Why is a tax on real property used more often than a tax on personal property? A tax on real property is more commonly used because real property is not mobile and is difficult to conceal. Thus, the tax base is more certain and the collection of the tax is easier. Personal property is mobile and easily concealed. Thus, it is more difficult to ascertain the value of personal property owned, making the tax base uncertain and the collection of the tax potentially difficult. 10. The gift tax is supposed to tax the transfer of wealth from one taxpayer to another. However, the payment of gift tax on a transfer of property is relatively rare. Why is gift tax not paid on most gifts? Gift tax payments are rare due to the exclusions from the tax. The basic exclusion is $12,000 per donee per year. This would allow a married couple to make tax-free gifts of up to $24,000 per donee per year. Gifts in excess of the annual exclusion can be tax-free if the donor elects to use part of the unified gift and estate tax credit. Under this credit, the equivalent of $2,000,000 of property transfers may be excluded from gift and/or estate taxes. 11. The estate tax is a tax on the value of property transferred at death. Why is payment of the estate tax not a common event? Although many people die every year, most pay little or no estate tax. This is due to two factors: the unlimited marital deduction for property passing to a spouse and the unified gift and estate tax credit. The marital deduction exempts from estate tax any property passing to the decedent's spouse. The unified gift and estate tax credit allows up to $2,000,000 of tax-free property transfers. Because the majority of
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people do not have estates exceeding the $2,000,000 tax-free limit, their estates are not taxed. Proper tax planning for larger estates should result in paying no tax on the death of the first spouse through use of the marital deduction. 12.
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This homework help was uploaded on 04/06/2008 for the course ACC 311 taught by Professor Mhaha during the Fall '07 term at Central Mich..

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311-Chapter 1 Homework Solutions - Assignment #1 7. How is...

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